“Whatever it takes” is not a bad motto for the fight to save the eurozone. And the same goes for the new European stability fund, which fills a yawning gap in the institutional fabric of the eurozone. But for this to work, we need clarity about which fights to fight and which instability to stabilise. And this is where the proposed reforms are likely to fail.
When I heard Jean-Claude Juncker, the president of the eurogroup of finance ministers, talk about a globally organised attack on the euro, I realised that the game was probably up. The reforms, desirable as they may be, are probably too late. Europe’s leaders are not solving the problem, they are fighting a public relations war. Their target is not economic imbalances, but speculators: hedge funds, investment banks, bond market vigilantes and, in particular, those ominous Anglo-Saxon rating agencies. “Whatever it takes” means that the European Union will set up a European rating agency, funded by public money and subject to European regulation.
Their populism has spun out of control. Angela Merkel, the German chancellor, still has difficulty in reining in the anti-Greek bigotry she unleashed in Germany during the early stages of the crisis. It seemed the politically expedient thing to do at the time.
We know from the history of European financial crises that politicians are ill-equipped to communicate with the financial markets. They are happy to take the bondholders’ money to finance their excessive deficits, and then act outraged when those bondholders retreat and push up interest rates. But look at this from the perspective of bond investors. Over the past nine months, they had to put up with the news that Greece had cheated for years, that a German chancellor was making political commitments without the readiness to back them up, and a Spanish prime minister in denial over his country’s deep structural problems. The bondholders know that the southern Europeans cannot get out of the mess through higher nominal growth. The rise in southern European interest rates is not the consequence of a speculative attack or a sinister plot. It is a belated realisation of an underlying misalignment.
We have to ask: could a stability fund really solve this problem? Or a strengthened stability pact, as demanded by Ms Merkel? Have we not tried this before? Was the version agreed at a European summit in Dublin back in 1996 not significantly tougher than the current one? Did it not include the threat of sanctions? Did it not fail because Germany chose to ignore it?
Ms Merkel’s other proposal to deprive deficit countries of their voting rights is even less realistic. The logic behind it is that an organisation that relies on unanimous votes for important decisions can never impose a penalty on a member. True, but to deprive states of their democratic rights is unbelievably extreme in the pursuit of a fiscal goal. It is not as though the EU was suffering from an excess of democratic accountability. And since this would require a treaty change, do we really expect all 27 countries to vote for an abrogation of such fundamental rights?
Beyond a crisis resolution regime, any sustainable solution path would have to start with the creation of a single European sovereign bond. Jacques Delpla, a member of the French government’s Council for Economic Analysis, and Jakob von Weizsäcker, research fellow at Bruegel, the think-tank, last week presented an ingenious construction*. Under their scheme, a member state’s debt of up to 60 per cent of gross domestic product would be folded into a single bond, while governments remain responsible for any debts above that threshold. The scheme would provide governments with an incentive to reduce debt; create the world’s largest treasury market; reduce interest rates; give financial markets transparency about the quality of debt; and solve the European Central Bank’s dilemma over collateral policy. The scheme would require further institutional reform, including the setting up of an independent fiscal council, but this could be done outside the European treaties, if needed.
除却危机决议机制，任何可持续的解决之道都必须以单一欧洲主权债券的创建为出发点。法国政府经济分析委员会(Council of Economic Analysis)成员雅克•德尔普拉(Jacques Delpla)和智库机构布鲁塞尔欧洲和全球经济实验室(Bruegel)研究员雅各布•冯•魏茨泽克(Jakob von Weizsäcker)上周提出了一项巧妙构思。*根据他们的方案，可将成员国的一部分政府债券并入一个单一债券，规模上限是各国国内生产总值(GDP)的60%，而高于这个门槛的任何债务都仍将由各国政府承担。该方案将为欧盟各成员国政府提供一种削减债务的激励机制；创造出全球最大的国债市场；推低利率；让债务质量变得对金融市场更加透明；并解决欧洲央行(ECB)在抵押政策方面的两难局面。实施该方案需要进一步的制度改革，包括成立一家独立的财政委员会，但如果必要的话，这些都可以在欧盟条约之外进行。
Beyond this, we will probably need what I call a minimally sufficient fiscal union. We are talking about 5 per cent of eurozone GDP, a central policy core that includes, for example, a eurozone-wide unemployment insurance system. It could act as an automatic stabiliser to help cope with asymmetric shocks. And you need binding policy co-ordination mechanisms.
If you take the view that none of this is going to happen for political reasons, then I am afraid that the consequence would be eventual failure of Europe’s monetary union. Greece will probably default. I cannot see how the private sectors in Spain and Portugal are going to survive the adjustment without placing an intolerable burden on public finances. Unless the eurozone takes responsibility to solve these specific problems and simultaneously reforms its governing system, it will be in danger of cracking up.
I have heard the suggestion that this may be part of a German game plan to forge a small “core Europe” with Germany at the centre. I am not so sure but whether by design or accident, it would do lasting damage.
I still hope that EU leaders choose integration over division, but what they are saying is not consistent with what I am hoping for. “Whatever it takes” sounds good. But I fear it is a lie.
*The Blue Bond Proposal, http://www.bruegel.org
*《蓝筹债券提案》(Blue Bond Proposal)，www.bruegel.org