China and the dollar. A purely ideological interpretation of attitudes regarding changes to the financial world only provides an incomplete picture of the situation. Other factors come into play which are related to the situation in different member states. This is not a criticism, it is an observation and valid at a European level as well in a global context. Why, for example, does China not, after having accumulated a staggering volume of dollars, rapidly release them? The answer is simple - because these dollars represent most of its monetary reserves and the US is not supporting the value of their currency: it is the market that decides. If spectacular quantities of dollars are suddenly thrown onto the market, their value would collapse and China's monetary reserves, accumulated with so much effort, would vanish, as would those of the oil countries. This is what the famous American quotation means: “The dollar is our currency, but it is your problem”. The Chinese authorities are striving to overcome this situation by proposing the creation of a single world currency (and others are pushing for oil and gas prices to be quoted in euro) but in the meantime they are of course obliged to buy US bonds as long as the Federal Reserve prints dollars. The current financial alliance between the US and China is not a political choice but a necessity.
London has to live. Similarly, some attitudes in the EU are dictated by national demands rather than those of ideology. No British government can deny the fact that London's prosperity is largely due to finance. Many businesses that do not have any direct relationship with the world of finance do in fact depend upon it. The same partly applies to the theory whereby Europe should only maintain the “noble part” of industry (product conceptualisation, technology, commercial strategy, finance) and leave the actual manufacturing of products to low-wage economies. Fortunately, this theory is in decline and surveys indicate a decrease in company relocations outside the EU based on just the labour cost criterion.
Two examples. Here two chapters or national considerations play an obvious role:
a) Tax havens. The three member states - Belgium, Austria and Luxembourg - which have been put on the OECD's grey list (countries that have agreed to discuss tax cooperation but which have still not taken any measures) reacted bitterly to this aspect of the G20 summit's conclusions. Jean-Claude Juncker accused the heads of European governments present in London of not having respected the March European Council's commitment of not including any EU country on the list (EUROPE 9895). The president of the Ecofin Council, Miloslav Kalousek, affirmed that no EU country should have been pointed out, that all countries had expressed a wish to cooperate and he was sorry for the three countries mentioned.
Mr Juncker had broadly spoken out previously and affirmed that London's decision had been taken with the agreement, indeed the complicity, of certain member states and he added that those that believe this will be without repercussions are mistaken. He declared to the parliament of his country that he had noticed, not without amusement, that the Anglo-Saxons had been exonerated over night and that he was impressed by the fact that Wyoming, Nevada and Delaware had received the G20's blessing, as well as financial centres in Russia: even if the Russians don't believe it! He also announced that his country would not obstruct, in any way, valid supervision rules for all financial centres: a framework for the financial markets is an absolute necessity…they require more regulation than before the crisis.
b) Euro-bonds. The idea of launching a European bond, which would particularly help eurozone countries experiencing difficulties in obtaining finance from the markets, is following its political trajectory; an increasing number of figures have spoken in favour of it (starting with Pervenche Berès, the president of the European Parliament's economic and monetary committee) or have said that this objective will undoubtedly be attained at some stage (Jean-Claude Juncker, see this column yesterday in EUROPE 9886). It has been confirmed, however, that neither Germany nor other member states, which believe strict management of public finance in the eurozone is necessary, will accept the setting up of a European body responsible for member states' public debt (which will automatically result from Euro-bonds) as long as there is no compulsory coordination of budget policies. It is necessary, first of all, for EMU's economic policy to function with the same efficiency as its monetary policy. (F.R./transl.rh)