Clarification urgently needed. People are busy interpreting and implementing the recent European summit's decisions and this will continue next week among finance ministers, and will continue after that because it will not be easy to put the guidelines into practice although some of last week's documents were negotiated by heads of state blow by blow, word by word. Clarification is needed about how the fiscal compact (budget discipline), growth compact (growth stimulus measures) and political compact (moving in the direction of a political union) intermesh and some aspects of this will take months, if not years, to achieve.
But clarification is urgently needed, particularly how the bond buy-up won by Italy and Spain after talks into the early hours will operate, as I explained yesterday. Italy was calling for the introduction of an “anti-speculation tool” or MSP (market stabilisation programme) because as the Italian prime minister, Mario Monti, pointed out, the money markets are charging unfairly high rates for Italian bonds even though the country respects the budget deficit rules. Guaranteed by the European Stability Mechanism (ESM), the ECB will buy up struggling countries' sovereign bonds when the spread between the market rate and the rate for German bonds rises above a certain level. A number of things need to be worked out so that the buy-up can come on stream, like the size of the spread (between 2.5% and 3%).
The word “market” covers a multitude of sins. I am not mentioning the MSP because heads of state stayed up all night to discuss it at the eurozone summit, but because it is a practical way at last of dealing with speculation. Monti, in his diplomatic language and concern to get all member states (and the United States) on board, always talks about the “market” rather vaguely, but the word covers a multitude of sins, be they genuine investors and companies trying to expand their business or financial companies that live off speculation, unscrupulously pulling the plugs on economies, even their own country's economy, putting people out of work and more besides. There has been a raft of scandals in the City of London and the governor of the Bank of England is even talking about fraudulent manipulation; a recent investigation has shed light on the sheer scale of derivatives speculation carried out secretly under “offshore” regulations. The EU is busy deciding on its anti-speculation measures but is getting nowhere in making a clear distinction between the two types of bank - those that fund the real economy and real households, and those that simply speculate.
Using more truthful language. This is why Mario Monti is taking a broad-brush approach. I have been following his statements attentively and have found the following statement: “We must prevent speculation against national debt getting any worse.” But the word “market” is peppered throughout his speeches. I do not understand why people do not come out openly and say that it is the City of London that is speculating against the euro. Not as an attack on the British prime minister (even though he has invited rich people from France to move to London where they'd pay less tax). In other matters, David Cameron is Mario Monti's ally - like in defence of the EU27 single market (a matter on which France and Germany have some doubts), but when it comes to the battle of currencies, the City of London is Public Enemy Number One. This has to be made clear and action must be taken to prevent abuse.
Of course, Angela Merkel and other heads of state are asking how long Mario Monti will be Italian prime minister - is it true that his term of office ends next year? In which case, who would ensure that the reform process and prudent approach will continue? Previous Italian governments never gave the impression that budget equilibrium was top of their to-do list.
This is why it has to be crystal clear that only countries respecting budget equilibrium will be able to make use of the bond buy-up mechanism, the details of which are to be thrashed out by finance ministers on Monday. Over and above the question of Italy, this will be an important round in the battle against the scourge of Europe that is financial speculation.
(FR/transl.fl)