I have a Project Syndicate column on the summit, available here.
The summit deal
- Post author By Kevin O’Rourke
- Post date December 9, 2011
- Categories In EMU, European economy, European politics
- 142 Comments on The summit deal
Category: European economy
Wolfgang Münchau asks whether the only way to save the eurozone is to destroy the EU here.
My guess is that if Europeans had to choose between the EU and the euro, most would opt for the former.
In honor of the summit, I thought I’d post a link to Colm’s last piece in the Sunday Independent, which hasn’t yet had a thread of its own.
Summiteers, please remember: just because a particular “solution” seems politically necessary, that doesn’t mean that it makes any economic sense at all. If you really want to save the euro (as opposed to enabling it to hobble along for a few more weeks, months or years), then shouldn’t reforming the mandate of the ECB be at the top of your agenda?
And do please think about what constitutionalizing the equation
“Europe = austerity + unemployment”
will mean politically for the European project going forward.
The Financial Regulator, Matthew Elderfield, received a clamour of popular support recently when he publicly objected to the Irish domestic banks planned decision not to decrease variable mortgage rates in response to the ECB cut in interest rates. The political establishment was warmly enthusiastic for Elderfield’s intervention. The government used its shareholding and political muscle to ensure that the banks’ decisions were reversed. The government also offered to provide the financial regulator with legislative power to determine banks’ mortgage rates. Wiser heads within the Central Bank prevailed, and the government was told by the Central Bank “thanks, but no thanks” for the offer of new legal power to set retail mortgage rates.
The Eurocrats are anxious not to waste the current debt crisis. In today’s Financial Times, Manfred Schepers of the European Bank for Reconstruction and Development proposes not one, but two new EU institutions, to be staffed by transfers from the senior civil services of member states, and promotions within the Brussels/Frankfurt bureaucracies. There will be a new European Monetary Fund, taking on the roles of the International Monetary Fund managing troubled sovereigns, but working on a permanent rather than temporary basis within the Eurozone. Then there will be a new European Debt Agency, managing debt issuance and deficit control for all member states. At a minimum, Schepers’ proposal will aid the Brussels and/or Frankfurt commercial real estate markets, since these bodies will need a lot of office space.
Schepers is keen to retain the ECB’s restricted mandate as a central bank without the ability to engage in quantitative easing, restricting its work to commercial bank liquidity provision and inflation control. He holds this view despite the growing evidence that this central bank design does not work, and the alternative, more flexible mandate of e.g., the Bank of England and US Federal Reserve, does work.
Much more sensible are the views (via a skype video) of Jeff Sachs suggesting that the IMF, together with a reformed ECB acting as a lender of last resort, be brought in to restore stability and confidence to the Eurozone, in the interests both of Europe and the world economy. We also get a glimpse of Professor Sachs’ chi-chi Manhattan kitchen in the background of the video.