Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

The Eurogreens on Eurozone Economic Governance

by Migeru Mon Dec 20th, 2010 at 09:11:46 AM EST

Melanchthon pointed out to me the following op-ed by a Franco-German team of European Greens appearing last Saturday in Le Monde. (A German version, under the title Time for a True Economic Union, appeared in the Süddeutsche Zeitung and in Sven Giegold's blog)

Il faut mutualiser les dettes - LeMonde.frDebts must be mutualised - LeMonde.fr
Pour sortir de la crise actuelle, nous proposons quatre mesures. Premièrement, la création d'obligations européennes selon les modalités avancées récemment par Jean-Claude Juncker, président de l'Eurogroupe. Les détenteurs d'une partie de nos dettes nationales se verraient remettre une obligation européenne en échange de leurs bons du Trésor. Comme pour les bons du Trésor américain, ces euro-obligations bénéficieraient d'un taux d'intérêt très bas puisque le risque de défaut associé à l'ensemble de la zone euro, et non à un seul pays, est nul.To get out of the current crisis, we propose four measures. Firstly, the creation of European obligations according to the models advanced recently by Jean-Claude Juncker, president of the Eurogroup. The holders of a part of our national debts would be given a European obligation in exchange for their [Member State] Treasury bonds. As with US Treasury bonds, these Euro-obligations would benefit from a very low rate of interest as the default risk associated to the whole of the Euro zone, and not to a single country, is zero.

Earlier ET coverage of the Euro-Greens' positions on the Euro crisis:


Deuxièmement, la création d'un véritable gouvernement économique européen, selon la terminologie française, ou d'un élargissement de la coopération macroéconomique, selon la terminologie de la Commission européenne. Depuis l'entrée en vigueur de la zone euro, nos économies divergent. L'Allemagne bénéficie de l'euro pour accroître ses exportations avec une monnaie plus faible que si elle avait le seul deutschemark et ne redistribue pas les gains de productivité à ses salariés, ce qui limite sa consommation intérieure et donc l'effet d'entraînement sur le reste de la zone.Secondly, the creation of a true European economic government, following the French terminology; or an extension of macroeconomic cooperation, following the terminology of the European Commission. Since the coming into force of the Euro zone, our economies have been diverging. Germany benefits from the Euro to increase its exports with a weaker currency than if it alone had the DM and it doesn't redistribute the productivity gains to its salaried [population], which limits its internal consumption and thus the coupling effect with the rest of the Eurozone.

If the Euro convergence criteria had not been monetary (convergence on exchange rates, interest rates and inflation, but had been structural (convergence on productivity, wages and trade balance) we might have had real "stability, growth and jobs" rather than macroeconomic imbalances and real estate bubbles in deficit countries (including France, by the way).

Troisièmement, la création d'un véritable budget européen financé par des ressources propres. Le budget européen est aujourd'hui limité à 1 % du PIB. Les transferts financiers des zones riches de l'Union vers les zones pauvres, au travers des fonds structurels, représentent moins de 40 milliards d'euros pour toute l'Union. Rien à voir donc avec les solidarités budgétaires qui existent au niveau national. Ce budget européen additionnel, qui permettrait par exemple à l'UE de financer les investissements verts nécessaires à la conversion écologique de l'économie dans les zones qui n'en n'ont pas les moyens, devrait être financé sur des ressources propres assises sur les facteurs économiques mobiles qui ne sont pas ou plus assez taxés au niveau national. Thirdly, the creation of a true European budget financed by its own resources. The European budget is today limited to 1% of GDP. Financial transfers from the wealthy to the poor areas of the Union, through structural funds, represent less than €40bn for the whole Union. Nothing to do with the budget solidarities that exist at the national level. This additional European budget, allowing the EU for instance to finance the green investment necessary for an ecological conversion of the economy in the areas that don't have the means for it, should be funded on own resources assessed on mobile economic factors which are not, or not enough, taxed at the national level.

Might they be talking about mobile capital? Taxing cross-border capital flows to fund not national budgets but the federal budget? The Tobin tax?

