At this time when the meetings and other events are beginning on which the future of the euro will largely depend, this column has put together a few considerations and comments linked to the crisis that we are currently going through.
Eastern Europe is moving away from the euro. Several symptoms are pointing to the EU member states that are situated in Eastern Europe no longer continuing with their desire to join the euro as a priority. Perhaps they should rather ask themselves if it would be reasonable to do so. For Poland, a short while ago joining the euro seemed their priority ambition; today the minister for foreign affairs says that the project is on hold and that the situation will be examined again when the current euro crisis is over. Lithuania is waiting for the situation to become clear. Latvia's joining was planned for 2014 but it has said that it will think about this next year. Bulgaria, shown by statistics to be the least prosperous country of the EU, has said its euro project is “frozen for an indefinite period”, in spite of the preparatory measures that are under way.
Two reasons are pretty clearly highlighted by the countries in question: it is unknown what the euro rules are soon to be, and it is very uncertain how many eurozone countries will have to be financed by the member states as a whole. One can understand these hesitations. Joining with the outlook of then contributing to funding richer and more powerful countries would not be reasonable.
It is easy to make grand speeches demanding that the eurozone continue to finance with no limits the countries that don't respect the rules, while ignoring the costs for the others. I remember a debate in the French Senate during which Jean Arthuis, former minister of finance, said that France's budget deficit in 2012 had been above the forecasts because it had had to borrow €19 billion more for contributing to aid for the European financial stability facility for Greece and Ireland.
Mrs Merkel indignant about financial markets. I believe that Mrs Merkel's (and others') efforts for European construction are positive, so as to make the conditions and rules for financing the eurozone countries that need it well defined and strengthened. This is all the more so after the same German chancellor's firm and explicit statements against the financial markets which are in no way serving the people - quite the contrary, “over the last five years they have allowed a limited number of people to get rich to the detriment of most citizens… The financial markets must not be allowed to destroy the fruit of the people's work”.
All very well, and even more so as the indignation about the financial world's abuse is beginning to be understood even in London, even if the City remains the centre of speculation which is trying hard to destroy the euro.
The requirement. It is clear that it is fear of the euro's disappearance which is dictating the operators' behaviour. If the euro collapses, current treasury bonds will be repaid in national currencies. It is therefore logical that the markets balk at buying bonds from countries whose re-established national currency would be very weak, and even buy at a loss the bonds of countries whose national currency is strong.
This situation explains the requirement, for the eurozone, to guarantee through all means possible the continuation of the single currency and to expend all its effort to help the countries in trouble (with the exception of Greece, which is not up to respecting its commitments, even if deadlines are prolonged).
Encouraging. An encouraging element towards recovery can be seen in the Belgian government's intention to re-establish the separation between deposit banks and merchant banks. Belgium (and it is not alone) would return to the situation which existed until the '80s, in other words the time when the separation was gradually eliminated and when deposit banks started high profit financial activities, which always go hand in hand with a high risk. The banking world of course puts up a great deal of objection, attempting to stop the separation.
Paul De Grauwe from the London School of Economics has just published (especially in Brussels' Le Soir) the demonstration that the objections are false. They just constitute the banks' self-defence as the banks are interested in prolonging the current situation and have started what De Grauwe calls a “disinformation campaign”. He proves that all their arguments are false - indeed the current situation privatises the profits, while the losses become public. This column will come back to De Grauwe's arguments in detail, which demolish the mystification that is all around. (FR/transl.fl)