Why another commentary on monetary issues at the very moment the situation is changing every day? Because, in the majority of cases, the positions taken reflect the specific opinion or political position of their authors, with each of the latter putting forward valid arguments to support their own theories. Therefore, this commentary attempts to examine the essential aspects, whilst simplifying their effects and ascertaining what will be acceptable.
The disappearance of the euro is not a valid option. Getting rid of the euro or countries in difficulty leaving the eurozone are not generally considered valid options. Herman Van Rompuy's statement about the EU's very existence being in danger has very often been misunderstood. What he in fact said, was that the hypothetical disappearance of the euro would indeed threaten the existence of the EU itself. What would disappear would not only be the single currency but also the border-free area, political cohesion, agricultural policy and Community support to poorer countries. The words of the president of the European Council were a kind of warning.
Leaving the eurozone will not be productive. The voluntary exit from the eurozone by member states experiencing problems would be disastrous to these countries. They would be able to radically devalue their old national currencies but the debt will be in euro and repayment would therefore be increased proportionally. They would at the same time lose the support they receive by belonging to the zone. This hypothesis is often formulated but in practice it would involve the countries in question leaving the EU itself, which is now possible: if a country wants to leave, the door is open.
Two eurozones? Alternatives have been formulated. One of these consists in setting up two different eurozones. The currency would be the same for both zones but the competencies governing them would be different. The first zone would include Germany, Holland, Belgium, Luxembourg, Austria and Finland, as well as Sweden and Denmark, which would take the step to join together. France and Italy would be relegated to the second zone, together with the “PIGS”(Portugal, Ireland, Greece and Spain). It is obvious that management of the euro would be determined in the first group and the countries in the second would simply be single currency “users”.
A more radical solution, particularly supported by the Bruegel Studies Group, would not break up the eurozone itself but would be based on the creation of two distinct categories of Treasury Bonds: blue bonds would be issued by the group of countries whose budgetary deficit does not go above 60% of Gross National Product, red bonds would be issued by the other countries, which would take responsibility for them. Those who purchase the “red” bonds would benefit from higher interest rates but would share the risks related to repayment conditions.
The first group would confront both criticism and opposition. The relegation of France and Italy to the second category would obviously be initially rejected by the governments of the two countries. According to the experts, everything depends upon reducing public debt and the budget deficit for the two countries. Italy has said that its astronomical level of debt is essentially “national” and that those owning the bonds are Italians. Economists explain that private wealth reduces public debt on the condition that it does not evade taxation. Almost all member states in the second category also suffer from the effects of tax evasion, illicit practices and other scourges. According to the caustic formula of the president of the Euro Group, Jean-Claude Juncker, “we all know what needs to be done but what we do not know is how to get elected again after having done this”. To what extent will the people affected accept the indispensable austerity and will German citizens overcome the impression (largely false) of having to pay for everyone else? Despite the difficulties, the formula put forward by Ms Merkel regarding the involvement of purchasers in the risks, could appear justified and unavoidable.
Inevitable but crucial decisions. There are of course many more examples of possible solutions that aim to combine safeguarding the value of the euro and the intention of expressing practical solidarity with the countries experiencing difficulties. The overall impression from all of these reflections and projects is that it will be impossible for the eurozone to function if the behaviour of the countries inside this zone is inappropriate. The objective of instruments such as the European semester and strengthening common economic governance is indeed aimed at tackling incompatible behaviour. Many more efforts and compromises will still be essential. Nonetheless, at some stage in the future, the EU will not be able to avoid making inevitable choices for its future political development in the direction of a federal entity or simple cooperation between member states.
(F.R./transl.fl)