Quatrièmement, limiter les possibilités de spéculation sur les dettes souveraines. [Ce nést pas l]es marchés financiers qui sont responsables des déséquilibres au sein de la zone euro. Mais ils disposent d'outils pour allumer le feu et en tirer bénéfice. Ainsi, il est aujourd'hui possible d'acheter un credit default swap (CDS) sur l'Irlande ou la Grèce, qui est un produit financier qui assure l'acheteur contre le risque de faillite d'un Etat, sans posséder d'obligations irlandaises ou grecques. Des fonds spéculatifs (hedge funds) ne se gênent pas pour acheter des CDS, donc à en faire monter le prix, ce qui en retour fait penser aux vrais détenteurs d'obligations qu'ils doivent se couvrir contre un risque accru... en achetant des CDS.Fourthly, to limit the possibilities for speculation on sovereign debt. The financial markets [are not] responsible for imbalances within the Euro zone. But they have tools to stoke the fire and profit from it. Thus, it is possible today to buy a CDS on Ireland or Greece, which is a financial product insuring the buyer against a state default, without possessing Irish or Greek obligations. Hedge funds have no qualms buying CDS, raising their price, which in turn makes the true holders of debt think that they must cover themselves against an increased risk... by buying CDS.
......
Le chemin pour sortir de la crise de la zone euro existe. Mais il implique de sortir tout à la fois des crispations nationalistes et des dogmes néolibéraux. La France et l'Allemagne ont une responsabilité majeure. Nos dirigeants actuels seront-ils à la hauteur ?The path out of the crisis exists. But it implies exiting above all both from nationalist tensions and neoliberal dogmas. France and Germany have a major responsibility. Will our current leaders have the stature?
Pascal Canfin, Dany Cohn-Bendit, Sven Giegold, députés européens du groupe des Verts/ALE, Gerhard Schick, député et porte-parole des Verts au Bundestag.Pascal Canfin, Dany Cohn-Bendit, Sven Giegold, Greens/ALE MEPs, Gerhard Schick, menber and speaker for the Greens in the Bundestag.

Display:
Unfortunately this important debate is carried out only within the national public spheres in France and Germany. I doubt many Frenchmen read and commented the Süddeutsche Zeitung article, or many Germans the Le Monde one. Not to speak of those Europeans who don't read either of the two languages...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 09:14:55 AM EST
Would translating it into other European languages and submitting it (assuming we can get permission) to local papers be worthwhile?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 20th, 2010 at 09:48:26 AM EST
[ Parent ]
I don't think El País or The Independent need us to translate and reprint articles from Le Monde... They do it all the time...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 09:49:20 AM EST
[ Parent ]
I was under the impression that they only did that when they could put their own newsie's name on it. Do they routinely plagiarise op-eds as well?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon Dec 20th, 2010 at 09:56:56 AM EST
[ Parent ]
At least El Pais does. They also reprint Krugman's op-eds from the NYT often enough.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 09:58:32 AM EST
[ Parent ]
There is an ongoing partnership between Le Monde and El Pais, which holds 15% of Le Monde's shares. The same kind of partnership involves Le Monde, La Repubblica and the NYT, so they often share resources and articles.

"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them." - Jean Monnet
by Melanchthon on Mon Dec 20th, 2010 at 10:20:29 AM EST
[ Parent ]
I do think it would be worthwhile to have such an article published widely in the EU. However, it does seem that the French and German Greens are mostly addressing themselves to their national constituents. This should be taken as an opportunity to point out the need to transcend national borders and electoral districts, especially when you're the only political party making sense.

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 06:34:27 PM EST
[ Parent ]
Just the only ones allowed to be mentioned in polite company.
The deputy chairman of the German Left party produced this (Ger, pdf)

She demands among other things: reduction of imbalances through higher wages and social services in Germany, funding of government deficits via ECB credit, nationalisation of big credit institutes and coordinated partial defaults along the line of Argentina at least in the € zone and possibly in the whole EU.

by generic on Mon Dec 20th, 2010 at 07:11:10 PM EST
[ Parent ]
See afew's German Uprising quoting the FT:
... it was left to Gesine Lötzsch, co-leader of the Linke party, to warn that all the efforts at "saving the euro" were really about "saving our banks from their bad debts."

Accusing the government of failing to take action to regulate the financial markets, she challenged Ms Merkel: "It is time for you to admit: are you negotiating on behalf of German citizens, or are you negotiating on behalf of German banks?"



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Dec 21st, 2010 at 02:34:41 AM EST
[ Parent ]
European Tribune - The Eurogreens on Eurozone Economic Governance
Les marchés financiers qui sont responsables des déséquilibres au sein de la zone euro.

Surely a typo for "the financial markets are not responsible for the imbalances within the eurozone".

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Dec 20th, 2010 at 10:59:10 AM EST
German version: Sven Giegold - Mitglied der Grünen Fraktion im Europaparlament -
Es sind nicht die Finanzmärkte, die für Ungleichgewichte in der Eurozone verantwortlich sind, aber sie sind der Hebel, um an Ungleichgewichten Krisen zu entzünden und profitieren dabei auch noch
It's not the financial markets that are responsible for imbalances within the Eurozone, but they are the lever to light up crises and profit from them


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 11:03:16 AM EST
[ Parent ]
Yes.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon Dec 20th, 2010 at 11:07:58 AM EST
[ Parent ]
Thanks, now corrected.

