Our bulletin is following developments in the financial and economic crisis on a day-to-day basis from the European point of view, which is the only appropriate one, in view of the single currency and the Stability Pact. How can we possibly assess these events without taking account of what the Eurogroup, the European Central Bank, the European Commission and the European Parliament are doing? This makes Agence Europe's summaries fairly indispensable. My goal today is to sum up (provisionally) a few fundamental aspects.
The euro as protector. The role of the euro in maintaining monetary stability in Europe has been highlighted so often by politicians, economic operators and commentators that there is little point in my stressing it. It has been stated time and again that in the absence of the euro, almost all national currencies have been devalued, bringing about negative effects on the economies of the countries in question, seriously hindering the functioning of the market and the common policies of the EU (which has, incidentally, also used its support instruments in benefit of countries which are not part of the euro zone).
The role and behaviour of Germany. A number of commentators have played up the differences in reactions to the economic crisis in Germany and France. It is undeniably true (we have seen it for ourselves on television) that the German finance minister has at times adopted a somewhat unpleasant tone, behind the scenes at the Council, in his reactions to pressure brought to bear in favour of recourse to the Community budget to fund economic upturn, which he feels is excessive. Certain expressions, some contemptuous laughter: all in all, not terribly elegant. But on the substance, he was not wrong! For years, his country has been called upon to re-establish budgetary equilibrium; and just as it was succeeding in so doing, it is called upon (notably by the EU budget, more than one third of which is covered by Germany) to subsidise member states which have not made similar efforts and which have continued to pile up their budgetary deficits. Mr Steinbrück managed to obtain an agreement that the European funding would be used for projects jointly approved, and his country defined a national relaunch plan judged to be positive by the President of the Eurogroup, Jean-Claude Juncker: "In its volume and structure, the German plan corresponds to our expectations". A more lax Germany would damage everybody else, because its role is a decisive one for the value and stability of the euro in the world, and for the confidence it enjoys.
Calls for an "exit strategy". If, for some member states of the eurozone, the cost of loans on financial markets has increased, this is because they have not made sufficient efforts in terms of budgetary equilibrium. The currency is the same, but the interest rates are different. The solution would be to bring in European bonds; and Mr Juncker has stated that he has not given up hope of this idea taking off; the precondition is for the member states to make progress together towards budgetary stability. For the time being, the solution is, logically, to get over the economic crisis, so much so that the leeway laid down in the Stability Pact has been used; but each time, Mr Juncker has emphasised the temporary nature of this leeway. According to Mr Trichet, what has just recently been allowed " is temporary and targeted, and an exit strategy is required" (see our bulletin 9823); and the Ecofin Council has just adopted a firm commitment in principle on this subject.
Change the rules and remain vigilant regarding the banks' behaviour. Valéry Giscard d'Estaing came over loud and clear on this subject in the interview referred to at length in this section of bulletin 9819. He said: "Those who benefited from the system would like it to start again as it was before. It is difficult to believe that the control bodies did not do their job. We need to put new rules into place quickly. Why were there no regulations on short selling (selling products one does not actually own)? (…). It must be clearly indicated that order is to be returned to the system. That can be done this winter."
According to Jean-Claude Juncker, the banks are not responding to the extent that they should regarding the support they have obtained: the level of loans they are granting to the real economy continues to be insufficient. "We have noted some improvement, but this does not seem to us to be enough", commented the President of the Eurogroup. "The credit sector must come forward when businesses, particularly SMEs, turn to it. The economic packages will not lead to the anticipated results unless the banking sector starts to react better. Credit must be able to circulate!" (See our bulletin 9822). For his part, Jean-Claude Trichet has also noted some improvement, but "it is not working as it should". The inter-bank reference rate (the Euribor three months) has fallen, and this has had some impact on the credit rates offered to households by the banks, but the President of the ECB is "unconvinced that everything possible has been done in this field" given the radical cut in the ECB's base interest rate. In response to a question by Luxembourg MEP Robert Goebbels, Mr Trichet said: "We are calling on the banks to pass on, absolutely sincerely, the rate reductions we decide on" (see our bulletin 9823).
Some of the regrets and complaints regarding the banks come from the real economy, particularly the small and medium-sized enterprises (SMEs). Their European representative body (UEAPME) and Eurochambers have complained to the Vice-President of the Commission Günter Verheugen in press releases that the "banks still haven't translated this [the huge amounts of public money being pumped into banks] into tangible benefits for SMEs"; " loans have become more expensive and burdensome, while their availability has sharply decreased", even though the situation varies greatly between countries (see our bulletin 9824). However, the SMEs must not forget the specific action of the European Investment Bank to their advantage. In the considerable loans it has made available to the commercial banks (€15 billion this year, the same next year; see our bulletin 9806) ultimately destined for the SMEs, the EIB requires these banks to pass on to its end users the special conditions it practices. SMEs need only apply to the institutions in question in order to enjoy European support. See, for example, in our bulletin 9816, the British banks which have concluded similar contracts with the EIB.
Who is to be entrusted with supervising the banking system? Valéry Giscard d'Estaing spoke in favour of the European Central Bank, which should, he believes, "lead the reordering of the banking regulations of the eurozone and oversee their application" (see this section of bulletin 9818). The President of the ECB, Jean-Claude Trichet, said that he was prepared for this eventuality, declaring the willingness of his Bank to accept increased responsibilities (see our bulletin 9823). Article 106, para 6 of the Treaty provides for this eventuality, by means of the unanimous decision of the Council on a proposal of the Commission and further to the approval of the European Parliament. The Commission has not spoken. The experts are, it appears, divided, some of them taking the view that supervision should be entrusted to a European Authority to be independent both of the governments and of the banks, in order to avoid any unification of the management of monetary policy and its controls, given the tendency of the political authorities to bear influence on the ECB.
On the need to create a European supervisory system, however, broad consensus exists. The parliamentary report by Pervenche Berès asserts that the "EU must, as a matter of urgency, reinforce its supervisory structure, taking account of the specific role of the ECB" and a recent report by the OECD states that the EU must remedy the discrepancy between the integration of the capital markets and supervisory regimes (which remain largely national), by creating a single supervisory body for the whole of the EU, in other words a central agency working in coordination with the national supervisory bodies.
Aspiration to join the euro is spreading (except in the UK...), but the conditions must not be relaxed. Several member states which are not part of the eurozone have stated more or less explicitly that they hope to join it as soon as possible. The Czech Republic has even indicated a timetable. Under no circumstances, however, must the accession criteria be relaxed if the euro is to keep its international standing and nature of an instrument of monetary stability. It is well known - all of the press has been talking about it - that the financial status of a number of countries in the eurozone has been depreciated due to laxness in their budgetary behaviour. Clearly, the euro should exclude any risk which may compromise its protective and stabilising effect, to the detriment of all; furthermore, Germany would not agree to it. A number of analysts have wondered aloud whether this kind of rigour has occasionally been lacking in the past. The criteria laid down must be observed all the time, not just when joining; to an extent, the examination of these criteria should be permanent. Today, the advantages of belonging to the eurozone are widely recognized, but no let-up in the rigour is permissible. In the general ambition to join the eurozone, British public opinion continues to constitute the exception to the rule, which influences the attitude of certain political parties, for obvious electoral reasons. But the eurozone does not ask anybody to join it; each country is, and will remain, free to decide for itself.
Tomorrow, this column will try to take stock of two other essential elements of the situation: developments in favour of a certain degree of European economic governance and the need for an external representation of the euro, to be more coherent than is currently the case.
(F.R./trans.fl)