Within the vast dossier of financial and monetary affairs, a few initiatives and stances deserve to be flagged up, because they indicate developments not at doctrinal level (where everything and its opposite has been said), but on the level of measures to be taken. I would like to bring three of these to your attention.
A. Unanimity against too much tolerance. This column has already devoted many inches to summing up the harsh and almost universal criticism against the abuses and bad habits of the world of finance, which is responsible for dysfunction and crises (see our bulletin 9495), as well as to the approach of the European political authorities in favour of rigour (see bulletin 9504). Whilst the Economic and Financial Committee of the EU is deciding on “appropriate measures” to suggest to the Council to build more transparency into complex financial instruments and more surveillance for the notary agencies, a veritable indictment against the management of the financial markets was signed by Giulio Tremonti. Why am I bringing this up? Because barely a few months ago, he was the finance minister of a large country in the Union, and because he is not a member of the anti-globalist Left, but of the official Right. He wrote that subprime mortgages are nothing but a link in a very long chain of instruments (among which he cited: vehicle, conduit, asset-backed commercial papers, derivatives, hedge funds) which have the objective of side-stepping banking risks and chasing profit. He described hedge funds as “irregular banks” which respect no standards and no prudential rules, whilst acting like normal banks and multiplying liquid assets by means of “values of their own invention”, paid for by debt (our translation of his words).
Why did he not use that kind of language when he was involved in the financial management of his own country and (by means of his involvement with the Eurogroup and the Ecofin Council) of Europe? Most likely because the candour of a minister is held in check by the requirement not to alarm the general public and to avoid a general banking panic. We see this every day. But this understandable prudence does not reduce the significance of his fundamental observation on the serious nature of the abuse. One wonders how it can be possible that people in a position of political responsibility and who are fully aware of the uncertainties, danger and lack of checks, can keep silent for so long whilst tolerating what is acknowledged today to be intolerable. It is true that the United States are equipped with very strict legislation, that various high-profile trials have not been without their impact on public opinion, and that certain political figures have ended up in prison. But it remains hard for the citizen to understand that the instruments which make this abuse possible have continued to function, perfectly legally, or that they are being tolerated. And why have the actors of the real economy, those who produce, invent, build and create jobs, accepted that the world of finance can monopolise artificial enrichment and spectacular gain? At least a proportion of their world has in turn enjoyed sky-high salaries and other, sometimes abusive, instruments of enrichment (such as certain stock options).
The real economy is starting to react. There are a few signs to indicate that those involved in the real economy are starting to react. Here are two examples. By means of an opinion adopted this week, the European Economic and Social Committee (EESC) has called for various measures to make the financial markets more transparent. These suggested measures are not especially innovative, but their one novelty lies in an analysis of the voting: 115 votes in favour, 25 against and 15 abstentions, which means that the opinion enjoyed the support of a considerable number of advisers belonging to the Employers' Group and the liberal professions and various activities groups. The workers' group would not have been able to obtain this result on its own, stressed rapporteur Olivier Derruine. This means that the body which represents the economic and social forces of the EU has confirmed that there is a close link between the development of the financial markets and the economic and social situation: these markets have an impact on the European social model and on social cohesion. The opinion talks of a “new balance” to be defined between the shareholders and the workers, moving away from the negative developments which have prevailed over recent years, and which have been characterised by insufficient protection for the workers against an “exponential expansion” of the financial and stock markets (see our bulletin 9514). And all of the groups voted in favour of this.
For his part, Ernest-Antoine Seillière, the president of the European employers' association (BusinessEurope), entered a procedure with the president of the Eurogroup, Jean-Claude Juncker, calling for a “eurozone” initiative regarding the euro exchange rate, which is appreciating not only against the dollar, but also against yen and the yuan (see our bulletin 9515). The Eurogroup is to present a common position within the G7, with a view to open and effective dialogue with the United States, Japan and China. The problem with the American trade balance cannot be resolved simply by increasing the value of the euro, in the face of the “inflexible exchange regimes” of other currencies. Mr Seillière has called for the European Central Bank (ECB) also to put the question of the exchange rates “at the top of the list of its concerns” (whilst stressing the fact that political interference in the monetary policy of the ECB would not help to resolve the challenges currently faced).
