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The European Monetary Union: the Never-Ending Crisis by Jaime Requeijo

The European Monetary Union: the Never-Ending Crisis by Jaime Requeijo






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    The European Monetary Union: the Never-Ending Crisis by Jaime Requeijo The European Monetary Union: the Never-Ending Crisis by Jaime Requeijo Document Transcript

    • /JAIME REQUEIJO * / The European Monetary Union: the Never-Ending Crisis1. Introduction; 2. The Euro: a Badly Constructed Building; 3. The fiscalSpillover; 4. The Consequences of the Doubtful Debt; 5. ContributingFactors; 6. Main Measures Adopted to Solve the Monetary Union Crisis; 7.Outcome of the Measures Adopted so far; 8. Consequences of the Breakupof the Euro; 9. The Missing Link* Ph.D in Economics, BA in Law, Former Civil Servant attached to the Ministry ofCommerce, Emeritus Professor of Applied Economics (UNED and IEB).Former positionsinclude : General Director for Imports and Tariff Policy at the Ministry of Commerce,Chief Executive Officer of Caja Postal de Ahorros, Member of the Board of BancoZaragozano, Director of the School of Financial Studies (UCM) and Member of theBoard of Banco de España.His fields of research focus on monetary and financial matters, international economicsand the Spanish economy. He has written seven books and published more thenseventy papers in Spanish economic reviews.. 265
    • The European Monetary Union: the Never-Ending Crisis1. Introduction The constant financial trepidation afflicting different countriesof the Eurozone, and which threatens the survival of the singlecurrency, is not the result of random events. In our view, they canbe put down to four fundamental reasons. First, the MonetaryUnion is a badly constructed building as political urgency prevai-led over economic prudence. Second, there is the fiscal irresponsi-bility of many member state governments, an irresponsibility thathas materialized as hefty public debts. Thirdly, the doubts beinggenerated among the debt holders, mainly institutional investorsand banks, and which has led to significant fluctuations in theinterest rates of those assets and, in general, to a cost hike for theissuers. Four, what we could call the contributing aspects: the spi-llover and contagion effects that batter the financial markets,effects linked to the opinions of the rating agencies and, on occa-sions, to the worst-case scenarios of the International MonetaryFund regarding the medium-term performance of the EuropeanUnion economies and, particularly important, those of theMonetary Union. Faced with that panorama, and given the absence of clear solu-tions, there are three questions raised by many observers of the cri-sis. The first question is what the measures are that have beenadopted so far to try and avoid the recurring disruption. Thesecond question is whether those measures, or further onescurrently under debate, will be sufficient to solve the problem or,266
    • The Future of the Euroon the other hand, will the fate of the Monetary Union be to totallyor partially break up? The third question is if the Monetary Unionproves to be totally unviable and the national currencies have to bere-introduced, what will the consequences be of the failure of theeuro? This paper seeks to provide a reasoned explanation of the cau-ses underpinning the current major upheaval and it also aims toanswer the aforementioned three questions regarding the measu-res, their outcome and impact of a possible breakup of the euro.The paper ends with a short section considering the solution thatshould be adopted to keep the Monetary Union in place.2. The Euro: a Badly Constructed Building Even though the dream of the single currency had been alwayspresent since the Treaty of Rome, the definitive decision, containedin the Maastricht Treaty, is the outcome of the political desires ofFrance and Germany. Of France as French governments believedthat having a single European currency would avoid the constantpressures on the franc, pressures that usually led to the devaluationof its currency. Of Germany as accepting the single currency meanthighlighting the European vocation of the most importantEuropean economy after reunification in 1990, a process that ope-ned up many raw wounds – particularly in France. Driven by thosedual interests, the currency unification project prospered, not wit- 267
    • The European Monetary Union: the Never-Ending Crisis hout significant frictions, until it became reality in 1999, the year when eleven countries, including Spain, ceded their monetary autonomy to the European System of Central Banks; Greece would join in 2001, followed by other countries until it reached the current seventeen members.1 Joining the Eurozone required the countries to meet the so- called Maastricht convergence criteria, those rules aimed at ensu- ring that the different economies had a certain nominal similarity. During the year prior to the Compatibility Test, the inflation rate could not be more than 1.5 points over the average of the three most stable candidate countries; as the end of that year, the public sector deficit could not exceed 3% of the Gross Domestic Product or the debt be greater than 60% of that figure; the candidate country had to have been part of the European Monetary System during the two years prior to the test and without its currency having experienced significant fluctuations; and, during the pre- vious year, the long-term nominal interest rate had not exceeded the average of the three most stable countries by more than 2 points.2 After the failure of the European Monetary System in 1993, only the other three criteria were required to determine which countries could join the euro, and those criteria have conti-1 Note that the countries that initially joined the Monetary Union were Germany,Austria, Belgium, Spain, Finland, France, the Netherlands, Italy, Luxembourg andPortugal. Greece joined later and, successively, followed by Slovenia, Cyprus, Malta,Slovakia and Estonia.2 Article 121 of the 1992 Maastricht Treaty. 268
