Europe’s most serious deficit is political. A dearth of political will, democratic legitimacy and purposeful, farsighted leadership is responsible for the Eurozone’s repeated failures to get to grip with the Crisis’ different manifestations.
Proposals like that our own Modest Proposal, of Tremonti-Yuncker and others offered Europe obvious alternatives to the current policy mix which exacerbates the Crisis and causes permanent damage to Europe, its economy, its society and, primarily, its prospects of a democratic common future.
A familiar refrain amongst commentators and the public at large is that Europe’s current crop of leaders are missing the qualities and clarity of vision of the political leaders who shaped the European Agenda in decades past. It is for this reason that we decided to ask some of them to express their support for the basic tenets of the Modest Proposal: By signing the Declaration below, these former Heads of State, Prime Ministers and European Parliamentary leaders will hopefully send a loud and clear message to our current leaders: It is time to stop dithering, to desist from pretending that this is a Greek Crisis, and to withdraw from the catastrophic trap of treating the problem as one that can be cured by means of the mix of loans plus liquidity.
Once the Declaration below was drafted, and support for it was declared, Stuart Holland and myself approached the Financial Times and Der Spiegel who graciously agreed to relate this Declaration to their readers on the same day, Monday 4th July 2011. Meanwhile, the Declaration is being published, at the same time, in Greece by protagon.gr, the site where our Modest Proposal first saw the light of day fully fledged.
We trust and hope this Declaration will help steer the debate away from the aridity of the current agenda and onto a rich new vein of innovative ideas for dealing rationally and collectively with the Eurozone’s systemic Crisis.
Signed by: Giuliano Amato, Enrique Baron, Michel Rocard, Jacek Saryusz-Wolski, Mario Soares, Jorge Sampaio, Guy Verhofstadt (*)
Europe is losing a war between elected governments and unelected rating agencies. Governments are trying to govern but rating agencies rule. Electorates know this and some member states, aware of it, oppose fiscal transfers to others.
Yet some of them, includingGermany, have gained from a euro which is lower and more competitive than it would be for a core Eurozone of fewer countries. Defaults by the most debt exposed countries would hit banks and pension funds in centralEuropeas well as those in the periphery. No one is immune.
The answer is not lessEuropebut more. Jean-Claude Juncker and Giulio Tremonti have argued that a conversion of a share of national debt to EU bonds would stabilise the current crisis. We agree.
The decision on such a conversion need not be unanimous. It could be by enhanced cooperation as was the creation of the euro itself. Those governments that wished to retain their own bonds, as Germany might, could do so.
We agree also with the Juncker-Tremonti case that European bond issues could be globally traded and attract surpluses from sovereign wealth funds and the emerging economies whose governments have called for a more plural global currency system. These would be financial inflows to theUnionrather than fiscal transfers within it.
But we suggest that the conversion of a share of national debt to the EU need not be traded. It could be held by theUnionon its own account. Since not traded, it would be ring fenced from rating agencies. Its interest rate could be decided on a sustainable basis by Eurogroup finance ministers. It would be immune from speculation. Governments would govern rather than rating agencies rule.
We also suggest also that there are lessons to be learned from the 1930s US New Deal which inspired the proposal by Jacques Delors in 1993 to match a common currency by common European bonds.
The Roosevelt administration did not need US bonds to be financed or guaranteed by member states of the American Union such asCaliforniaorDelaware, nor demand fiscal transfers from them, nor bought out their debt. Nor need the European Union do so to issue its own bonds now.
US bonds are financed by its common fiscal policy.Europedoes not have one. But the member states whose share of national debt was converted to EU bonds could service it from their national tax revenues without fiscal transfers from others.
Europealso has an overlooked late starter advantage. Many to most of its member states are deep in debt after salvaging banks. But theUnionitself has next to none. Even with buy-outs of national debt since May last year, its own debt is under 1% of its GDP.
This is less than a tenth of the level from which theUSissued bonds to finance the New Deal whose success gave it the confidence to fund the Marshall Aid which recovered Europe from WW2 and from whichGermanywas a key beneficiary.
Nor would EU bonds necessarily need a new institution. A ring-fenced bond could be held by the European Financial Stability Facility. Net bond issues for growth could be by the EFSF or by the European Bank Group. (**) They could be serviced from revenues on project co-finance as the EIB’s own bonds are.
The ECB is the guardian of price stability, but the EIB Group can safeguard growth. EIB project finance already is double that of the World Bank. It has issued its own bonds for fifty years without national guarantees or fiscal transfers. None of the major Eurozone member states count borrowing from it against national debt.
Bonds are not printing money. They are not deficit finance. Net issues of bonds by the Union would mean inflows of funds to finance European recovery rather than austerity. We urge recognition of this by Ecofin and the European Council both to safeguard the Eurozone and to gain economic and social cohesion by a New Deal forEurope now.
(*) Giuliano Amato, Michel Rocard, Mario Soares and Guy Verhofstadt were formerly the prime ministers of Italy, France, Portugal and Belgium. Mario Soares later was president of Portugal. Jorge Sampaio was President of the Republic in Portugal. Guy Verhofstadt currently is leader the Alliance of Liberals and Democrats in the European Parliament. Enrique Baron has been leader of the Socialist Group and a president of the European Parliament. Jacek Saryusz-Wolski is a vice-president of the European Peoples Party and of the European Parliament, and chair of its Foreign Affairs Committee.
(**) Readers familiar with the Modest Proposal will have noticed a difference between this suggestion and the Modest Proposal: Whereas in the latter we recommend that the ECB handles the tranche transfer and issues the Eurobonds, in this Declaration, in an attempt not to ruffle the feathers of those who do not want to be seen to be challenging the independence/current role of the ECB, we offer as alternatives to the ECB either the EFSF or the EIB group (which includes the EIB and the European Investment Fund). The point here is to the principle of the tranche transfer. Once that is established, we can debate whether perhaps it is better to give that role to the ECB. In the context of the present Declaration we judged that this was appropriate to allude to different existing institutions as the agency that is assigned the central role of managing the tranche transfer so as to drum up the widest possible level of support.