Improving the climate between the social partners can also be achieved by a better division of the “fruits of growth”, on which Mr Juncker has launched a reflection within the Eurogroup. Speaking before the European Parliament at its plenary session last July, he took up the subject most unambiguously (I am quoting from the verbatim, which is now available): “I remain convinced that, if the current pay policies are pursued, that is, the policies which consists in further widening the gap that exists between those who work and those who say that they provide work, we are heading for disaster. Europeans, especially simple and modest Europeans, who are no less intelligent than the others, do not understand this gap that is getting bigger every day”. He acknowledged the requirement for wage moderation, as salaries must evolve in line with the evolution of productivity, but “we need to look into a modern way of allowing as many people as possible to share in the fruits of growth”.
B. In favour of the reinforcement of the Eurogroup. This reinforcement has been an issue for some time, but the responsible authorities continue to err on the side of caution for the time being, because any possible changes will happen with the entry into force of the new treaty, which, in the best-case scenario, will not happen until the beginning of 2009, and which must absolutely not be made more complicated. I took note, in this somewhat protected climate, of what Pervenche Berès said, which has a significance because, as we know, she is the president of the European Parliament's committee on economic and monetary affairs. Within the framework of the higher European studies at the prestigious French ENA, she pointed out that before the 2004 wave of enlargement of the EU, the Eurogroup consisted of the majority of the Economy/Finance Council; today, within that same Council, the Eurogroup is in the minority: 13 member states out of 27. She deduces one requirement from this: “Mechanisms must be thought out to shore up this group where specific rights and duties are at play. The stable presidency of the Eurogroup has increased its visibility, but it remains informal. Better governance of the eurozone can be achieved by reinforcing this group. What is more, extra political impetus could be injected by a European Council specific to the eurozone, which would allow us to look at mechanisms for improved coordination. There is a need to extend the scope of coordination by means of convergence in taxation, wage policy and minimum wage matters”. A fair programme to think about with the new treaty.
C. Automatic adjustment of certain Chinese imports? The link between Chinese exports and the weakness of the dollar needs no demonstration, because the American trade deficit represents an essential component of this weakness. However, the major scandal of dangerous toys made in China seems to have led to a reaction on the part of western consumers to reject that which is “made in China”, and at the same time, it is leading to additional checks for counterfeit toys. The president of the largest American company in this sector, Mattel, hurried to Beijing to exonerate from any blame the Chinese manufacturers working for his company under licence, and he attributed all responsibility for the mistakes to Mattel itself. A section of the press was wrong about the reasons for this humble procedure. They are, however, quite obvious, because it has come out that 60% of this brand's products are made in China! If these products are dangerous to children, mistrust will extend to the vast majority of Mattel's output. There was, therefore, urgent need for the company to excuse the Chinese manufacturers from all responsibility.
Mattel's fate is clearly a matter of indifference to us. The owners and shareholders of the company have made colossal amounts of money by transferring production to China, with no benefit for either the national economy or employment in the West. If they are losing out now, that's their business. Our comments are clearly of a very general nature, they are not aimed at any company in particular. We hear too often that the transfer of the production of goods to China is positive for the economies which are “delocalising”. Sometimes this is true, but this transfer is usually of benefit mainly to the owners and shareholders of the companies in question. It is often accompanied by counterfeiting at continental level and the movement of technologies and other knowledge to China. The Chinese authorities themselves have gone to war on certain aspects of these plagues, rightly confident in the ability of their country to face up to competition whilst playing by the rules. If current developments bring about the end of abuse and the failure of certain delocalisations which are justified solely by the interests of the few fat cat owners and bosses, this will be a source of relief both on monetary and commercial terms.
The Chinese authorities themselves should congratulate themselves on their stated intention of taking their place more correctly and more harmoniously in globalisation, by fighting abuses. (F.R.)