    • The Future of the Euronued to be applied to accept the application for entry of the suc-cessive candidates. Please note that those criteria were only required at the time of joi-ning. The subsequent restrictions were laid down by the 1997Stability and Growth Pact, aimed at maintaining budgetary stabilitywithin the Union. Thus, the country could not exceed the annuallimit of the deficit and the debt: 3% and 60% of the GDP respectively.Exceeding those limits meant that the European Commission wouldimplement the excessive deficit procedure, which would result in thecountry in question having to face certain penalties. Subsequently, in2005, the rules were reformed so that the deficits tested were not thenominal but rather the structural ones. Therefore, not only thecurrent deficit, but also the sustainability of the long-term public debtwas taken into account in the supervision and monitoring processentrusted to the European Commission.3 In short, and right from theoutset, the nominal similarities that a series of economies with clearreal differences had to offer were what seemed to matter to Europeanleaders. And, proof of that difference could be seen when, in 2002 –Greece had already joined – the typical deviation of labour producti-vity per hour worked, calculated as CWA was 29.46;4 which clearlyshowed the different competitive capacity of the different countries,right from the start. Those differences were a hint of the future sym-3 See “The Stability and Growth Pact: Public Finances in the Euro Zone” of the Sub-Directorate General for Financial and Economic Affairs of the European Union, SCIEconomic Gazette No. 2906, 16-28 October 2007.4 Prepared using the Eurostat data for the twelve member countries. 269
    • The European Monetary Union: the Never-Ending Crisis metric upheavals to come in the zone, and that group of countries, for different reasons, did not constitute – or constitutes – an optimum monetary zone. And thus, the European Monetary Union was built on quicksand, quicksand that would begin to overwhelm it as soon as the fiscal irresponsibility of some of the governments made a sig- nificant dent in the building overall. 3. The Fiscal Spillover Can governments of countries with weak currencies issue debt in their currency and ensure that attracts foreign investors? The like- lihood is minimum as the potential investor will think that, at some point, the currency will depreciate substantially, leading to a loss. Can countries with a strong currency do so? They can because the investors will not fear the losses following on from devalua- tion. And proof of this is that institutional or private investors, resi- dent in a wide variety of countries, have traditionally kept debts in dollars, marks, Swiss francs or yens in their portfolios. The euro sought to be a strong currency right from the outset. This strength was based on the monetary policy of the European Central Bank, whose primary objective would be to keep prices sta- ble.5 And which, furthermore, represented a series of important5 Art. 2 of the Statues of the European System of Central Banks and the EuropeanCentral Banks. 270
    • The Future of the Euroeconomies, with Germany at the head. Moreover, the exchangerate risk disappeared for member countries and it therefore facilita-ted the setting up of a large financial market in euro. The appearance of the euro, therefore, meant the disappearanceof the original sin experienced by countries with weak currencies:the difficultly of leverage in other currencies, which meant thatthey were at huge risk of financial fragility.6 The way was thereforeleft clear for governments of euro countries that had found it diffi-cult to finance themselves in other currencies prior to joining thesingle currency, to easily raise leverage in the powerful financialmarket of the euro. The only thing missing was the imperative needto do so. And that imperative need arrived with the economic crisis,which began in 2007, and with the general downturn in the ratesof growth, a fall that is reflected in the following table. It should be noted that even through the downturn in growthwas widespread, the countries with the sharpest recession wereIreland, Italy, Portugal and Spain within the initial group of twelvecountries. When the growth rate shrank, which was greatest in those caseswith the sharpest change in cycle, the budgetary revenue fell and6 See Eichengreen, B. & Haussmann, R. “Exchange Rates and Financial Fragility”, NBERWP 7418, 1999. 271
