Meaning and limits. Immediate positive effects. Three words that sum up the result of the decisions adopted almost unanimously last week by the ECB on the purchase of treasury bonds from eurozone countries in response to the excessive interest rates set by the markets. When I speak of immediate effects, I am not only referring to reactions to the ECB's decision, but also - and especially - to the behaviour of the markets. Here is just one example - Spain, which previously had to put up with an interest rate of 6.5% to borrow for two years, was then able to place its treasury bonds at the rate of 2.5%.
Market confidence results from two basic particularities of the operation: (1) the strict conditions to which the ECB subordinates its interventions. No country will obtain financing if it does not sign up to strict guarantees on its subsequent behaviour. In exchange, the adjective “unlimited” has been listed by the ECB amongst the characteristics of its interventions; (2) the hope that the new climate will contribute to speeding up the EU's institutional reforms. This is a crucial condition for the edifice to be consolidated and for the member states to be able to re-establish their budgetary balance. This balance is not an obsession or a whim of economists - it is the condition for a country to bring its management under control and safeguard its decision-making capacity in the European context.
These two points that I have mentioned are linked. The mechanism created by the ECB doesn't resolve the problems in itself - it is an instrument, the result of which is linked to the budgetary balances of each country and to the relaunch of European construction. If one of the two aspects is lacking, the mechanisms that Mario Draghi wanted would be ineffective and the state that didn't respect its commitments would have to leave the eurozone.
But European solidarity exists and should be further strengthened - the Community aid and support policies must be strengthened in the EU as a whole. Yet the idea that a euro country might be able to bypass its national reforms and avoid its budgetary recovery is a demagogic illusion. The ECB has created an instrument enabling it to fight financial speculation and support the victim. It might be helpful to come back to its meaning and its limits.
The real characteristics of the Draghi instrument. In his press conference announcing the decisions that had been taken, the president of the ECB, Mario Draghi, highlighted first and foremost that his initiative was in conformity with the statutes of the ECB (which is autonomous from the governments). It will be able to buy securities on the explicit request of a eurozone country, without limitation on volume, but with a short time limit - from one to three years so as to avoid the impression of “masked finance” to a receiving member state (which the ECB can't do).
The bonds which do not have a duration of more than three years avoid the risk of a change in value, are more simple to manage, and their duration is close to that of the bids to the banks of the ECB itself. The requesting government must present a formal request accompanied by a detailed recovery plan comprising “strict and effective” commitments which can: (a) be translated into a memorandum agreed between the government concerned and the troika (ECB/European Commission/IMF) on the model applied to Greece; (b) or more simply, consist of a commitment to respect the national economic programme resulting from the European semester (which precedes the setting of the national budgets) with additional details.
When he was questioned by journalists on the reasons for these rules, Draghi replied that the excessive interest rates demanded by the markets not only result in “irrational fears and doubts on the permanence of the euro, but also errors committed in the past by the requesting countries”, including Spain and Italy. When asked what will happen if a country does not respect its commitments, Draghi replied firmly: “the ECB will suspend its purchases”.
Monitoring will be strict, with the participation of the ECB, the European Commission and also the IMF, even if the latter is not contributing to the financing. The inspectors will report to the Eurogroup of the Council every three months and will at any time be able to ask the country concerned for all information on the financial situation and tax deposits; for an audit on accounts; or for a Eurostat check on the quality of the national statistics.
It is clear that the strict controls aim both to avoid a reoccurrence of the Greek case (with the new rules, Athens would not have been able to lie for so many years), and to reassure Germany and other distrusting countries of the seriousness of the project.
Priority objective. Since the announcement of the new mechanisms, the Italian prime minister, Mario Monti, has been trying to make it clear that Italy's objective, as well as that of other countries concerned, is not to call on ECB financing but to succeed in stopping the markets from practising abusive and unjustified interest rates in order to finance member states which are in the process of correcting their budgetary deficits, themselves an inheritance from the past. His hope is that the enormous firewall put up by the ECB may be enough in itself, without it being necessary (at least for Rome) to use it. He observed this Sunday, however, that if Italy one day judged that financing would be useful, it would not be a drama, even if correcting the national deficit remains the priority. According to the Bank of Italy, the reality of the Italian economic situation would justify a spread in relation to Germany of 2% and not of 4-5%.
Reluctance in Germany continues. The Draghi plan, which has been greatly welcomed in official political circles, has not convinced everyone - especially in Germany. The reaction of much of the German press was very negative. For Bild, the most widely read daily newspaper, the announcement of the ECB project represents “a black day for the euro, with a blank cheque being granted to the wasters”. According to Die Welt we are faced with “a redistribution of wealth which nothing can justify”, and according to the Süddeutsche Zeitung “Germans are about to climb up on the barricades”. These positions are supported by part of the political class - the Bavarian thinker Peter Gauweiler and the Liberal Frank Scheffer have talked of an appeal at the German constitutional court of Karlsruhe against the ECB. The ECB may have taken decisions which are not the ECB's to take because they belong to the people. They have said that the bailout of the euro can be transformed into an “economic disaster, to the advantage of speculators and to the disadvantage of citizens”. In their opinion, the ECB is an institution without democratic legitimacy, which is trying to act like a government.
These opinions are shared in a few other eurozone countries, and they have raised annoyance and reproof in other EU countries, where some public opinion and political forces have used language and arguments that are just as superficial and unpleasant as those observed in Germany.
High level positive reactions. Fortunately, the highest level political authorities have rejected these excessive reactions, with Mrs Merkel in the lead, whose anathema against the financial markets as “enemies of the people” we still remember. She has defended what she believes is the European interest, by working on reasonable compromises. The Community institutions have generally fallen into alignment with similar positions, with logical differences within the European Parliament, where all tendencies are represented. The president, Martin Schulz, said that Germany is the country which contributes the most to the aid instruments for countries in trouble in the eurozone: €400 billion, in other words more than an annual German budget, which means that Germany is the country with the most solidarity with its single currency partners. It has been calculated that German citizens cover 27% of the total eurozone commitment. Let me remind you that the German constitutional court will give its provisional opinion this Wednesday on the European fiscal compact and on the draft laws establishing the European Stability Mechanism (ESM).
Good intentions and dangerous difficulties. Meanwhile, the European Commission is proposing, or getting ready - with the precious support of the European Parliament, the necessary initiatives to strengthen and complete the Community legislation, and the president of the European Council is working on his report on institutional reform. At the same time, Federalist movements are multiplying their initiatives for a new treaty based on political union, which would represent all the member states - those from the eurozone and also the others, even if it can be seen that several countries are balking at planning or preparing their participation in the eurozone. It is not easy to launch political union in this situation. Mr Monti has said that he intends to organise an extraordinary summit of the EU in Rome at the beginning of next year, on the Capitoline Hill where the Treaty of Rome was signed on 25 March 1957, giving birth to the EEC (European Economic Community). Mr Van Rompuy, the president of the European Council, has agreed.
It is clear, then, that long term projects exist. The difficulty is in the requirement of confronting, this month and in October, the urgent problems, which still include numerous traps and difficulties.
(FR/transl.fl)