That was one odd turn of phrase in Le Monde...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010

by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 11:09:22 AM EST
[ Parent ]
More generally, the EP group Greens/ALE need to coordinate their communications better. The following press release is available in EN/FR/DE on their site:

The Greens | European Free Alliance in the European Parliament - - EU summit and Eurozone crisis

European heads of state and government, at today's EU summit, agreed on a minimalist treaty change to allow the creation of a permanent stability mechanism. The Greens stressed that the permenet crisis mechanism will not be enough to get Europe out of the crisis. Greens/EFA co-president Rebecca Harms, who attended EU summit, said:

"Today's summit, under pressure from a blinkered German chancellor, has simply kicked the can down the road again and failed to offer a definitive and urgent response to the Eurozone crisis. Instead of grasping the nettle and agreeing to the far-reaching solidarity measures that are urgently needed to shore up the Eurozone and deter the circling pack of speculators, EU leaders have agreed to a more minimalist treaty change.

"While the Greens support the creation of a permanent and legally certain stability mechanism, the changes agreed today are not enough to get Europe out of the crisis. With the very survival of the Euro at stake, we need urgent measures to prevent the contagion from spiralling totally out of control. Against this background it is dumbfounding that chancellor Merkel continues to resist the logical call for Eurobonds to buttress the Eurozone, as well as increasing the crisis funds available.

"Clearly, in order to permanently stabilise the Euro, member states need to commit to a meaningful common economic policy. The declaration of good intentions made at the summit have to be quickly followed by deeds.

"The grotesque decision by Moody's rating agency to downgrade Ireland's credit rating by five grades has underlined the thin ice on which the Eurozone remains. Decisive action is needed to address these agencies and their arbitrary decisions."

But not this piece in Le Monde and Süddeutsche Zeitung, which looks like an intiative on the authors' part.

However, the Greens/ALE briefing I referred to in C-B calls a spade a spade had the two Co-Chairs, Daniel Cohn-Bendit and Rebecca Harms, seated side by side as D C-B said the Greens/ALE were going to push the word that the Irish case proved the failure of neoliberalism. Which they did not go on to push...

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Dec 20th, 2010 at 11:07:17 AM EST
afew:
looks like an intiative on the authors' part
Yeah, but "the authors" are basically the leading Green MEPs on the EP's Commitees on Economic and Monetary Affairs and the ad-hoc one on the Crisis, as well as the MEP group leader and the speaker of the B90/Grüne group in the Bundestag. You'd be forgiven for thinking this is an official position...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 11:12:59 AM EST
[ Parent ]
I wonder if it is?

srsly

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Dec 20th, 2010 at 11:31:21 AM EST
[ Parent ]
European Tribune - The Eurogreens on Eurozone Economic Governance
France and Germany have a major responsibility. Will our current leaders have the stature?
I think the Greens themselves have the answer...

The Greens | European Free Alliance in the European Parliament: EU Budget freeze

This budgetary coup has very little to do with fiscal responsibility and owes far more to the populist whims of Cameron, Sarkozy and Merkel. Giving in to these populist whims, risks undermining popular support for the EU at a time when it was never more necessary, notably in the context of the solidarity measures needed to shore up the Eurozone.


Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Mon Dec 20th, 2010 at 11:35:07 AM EST
Yes, yes, yes, yes!

Might they be talking about mobile capital? Taxing cross-border capital flows to fund not national budgets but the federal budget? The Tobin tax?

Both the French and German version (though worded and broken into paragraphs differently) continue by mentioning the tax on financial transactions (that is the Tobin Tax) as one possibility.

*Lunatic*, n.
One whose delusions are out of fashion.

by DoDo on Mon Dec 20th, 2010 at 12:50:38 PM EST
But instead of "mutualizing" debts of the private sector they should be written down. Not that I expect anyone to say that. Otherwise, it is just more bailouts.

But I am glad to see explicit critiques of the glaring faults of the GSP, the "Grotesque Suicide Pact", and of the structural problems and need for social solidarity. But the way it is phrased will be incomprehensible to most citizens, most likely, except French will likely "get" that it is the German's fault.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Dec 20th, 2010 at 03:49:34 PM EST
A contrary opinion on the suitability of Euro-bonds.

