June 21, 2011
Newspapers all over Europe, political observers and politicians are gloomy of late. For example Le Monde’s headline tells us that Greece has another 10 days to avoid the worst. The Financial Times published in a post by Gideon Rachman that a political union cannot fix the Euro! Frankfurter Allgemeine Zeitung argues that the German taxpayer holds the greatest risk.
Greece cannot default. If we follow the example of Nevada used by Nobel Prizewinner Paul Krugman we should accept that the major mistake at the birth of the Euro was that there are no federal and automatic structures in case of problems in one member state (as is the case in the US).
This is exactly the case of Greece now. In general terms spoken, it is now time to go further towards genuine European federalism. The tools are on the table: first to implement fully the existing Lisbon treaty, secondly to give full responsibility to the already existing authorities like the President of the Council, the High Representative and the President of the Commission and thirdly, but most importantly, to advance towards European economic governance with a European finance minister responsible for financial and monetary policies. This authority has to be responsible to speak and act in the name of the member states. There is an urgent appeal for having such a shared sovereignty in financial and monetary matters.
Not sharing more, not having in mind the overall European future is a huge error! What is at stake for the different actors?
- At the moment the European Central Bank (ECB) holds approximately 77 billion sovereign bonds from Euro-zone member states. 40 billion are Greek sovereign bonds. But this is the nominal value. The ECB credited these bonds to the private banks in real terms with much less. Estimations are about possible losses for the ECB of roughly 15 to 20 billion (see FAZ 21st June 2011) Euros in the case of a debt and financial re-scheduling. Europe is worth more than 20 billion Euros, isn’t it?
So the question is: why is the ECB so tough in the case of Greece?
- Greece has delivered in the last year. Recent figures published by the Greek government show very clearly that Greece is on the track. Greece has given the largest annual deficit reduction ever by a euro zone economy in the last year. The cyclically adjusted general government deficit was reduced by 6.7% of GDP (from -14.9% in 2009 to -8.2% in 2010).The current account deficit was reduced from 14% in 2009 to 11.8% in 2010. Growth in GDP seems to be “re-established”. In the first quarter of this year the rate was 3.4%. This is exactly the figure for the whole Euro area!
So the question is: why is the EU so tough in the case of Greece?
- Germany is doing more than well at the moment: 6.1% GDP growth in the first quarter of 2011 (!); less than 3 million unemployed (7%); second largest exporter and a trade balance surplus of more than $186 billion for 2010. (The Economist 18th June 2011). Hence the interest of Germany should be all about strengthening Europe. A horror scenario of dissolution of the Euro zone would be a disaster for Germans business: A far more expensive currency and therefore a less competitive world market position. So the question is: why is Germany so tough in the case of Greece?
The answers aren’t simple: The European Central Bank is not a central bank like the FED in the US. The responsibility of the ECB has always been seen only in terms of price stability and never in terms of welfare and growth. Greece has for a long time shown mistrust and non acceptable political and economic culture towards Europe. Germany – my home country – is headed by a conservative – liberal government looking in a populist way at European issues in order to assure possible right wing and nationalist voters in the upcoming regional elections this year and the national elections in 2013. This is purely populist!
But Europe is more than just figures and definitely more than looking at populist votes. Europe is about welfare, growth, competiveness and finding answers to the upcoming demographic challenges. Europe is about jobs.
Thus: Each crisis should be seen as a chance to advance and think further. Even if we argue at the moment that Europe needs not at all a new institutional debate, one has to be clear that the Union Is not yet politically achieved. A further deepening means further European shared responsibility and sovereignty. This is the time to convince the citizens in the member state countries that Europe is the solution!
The current Greek crisis is an integral part of the European integration process. Leaders should understand that having “the back at the wall” is the moment to decide to advance and overcome.Ernst Stetter