    • The European Monetary Union: the Never-Ending Crisis Table No. 1. Average Growth of the Eurozone (17 countries) Average Average Country 2004-2006 2 0 0 7 -2 0 1 1 Germany 1.87 1.20 Austria 2.90 1.30 Belgium 2.57 1.12 Cyprus 4.07 1.68 Slovenia 4.73 0.74 Slovakia 6.70 3.80 Spain 3.67 0.26 Estonia 8.43 -0.14 Finland 3.70 0.80 France 2.20 0.52 Greece 4.07 -1.90 The Netherlands 2.53 1.14 Ireland 5.03 -0.82 Italy 1.27 0.52 Luxembourg 4.93 1.28 Malta 2.33 2.20 Portugal 1.27 -0.20 Source: Own preparation, using Eurostat data (Europe in figures, 2012)the deficits appeared or increased and grew even further if the bud-gets included automatic stabilisers, by virtue of which the fiscalpolicy became expansive in periods of recession, and even moreexpansive if the governments relied on additional fiscal stimulus toovercome the economic crisis. All of these are reasons have been given to explain the rapidincrease in the public sector debt, as can be seen in Table No. 2. Given that panorama of slow growth, or decline, and of growingpublic debts, it comes of no surprise that debt holders would soonhave greater misgivings – misgivings that particularly affected those272
    • The Future of the Euro Table No. 2. Evolution of the public debt of the eurozone (% GDP) Country 2007 2011 Growth Germany 65.2 81.8 25% Austria 60.2 72.2 20% Belgium 84.1 97.2 16% Cyprus 58.8 64.9 10% Slovenia 23.1 45.5 97% Slovakia 29.6 44.5 50% Spain 36.2 69.6 92% Estonia 3.7 5.8 57% Finland 35.2 49.1 38% France 64.2 85.4 33% Greece 107.4 162.8 52% The Netherlands 45.3 64.3 42% Ireland 24.9 108.1 334% Italy 103.1 120.5 17% Luxembourg 6.7 19.5 191% Malta 62.4 69.6 12% Portugal 68.3 101.6 49% Eurozone 66.3 88 33% Source: Own preparation, with data from the Statistical Annex of European Economy, autumn 2011. The data refer to the gross debt as they are the liabilities that the govern- ment must face.countries where the recession was combined with spiralling debt andthe few prospects for recovery. It was, therefore, foreseeable that anyevent that affected the debt of a country would lead to a chain reac-tion that would challenge the financial stability of the Eurozone. That event was Greece going into virtual receivership on 23 April2010: on that date the Greek government asked the InternationalMonetary Fund and the European Union for a 45,000 million euroloan to meet their financial obligations, four months after Fitch, therating agency, had downgraded its debt. 273
    • The European Monetary Union: the Never-Ending Crisis4. The Consequences of the Doubtful Debt From then onwards, there were constant indications of concernin different channels about the sovereign debts with a questionmark over them. First of all, the increase of the risk premiums ofcertain securities; secondly, the increase in the cost of the creditinsurance for the same securities; third, the greater occasional costof the new issues by the countries under suspicion, the so-calledperipheral countries: Greece, Portugal, Ireland, Italy and Spain. The three aforementioned reactions clearly moved in the samedirection. As is known, hikes in risk premiums on the secondary mar-kets consist of discounts on the value of the securities, discounts thatare equivalent to an increase in the relevant interests and which arecompared to the interests of the benchmark debt, the German one,for the same market. In its simplest version, credit insurance (CreditDefault Swaps) are contracts by virtue of which, and by means ofpaying a premium, the bondholder is guaranteed the collection ofthe nominal amount. And in increase of the risk premiums and theprice of the swaps affect, by definition, the cost of the new issues: themore expensive the premiums and swaps become, the higher theinterest that the new issues should offer and the greater the cost forthe relevant governments. All of which tends to worsen the financialsituation of the governments, a situation that will enter a downwardspiral if the average interest rate of the outstanding debt is greaterthan the growth rate of its economy.274
    • The Future of the Euro5. Contributing Factors Current financial markets are markets of news and rumourmills.7 The first report on how the turbulence develop and reflect veri-fiable facts: the initial request for help by the Greek government;the successive austerity measures demanded by the European aut-horities and the International Monetary Fund for the bailout to begranted; the social response to the austerity plans in differentcountries or the downgrading of the sovereign debts of differentcountries of the Eurozone, including France. All of the events showthe constant severity of an ongoing crisis. The second are, in general, interpretations, opinions that areusually transmitted through the different media, whether they arejournals, the daily press, television and radio programmes or newsspread online. Some are reasonably based opinions that are tryingto consider the difficult situation of the Monetary Union and tooffer some type of solution.8 Others are purely and simply seekingto be alarmist, to the point of suggesting to their readers that they7 An extensive study into the subject of rumours is by Mark Schindler: “Rumors inFinancial Markets”, Wiley&Sons, UK, 2007.8 Examples of opinions of this type are “Beware of fallen masonry”, The Economist,26/11/2011, and those expressed by K. Rogoff in the interview published by Spiegel on27/2/2012, entitled “Germany Has Been the Winner in the Globalization Process”. 275
