The other day I posted a letter that Stuart Holland and I sent to the Financial Times. Today it was published. Click here for the FT or…
From Prof Stuart Holland and Prof Yanis Varoufakis.
Sir, The crisis-fighting measures agreed in Brussels in the early hours of Friday are good news for the eurozone, but as noted by FT.com (June 29), the strength of the underlying political agreements is still open to question. One reason Europe has found it so difficult to break the deadlock has been an assumption that resolving the crisis must be unanimous. But it does not need unanimity.
Under “enhanced co-operation” nine or more member states are allowed to move ahead to form their own policies without other members being involved. This procedure could be adopted both to mutualise a share of the debt of most member states at lower interest rates and to issue bonds to fund recovery.
Is there a precedent? Yes. The introduction of the euro itself was a de facto case of enhanced co-operation. Most member states joined it, some did not. On an enhanced co-operation basis, Germany and other member states such as Austria, the Netherlands and Finland could keep their own bonds just as the UK kept sterling rather than join the euro.
Nor need Germany bankroll the rest of Europe to gain bonds for recovery. These could be funded by a share of global surpluses rather than transfers between member states. Brazil, Russia, India and China have been calling for European Union bonds from the onset of the financial crisis and would invest in them. They want the eurozone both to survive and to grow to sustain their exports, as does the US.
Financial sector insiders confirm that they would subscribe to European bonds at less than 2 per cent. The central banks of the emerging economies and sovereign wealth funds could do so for less. The European Central Bank could hold them, although not service them without fiscal transfers.
But the European Investment Fund, which one of us proposed to Jacques Delors to issue Union Bonds, and now is part of the European Investment Bank Group, has confirmed to the Economic and Social Committee of the EU that it could issue recovery bonds without a treaty revision. These would co-fund projects by the EIB and be serviced from the joint revenues from them without needing a common fiscal policy.
Besides, while many member states are deep in debt after salvaging banks, the EU itself has next to none. It had none at all until May 2010 when the ECB began to buy up some member states’ debt and some non-performing bank debt. The US should be as lucky as Europe is now. The EU, deeper in self-doubt than in debt, has a late-starter advantage.
The institutions and procedures are already in place. They do not need treaty revisions. Projects which have gained planning approval yet have been stalled by lack of national co-finance during the eurozone crisis are, in Barack Obama’s words, “spade ready” to go. Europe could cut the Gordian knot on debt on the basis of enhanced co-operation, preserve the euro and ensure a New Deal style economic recovery.
Stuart Holland, Dept of Economics, University of Coimbra, Portugal
Yanis Varoufakis, Dept of Economics, University of Athens, Greece
Copyright The Financial Times Limited 2012.