Flags at the European Parliament's Robert Schuman building. Photo credit: Tristam Sparks
Christopher Booker’s column in The Sunday Telegraph entitled “The EU Dream has turned into a Nightmare” more than adequately set out the euro-sceptic viewpoint. To balance this, I re-read Jose Manual Barosso’s September 28 ‘state of the union’ address to the European parliament and appreciated just how far apart they were. Christopher Booker sees the likelihood of a future disintegration of the Eurozone and Mr Barosso urges the complete opposite to prevent it. But what really stood out was the sense of urgency on both sides; they both believed that inaction would lead to an unmanageable financial crisis.
The probability is that they are right. This scenario of the EU dream becoming a nightmare cannot be ignored and both columnist and EU Commission President discussed this issue. The points that stayed with me beyond the leveraging of the EFSF, for and against, were Mr Barosso calling for speed in decision making and Christopher Booker saying that a Transaction Tax would be very harmful at this time, two extremely useful views.
So, how could this difficult financial situation produce a reasonably positive result? The media, understandably, is bombarding the eurozone leaders with ideas, showing how concerned everyone is, including those who forecast an immediate Greek default and ensuing crisis.
First of all, as most seem to agree, there are three main issues. Greece has an intolerable level of debt, the one-size fits all policy has not worked and there is risk of contagion to other vulnerable eurozone member states. Greece is at the forefront of these problems. They don’t go away if its debt issues are controlled, but they are considerably worse if they are not. Which means that Greece has to be stabilised, by agreeing its sixth tranche (even an immediate agreement in principle would be helpful) and its second bailout. Once an immediate default is no longer looming, the new EFSF would have the space to move into position alongside the ECB, while the ideas for some form of non-ECB private leveraging for the EFSF could be developed from the general discussion on October 3. Some are saying a trillion could be comfortably achieved, others think the limit higher, but no more than two. These vast amounts might not be needed yet, but they should be available, especially if the ESM is brought forward.
The November G20 would be a suitable deadline for important decisions, such as a workable plan for leveraging the EFSF and bringing forward the ESM, which is the key to solving this whole problem. If Greece could be supported through the remainder of this year and the ESM could be agreed and working by the spring of 2012, with a 500 billion base and additional major leveraging, decisions could be taken on a fresh start for the country. Now that could mean one of several extrapolations, but debt restructuring would feature in all of them. The most important aspect would be that the coping mechanisms would be in place and Greece and the eurozone could decide what was best for everyone involved
In addition, the November G20 would be the time for indicating that Greece would get its December tranche so that there would be no temptation to go through another painful market confidence-destroying assessment process. The tranches are a means to an end, where that end is a satisfactory solution to the one size-fits all policy, and the restructuring of the eurozone and the EU itself. These are difficult issues to contemplate, but if we are found wanting now, our options will close. I have observed and worked alongside politics for decades and understand a little of its motivation and pressures, but believe that politicians must now be fully and solely engaged in solving the financial crisis facing the nations.
However, the present problems are not just those of debt and retrenchment, important as they are. Growth is the third pillar without which the other two will struggle. Fiscal policy is very limited in a number of countries, but where there is some natural leeway, or the capacity for innovative thinking, without creating new debt, like Credit Easing in the UK and the Jobs Bill in the US, stimulus should be undertaken. The Central Banks have already been stalwart; and credit to Jean Claude Trichet, completing his term at the end of October, for showing strength in very difficult circumstances. It would be most supportive to see the US Jobs Bill passed, the ECB reduce its rate, the BOE decide on QE, perhaps in tranches, perhaps partially targeted to support CE, and a Japanese supplementary reconstruction package; all this working together for maximum impact.
Deal effectively and coherently with the eurozone debt crisis, reduce developed countries’ debt with multi-year plans and implement a global strategy for stimulating growth and there is every chance of a stable, improved future.