The discovery. Something is shifting. Here and there admissions are beginning to surface that state that the most important thing about the 25 March Declaration by heads of state and government in eurozone countries is the decision to create economic governance for this zone and to define a number of principles within this goal, including a study tool and procedure. Some commentators have finally discovered this aspect. Sergio Romano can be mentioned in this context. He is a former ambassador and collaborator on several European publications who stated in his Corriere della Sera column that “the most promising thing about the Brussels agreement is perhaps the determination to make EU economic governance more efficient and coordinated”. Other figures who play a top level role in Community affairs are also on the same lines. Maria Joao Rodrigues is calling for “powerful coordinating mechanisms and social and economic regulation” as well as “a credible solidarity and supervisory mechanism for national public spending”. The director general of the IMF, Dominique Strauss-Kahn, declared in a speech to the Romanian parliament that “we cannot have a single currency without coordinated economic policies…Regulation and supervision are not enough”.
The demand for common governance is even more apparent given current indications and the fact that the financial markets are not responding in the desired manner to Greek needs and continue to demand excessively high interest rates. This means that the intervention mechanisms envisaged - loans from the IMF and member states -will likely have to be used. Interpretations regarding this operational aspect of the “declaration”, however, are not all the same. Could Greece ask for the IMF/member state support mechanism to be activated if it finds the interest rates imposed on it are untenable? Or rather, should we regard that there is a total dearth of purchasers for its bond issues? And what level interest rates should be set for member state loans? The texts allow for different interpretations. These developments and uncertainties make eurozone economic governance increasingly urgent and indispensable in order to go beyond the current phase of poor or inexistent coordination and failure to respect the rules.
This explains why the importance of the final part of the 25 March “declaration” is beginning to be discovered. The conclusions made by the experts, however, noticeably diverge and a certain scepticism is appearing.
Three trends. Scepticism comes in several different shapes but there are three prevailing trends.
The first consists of severely criticising Germany's behaviour in comparison to what had been at the time, in comparable circumstances, the European inspiration of Helmut Schmidt and Helmut Kohl. Angela Merkel's position would appear to have been dictated by purely national considerations that are both electoral (the next regional elections) and economic. The result of her policy has sometimes been described as a victory containing a poisoned chalice for the German economy because the austerity imposed on countries guilty of not being stringent enough will oblige them to radically reduce imports from Germany itself and compromise the essential factor in the latter's economic health.
According to the second tendency, the solution outlined in the 25 March declaration is not realistic. Cleaning up Greek finances in three years is impossible because the weight exerted by different interest groups (those of the markets or non-subsidised loans from member states) would prevent any significant reduction in the annual budget deficit. In order for the sought after austerity to be effective, control of public finances should be removed from member states, which would imply that the EU become a federal state that could also demand that Germany expand its domestic demand. These developments are not currently on the cards, but they have led a certain number of economists to predict that Greek recovery will not succeed.
The third line is even more radical: it contests the very viability of the eurozone and suggests that the states participating in it do not have the necessary political, social, cultural and economic homogeneity required. Different mentalities require periodic monetary adaptations - devaluations, to be blunt. The absence of flexibility has provoked mutual misunderstanding and insults that have sometimes been very disagreeable. According to this viewpoint, Greece will have to leave the euro in the perspective of subsequently and radically devaluing its re-established national currency. Other eurozone countries will then be obliged to follow suit and the first countries in the sights of sceptical commentators are those of the Iberian peninsula.
These three positions are flawed: they leave out their possible repercussions. Criticising weaknesses is useful but what are the alternatives? This column will return to this tomorrow. (F.R./transl.fl)