Systems are available but not yet in use. No matter what line one takes today - highlighting the cacophony of views amongst the member states or sardonically commenting on ineffectiveness of the EU's institutional mechanisms - historians of the future will look back to 16 December 2010 as the day when the European project took an important step towards monetary stability and economic governance of the eurozone by dealing with at least some of the imbalance between the monetary leg and the economic leg of EMU (Economic and Monetary Union). This step forwards involves a slight change to the Lisbon Treaty, the details and legal issues of which have yet to be worked out, but the idea has won political endorsement. Why so many questions, reservations and doubts in the media? Because what has been agreed is no more than mechanisms; crucial mechanisms but mechanisms nonetheless. How the mechanisms will actually be used in practice cannot be set out in legal documents. They are there for struggling eurozone countries which will continue to receive cohesion policy and common agricultural policy aid but will make their own budget and economic decisions.
It took many an hour of long and at times tough negotiating to agree on the mechanisms and the very fact that they have been agreed upon should in and of itself calm the markets. It is understandable, however, that attention at the moment is focusing on the money markets rather than the substance of the new mechanism, which will require painstaking tweaking and some of which will not come on line for a long time yet. Ratification by all member states is required (including those outside the eurozone) for the changes to the Lisbon Treaty and some political parties are already flexing their muscles to get other bits of the Treaty altered. This will clearly complicate matters and put a spanner in the works.
Focusing on the big picture. My conclusion is that the EU as a whole and the eurozone in particular have managed to develop mechanisms to balance Economic and Monetary Union and ensure better management of the single currency. This is a historic turning point, largely drowned out by the daily flood of often contradictory reactions, but it is only to be expected because some areas of the deal are a compromise, yet every politician and to an even greater extent, every economist, believes that they alone have the magic formula. Old-hands in European affairs will remember that nowhere near this much attention accompanied the creation of the euro a decade ago. Eurozone economic governance and monetary management mechanisms have been drawn up but nothing has yet been introduced and plenty of elbow grease and sacrifice will be required. One could quote French writer Aragon here: “Nothing is ever guaranteed with human beings (…), when they think they're opening their arms in a welcome, their shadow is in the shape of a cross.”
There is a great likelihood of success in that the latest decisions come as part of a package of measures and budget discipline that has already transformed behaviour in some quarters of the finance world and will continue to do so in the future. The first European semester (to discuss countries' budgets before they are introduced) starts next month. Financial market rules will gradually come into force and EU surveillance bodies will soon be up and running. Details are emerging about the supervision of credit rating agencies (which have been opining on the strength and future of the world's currencies) and the European Parliament has expressed its views. The eurobond idea is gaining ground amidst a burgeoning of ideas and suggestions, and other key ideas are also making progress at EU and global level, like a tax on financial transactions. The key commitments made by the heads of state and government are set out in the summit's Conclusions Document, annexed to this newsletter. They note that budget deficits must be brought below 3% by 2013, that tougher stress tests for banks will be introduced, that the Stability and Growth Pact will be revised and that the Commission will be introducing further measures.
We have to keep our eye on the big picture.
(F.R./transl.fl)