It is a truth often acknowledged that the European Union needs a good crisis. Under stress, the EU reacts well and comes up with answers. The Greek crisis is a case in point. The EU is experiencing the consequences of what is happening in Greece and it's serious stuff, but in the future, even in Greece, people might even look back on this as a turning point at which things started getting better. Some political guidelines that have been doing the rounds for many a long year are being asserted again and others are being added. One of them is crucial - economic governance in the eurozone. Others look very promising, like strict monitoring of the financial world, the creation of an EU ratings agency to assess the credibility of calls for funding, and the idea of setting up a European Monetary Fund. These are not new ideas as such because economic governance has been demanded for a long time - unsuccessfully - but there seems to be virtually unanimous support for the idea now that Germany has done a U-turn. If it is put into practice, it would mark a genuine turning point in the European project.
Jacques Delors explains. Jacques Delors recently explained in an article in the Challenges review that his 1989 report on Economic and Monetary Union (EMU) devoted more pages to economics than to the currency, but the Maastricht Treaty was far more detailed on monetary affairs and tended to neglect the economic side of things. Jacques Delors' 1993 idea to give the EU the ability to borrow money to fund big infrastructure projects to create growth, competitiveness and jobs was not followed up; likewise for his later idea of eurobonds. In 1997, as a simple European activist, Delors suggested a national economic policy coordination pact - again, nothing was to come of it. Hence his description of EMU as limping along on a strong monetary leg and a lame economic leg.
I should explain that I am relatively optimistic about the future, but Jacques Delors is more sceptical. He smiles ruefully at the term “economic governance” because even simple coordination of economic policies would take some doing and he can't see that happening any time soon.
Puzzlement at the mooted European Monetary Fund. The demand for a stronger economic leg to EMU is now being made, independently of the idea of setting up a European Monetary Fund (EMF). The first document announced by the Commission for April 2010 will be on economic governance, and any draft legislation to set up an EMF would be published at a later date, probably in late June 2010 (see my column in issue 10094). In a speech to the European Parliament last week, Barroso said that the idea of setting up an EMF was doing the rounds at the European Commission, which was “seriously examining it”, but would not be rushing to any conclusions (see issue 10094 of this newsletter). He said that even if it were to be decided upon, the EMF would be a project for the long-term, unconnected with the Greek issue and other urgent questions about how to regulate the financial world. I believe that Jacques Delors' wise scepticism is fully justified here - a rather distant, hypothetical possibility must not be allowed to divert attention from more pressing matters. It scandalous that speculators and banks are making a killing by betting against the general interest - no doubt they would be just delighted for attention to focus elsewhere. Attention in the media is indeed focussing on the idea of an EMF but this is just a vague idea that raises a raft of questions. For example, how would member states which are not in the euro react? The German constitutional court has warned of the dangers of loss of sovereignty. The European Central Bank has reservations and the question of the independence of any EMF needs to be addressed. Many economists are highly sceptical about whether an EMF could actually be set up and what good it would do anyway.
Other forms of intervention? The danger is that a vague idea on the front pages of newspapers might detract attention away from urgent action to prevent further abuses and avert future crises. If the aim is to make direct EU intervention possible in the future to bail out a struggling eurozone country, then other forms of intervention are possible and may be more effective. Various options are being studied to help Greece out of its current travails by providing it with a good debt re-financing deal so it can roll over its obligations in the coming weeks and months.
The EU authorities have taken a very stern, disapproving view of Greece's past behaviour and failure to meet its obligations to the other eurozone countries, but they respect its austerity programme to fill public coffers. It is no secret that ways are being examined to help it find a way of rolling over its debt obligations even though there is no European Monetary Fund. This, once again, is proof that the EU reacts well under crisis.
(F.R./transl.fl)