Category: EMU

Bini-Smaghi: Whither Europe after the Crisis?

Lorenzo sure is busy giving speeches these days. Here‘s his latest. Some highlights:

Recently, a former Irish Prime Minister has even had the honour of front page headlines when he reproached the ECB for not having sufficiently monitored the Irish banking system when it is well known that in Europe the powers of prudential supervision are the responsibility of the national authorities, a competence that you do not want to give up.

And it’s not only former Irish Prime Ministers that get a tongue-lashing. Current heads of state also:

The piecemeal approach followed in recent months risks losing sight of the long-term goal. The measures may not be completely coherent. We came close to it last autumn, with the Franco-German proposal, endorsed by other countries, to make it easier for countries to go bankrupt. Fortunately, the idea has not gained acceptance, not only because of the ECB’s dislike but also because of the devastating effect it has had on financial markets. It will take time to recover from the loss of credibility suffered by Europe with that proposal.

The proposal was based on the assumption that the best way to discipline governments and to ensure sounder public finances is to make it easier for a country to declare bankruptcy. As soon as a country has problems with its public finances, it should seek a restructuring of its debts or automatically extend its bond maturities as a necessary condition for receiving help from European and international institutions.

This idea is mistaken for several reasons.

Read it yourself to see if you’re convinced by Lorenzo’s vision of a default-free Europe.

Why the Eurozone Will Survive

Martin Wolf’s article is here.

Coup d’état?

Shamefully, it has taken me several weeks to realise the full import of the attached Irish Times piece by Garret FitzGerald.  He has for many years sought to draw the attention of the Irish public to the role of the European Commission as defender of smaller states’ interests.  Here he warns, in much more modest language than that with which I have entitled this entry, that the current German-French proposal for euro zone reform “represents a new attempt to bypass the union’s tried and tested decision-making system… There is a new danger that the decision-making system that for over half a century has sustained and kept in balance an inherently cumbersome union… may lose its hitherto carefully preserved cohesion, and for the first time become dominated by some larger states.”

Klau on the eurozone mess

According to Thomas Klau, “the assumption that the coordination of 17 national policies backed up by rules and sanctions can deliver” is “patently false”: “the choice must ultimately be between discarding the euro or taking the plunge into a federal structure complete with Eurobonds,  a common set of core policies,  a bigger and more flexible EU budget, and so on.” If that really is the choice — and one can debate this of course — then my money is on the former, especially given the way the current banking and debt crisis is playing out in both core and periphery. You can read the full article here.

McCarthy on European Delusions

Colm has some choice words for our European partners including an alternative to the van Rompuy-Barroso plan.