There is no magic solution. If one reads the papers, listens to the radio or watches television, the ideas about how to solve the eurozone's problems are legion - the problem being that everyone takes a different approach and the ideas are mutually incompatible. Everyone is so certain that they are right that they reject the next person's idea out of hand and as a famous economist put it recently: The euro is paying for the incompetence of its leaders. And: Nobody in the German government has the slightest idea how the markets operate.
It is a fact that there is no magic formula. There are so many different interests at play that a single solution cannot possibly suit everybody. In his vision of the European project, Guy Verhofstadt criticises Germany's fixation with tighter penalties and member states restructuring their debt. Others respond to Verhofstadt that one cannot demand too much from German voters because when they gave up their cherished Deutschmark, they were promised that the euro would be a stable currency with an independent European Central Bank and each country in the eurozone responsible for its own national purse. Examining the outcome of the recent compromise, we see that one country in the eurozone might soon be virtually forced to restructure its debt by extending the repayment deadline, changing the interest rate and even the actual value of the state bonds and gilts, where necessary. Private creditors will have to bear some of the financial burden for the restructuring on a case-by-case basis, and this is justified because of the unusually low interest rates they enjoyed in the past. Restructuring will not automatically apply - if a crisis is essentially a cash-flow problem, then the new EU fund may well be enough to solve it, but restructuring could be forced upon a country where necessary by a majority decision (75-80%) of its creditors.
Avoiding separation or divorce. In reality, the eurozone has two, or even three, parts and ideas abound as to how to avoid separation or divorce. I have reported in this column on an idea that would amount to splitting the eurozone in two, setting up two different categories of countries with France and Italy being relegated to the second division, which is simply not possible politically. The idea set out by Guy Verhofstadt, however, aims to safeguard eurozone unity on paper by creating a common European bond market with a common guarantee system to which only member states whose public debt is less than 60% of GDP would be allowed to join. Other countries (despite a system to become a partial member of this market, which I cannot get my head around) would continue to issue their own bonds and gilts, which would clearly be more expensive for them. “In this way”, writes Verhofstadt, who chairs the Liberal Group at the EP, “there would be a clear incentive for countries to keep their debt below 60%.” There would be regular evaluations of the situation in the different countries with some countries speedily joining the Eurobond market and others thrown out of it. Verhofstadt says that mechanism would be “an effective weapon to ensure stability and discipline in the eurozone without sacrificing the indispensable solidarity”.
Mario Monti moots Eurobonds. Mario Monti is suggesting “the common issuing of bonds in euros (Eurobonds) by a European Debt Agency” (yet to be created). He points out that the idea of Eurobonds was launched by Jacques Delors in the 1980s and Delors has regularly returned to the idea, each time in response to a different situation. The Eurobonds would not be used to fund new investment, but rather to pool some of the management of certain countries' debt.
The mechanism he suggests would not mean member states with reasonable budget policies stepping in to save the others because Eurobonds would only cover a certain percentage, decided in advance, of each country's Gross National Product, and beneficiary countries would have to recognise the special creditor status of the European Eurobond body. Monti says that research has already been carried out by specialist bodies and the president of the ECB, Jean-Claude Trichet, has not ruled out the possibility of issuing joint bonds. Monti explains that in his view, it should all be done very fast. The European Council could signal its intentions on 15 December so that Eurobonds could hit the markets by the end of 2012. Mario Monti believes this idea could be acceptable to Germany, because it would not affect a country's own gilts and bonds in any way but it would help channel a process of huge political and economic importance for Europe.
As we see, there is no lack of innovative ideas, including ideas from outside money market circles.
(F.R./transl.fl)