VoxEU: E-bonds: Europe's own subprime teaser rates

The E-bonds proposal is a brilliant piece of economic reengineering in favour of the Eurozone creditor countries - especially Germany and France. It is understandable and rational that the creditor nations should seek to improve the negotiating terms in preparation for all-but-certain sovereign defaults by the "peripheral" countries (Eichengreen 2010b).

  • It is warranted and necessary that the Eurozone puts in place some orderly process for sovereign debt restructuring (Weder di Mauro and Zettelmeyer 2010, Eichengreen 2010b),
  • The E-bonds proposal seems to be an important component of such a mechanism.
  • It is also possible that the E-bonds are a first step in a long-term process towards fiscal and political union as argued by German Finance Minister Wolfgang Schäuble. 

Nonetheless, the ends do not justify the means.

  • This E-bonds proposal is somewhat similar to the US subprime's "pick-a-payment" Adjustable-Rate Mortgage low teaser rates.
  • It offers "peripheral" countries the option of picking a slightly lower E-bonds interest rate now, with much higher costs later on.

It runs counter to the principles of the Trichet proposal "Towards a Code of Good Conduct on Sovereign Debt Re-Negotiation" (Banque de France 2003).

It is a type of non-cooperative behaviour by creditor nations that invites tit-for-tat retaliation by debtor nations. Instead, Game Theory suggests that cooperative behaviour would result in higher total welfare outcomes. Therefore, let us hope that reason and mutual respect prevail.



Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Tue Dec 21st, 2010 at 09:33:25 AM EST
in the concept, or is there a co-operative way of framing a Eurobond system?

The VoxEU author is arguing that debtor nations -- Greece, et al -- will inevitably default within a few years, and would be much better off doing so by redefining their sovereign debt out of existence by rewriting their domestic laws.

Since, under a Eurobond system, they would not be at liberty to do so, any haircuts would have to be negotiated with creditors (Germany and France), who would be in a much more powerful position.

However, an EU (and a Eurozone) which sees member nations defaulting on each other is at a dead end in terms of integration, and would not seem compatible with progress towards fiscal and political union.

It seems to me that the optimal outcome involves both debt reduction and economic assistance to the debtor nations, which is only feasible within a deeper economic union which would enable co-ordinated industrial policy...

OK so am I dreaming? Is the Juncker bonds scheme (let's hope that name doesn't catch on) all about protecting the creditor nations and their banks?

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Tue Dec 21st, 2010 at 06:17:53 PM EST
[ Parent ]
The good way to do €-bonds is to realise that bonds are an interest rate instrument, not a fiscal instrument. So you decouple the bonds from the state-level fiscal policy, by giving every state a permanent, unlimited overdraft with the ECB, at no worse terms than the Frankfurt overnight rate. Then you issue ECB bonds rather than Treasury bonds.

If this is politically unpalatable, the same functional arrangement can be obtained by having the ECB procure at face value whatever bonds cannot be sold at the Frankfurt overnight rate (i.e. almost all of them), and then issue its own ECB bonds through open market operations. Functionally, the effects would be the same, but it would allow the sort of people who get aneurysms at the thought of unlimited overdrafts with the central bank to keep pretending that that's not what's happening.

Of course, the really smart way to do monetary policy is to not issue a fixed volume of bonds at all. Just fix the short term rate through the discount window, and issue bonds with a bid-ask spread around the policy rate (with widening spread as the term increases - in this view bonds are a service to the holder, in that they allow him to lock in an interest rate that the central bank could change arbitrarily and without notice; he should get to pay for that service, not the other way around).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 22nd, 2010 at 03:03:02 AM EST
[ Parent ]
JakeS:
Of course, the really smart way to do monetary policy is to not issue a fixed volume of bonds at all.
I wonder why governments don't switch to fixed-rate open-tender bond auctions...

Of all the ways of organizing banking, the worst is the one we have today — Mervyn King, 25 October 2010
by Migeru (migeru at eurotrib dot com) on Wed Dec 22nd, 2010 at 04:22:56 AM EST
[ Parent ]
Because that requires a central bank that accommodates such a stance. As long as the CB pretends (and is allowed to pretend) that it's not a part of the government, bonds become fiscal instruments as much as interest rate instruments.

Of course, they could always issue Greenbacks...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Dec 22nd, 2010 at 06:11:59 AM EST
[ Parent ]


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]

Top Diaries

Impeachment gets real

by ARGeezer - Jan 17
18 comments

A Final Warning

by Oui - Jan 10
106 comments

Environment Anarchists

by Oui - Jan 13
4 comments

More Spanish repression

by IdiotSavant - Jan 6
8 comments