From the Greek exit from the eurozone to other adventures announced. Mario Draghi, Governort of the European Central Bank, has just firmly asserted that the euro is not in danger. Bu,t at practically the same time, the IMF intimated that the zone could implode; Greece's departure from the eurozone was given as a done deal, even imminent; and attacks from financial speculators against Italy, the third-largest economic power of the eurozone, are not letting up, despite its budgetary balancing actions. I could add to the list. It is clear that there is some truth to what everyone is saying; but at the same time, people are neglecting, or circumventing, aspects which could argue against their own thesis.
Mario Draghi believes the euro is irreversible. Let us start with the governor of the ECB. Here is the conclusion of his interview published in this weekend's "Le Monde" (our translation). Question: “And so the euro is still in danger?” Answer: “Absolutely not. We see analysts dreaming up scenarios of the eurozone imploding. That is to disregard the political capital our leaders have invested in this Union (the economic and monetary union) and the support of the Europeans. The euro is irreversible”.
There is, in my view, a weak point to this act of faith. It disregards the lapse in time between the technical instruments for the management of the euro on the one hand, and the political progress needed to apply them on the other. Mr Draghi argues that, for the first time, a clear message was sent out by the most recent Summit: “Creating a union with four components: financial, budgetary, economic and political”. Given the time lapse between the economic aspects and the political aspects, his response turns to history: “In 1988, the Delors committee laid out the road towards monetary union, with an objective, a timetable and commitments to be respected. This prospect led to the Treaty of Maastricht in 1992”. And he came to the following conclusion: "If the countries firmly commit for the long term, this will have effects on the short term”.
A good answer, at first sight. The problem is that some member states, with Germany at their helm, take the view that the financing must go hand in hand with supervision of how the payments are used: not national supervision, but European, and rigourous, supervision. But the management of the euro requires quick decisions, in some cases immediate, to deal with financial speculation (largely emanating from the City of London), whereas “political change takes time”: the institutional courts of the member states often have to take position and they can take a long time over it.
This column has already spoken out against the dangers of this time lag, arguing that it could compromise the very existence of the single currency (see our bulletin 10656).
The fears of the IMF. For its part, the International Monetary Fund (which, as we know, participates directly in support to struggling eurozone countries) raised the issue of the time lapse, cautiously but explicitly. Its annual report presents as vital the recommendations summed up in our bulletin 10659; yet some of these measures have not, or not yet, been accepted by some of the member states, which wish to make them conditional upon political supervision. The IMF report adds that in the absence of these measures, uncertainties are emerging over the survival of the eurozone.
Some commentators have presented this remark as an explicit warning from the IMF that the euro is in mortal danger.
Weaknesses in the attitudes of the member states and of public opinion. In these circumstances, the most pointless and unfair exercise is to attribute exclusive responsibility for the problems to any particular protagonist, in polemic, even violent, tones. In Greece, a number of groups have gone so far as to attack Germany over the war and the 1941 invasion…
In the opposite corner, the struggling countries are put on the stand, in some cases in a disagreeable and excessive way. One almost random example: “The member states of the eurozone left without controls want to profit from the euro without respecting any of its constraints. In the absence of European supervision, they will always favour their immediate national interests, even to the point of jeopardising monetary union”.
At the same time, we can see that uncontrolled financing basically benefits commercial banks and speculators; the people of the countries in question do not get to see this money…
Additionally, those who criticise the austerity measures radically and out of principle have forgotten that it is they that made it possible to predict, and eliminate as far as possible, an unbelievable avalanche of abuse and malpractice. These are operations to continue and even to extend, without linking them to a vague future or new, hypothetical treaties. Jörg Asmussen, a member of the Executive Board of the ECB, said last week: "We must not wait; some things can be done without changing the treaties (…). The main thing is knowing where we want to be in ten years' time”, otherwise “nobody will buy ten-year debt instruments”. (See our bulletin 10658).
But the problem remains the same: how can we make the technical instruments work when they are linked to political change?
The case of Italy and other considérations. The case of Italy is symptomatic. As we know, at the Summit, Prime Minister Mario Monti secured the protection instrument against abusive interest rates practised by the markets on treasury bonds. At the moment, until it is up and running, this instrument has been described as a “perfect umbrella that nobody can open”. Mr Monti would in any case like to avoid having to use it, but it has to be in a position to be able to play its preventative role.
In Rome, it has been observed that up to now, Italy has given more aid than it has received, by making an ample contribution, as the third-largest economic power of the eurozone, to support for Greece and a few other countries of the eurozone: calculations indicate that by the end of the year, Italy will have contributed around 45 billion euro to this support. It is in everybody's interest for Italy to be able to resist speculative market operations. But this also presupposes the certainty that Mario Monti's policies are continued after the national elections of next spring.
Comments and curiosities, without conclusions. We could also quote a study by the Bank of America on the effects of a hypothetical implosion of the euro: the conclusion is that in such circumstances, Germany would end up with a national currency so over-evaluated that it would be in its interests to start acting now as effectively as possible in favour of the euro. At the same time, this assumes that the supervision of the use of European funding is real and effective; and this brings us right back to where we started from: the political instruments are indispensable.
Two curiosities conclude what has been an incomplete overview:
- in Madrid, a number of shops have put up signs in their windows saying: Aquí aceptamos el pago en pesetas, which quite simply means that payments in the old national currency are accepted;
- in London, a practical guide to the exit from the euro has been published, the result of a competition launched by a well-known businessman and which was won by the consultancy Capital Economics. The first candidate for departure is obviously Greece, which would have to prepare for its exit in secret, and the details to ensure the success of the operation are described in detail.
With this, I shall conclude my wanderings through the current situation, where there are far more uncertainties and question marks than certainties. I reserve the right to come back in the near future to a number of aspects, such as the indispensable separation between deposit banks and commercial banks, a vital pillar in the fight against speculation. (FR/transl.fl)