    • The European Monetary Union: the Never-Ending Crisis should stock up on food to survive the chaos that will reign, on the world scale, when the euro implodes and triggers a financial tsu- nami that will spread over the five continents.9 Furthermore, there are the constant threats of downgrading the sovereign debt by the three major US agencies – Standard & Poors, Moody’s and Fitch –, the three who were so optimistic when it came to US mortgage junk bonds,10 and the doubts expressed, from time to time, by the International Monetary Fund regarding the future of the euro zone. There is also the risk that the whole set of views, from the most founded to the most alarmist, will awaken many fears and the prophecy will become self-fulfilling: the disaster will occur because the avalanche of negative opinions will set it in motion. 6. Main Measures Adopted to solve the Monetary Union Crisis At the time of writing (April 2012), these measures have invol- ved setting up general bailout funds, the approval of a Greek Loan9 Read “Will Greek Sovereign Debt Default on March 23” by Patrik Heller, Coinweck,22/2/2012 (online).10 In the opinion of John Kiff, from the International Monetary Fund, the opinion ofthe agencies increases the uncertainties on the sovereign debt markets, due to theimportance that the participants on those markets seem to attribute to them. See hisarticle “Reducing Role of Credit Ratings Would Aid Markets” IMF Survey Magazine,29/9/2010. Also Arezki et al: “Sovereign Rating News and Financial MarketsSpillovers”, IMF, WP/11/68. 276
    • The Future of the EuroFacility, the interventions of the European Central Bank and thefine tuning of a new Treaty on Stability, Coordination andGovernance of the Monetary and Economic Union. In 2010, the European Financial Stability Fund was set up,whose aim is to facilitate resources to euro countries in financialdifficulties. It is a company whose headquarters are in Luxembourgand its loan capacity is to the tune of 440,000 million euros.11 Togrant a loan to a Euro country, the government of the country hasto request it and sign an austerity programme. Part of the loans toIreland and Portugal were arranged through that Fund. In 2011, the European Financial Stabilisation Mechanism wascreated for a similar purpose. It is an institution, supervised by theEuropean Commission, which obtains its resources from the capi-tal markets by means of issuing bonds underwritten by theEuropean Union budget. It may provide aid to members of theEuropean Union, whether or not they are members of theEurozone, is compatible with aid provided by other channels andalso requires the prior approval of an austerity package. Loanshave also been granted through this programme to Ireland andPortugal. The two aforementioned funds would duly be subsumed in theEuropean Stability Mechanism), agreed by the Eurozone countries11 All the data referring to the bailout fund and to the Greek Loan Facility are takenfrom European Commission official documents. 277
    • The European Monetary Union: the Never-Ending Crisisin February 2012 and which should begin to function in July ofthat year. Its aid will not be limited to granting loans, but it willlikewise be able to acquire bonds issued by the member countries,either on the primary or on the secondary markets, and facilitateresources aimed at recapitalising financial institutions. In princi-ple, it would have 80,000 million euros of capital and an initial cre-dit capacity of 500,000 million euros. In May 2010, the membersof the Eurozone bilaterally decided to lend Greece 80,000 millioneuros that, in addition to the 30,000 million from theInternational Monetary Fund, meant that the first Greek bailouttotalled 110,000 million euros. At the end of 2011, and 73,000million euros had been paid out from that fund, a payment thatrequired an austerity undertaking. On 14 March 2012, a new bai-lout programme was approved, with substantial write offs for thecreditors and austerity obligations for the Greek Government, tothe tune of 130,000 million euros, an amount which includes theInternational Monetary Fund contribution of 28,000 millioneuros. The purpose of that financial support, which will last until2014, is to bring the Greek public deficit under the 117% of itsGross Domestic Product by 2020. Part of that bailout will be chan-nelled through the European Financial Stability Fund. A crisis intervention of particular importance is by theEuropean Central Bank, an intervention channelled in two lines.In a non-recurrent way, the Bank acquires debt on the secondarymarket, which reduces the risk premium and means that the issuesof new securities are at a lower cost. On the other hand, it lends278
    • The Future of the Euroresources at a very low interest rate to financial brokers – its basicrate has remained at 1% for some time – which means that thebanks of the worst hit countries acquire part of the new issues.They, therefore, facilitate the placement of securities, securities thatare profitable for the financial institutions and less costly for theissuers. On 2 March 2012 and after many debates in the EuropeanCouncil, the representatives of twenty-five countries of theEuropean Union – as neither the United Kingdom nor in theCzech Republic wanted to sign up – signed the Treaty on Stability,Coordination and Governance in the Economic and MonetaryUnion. Even though the new Treaty was signed by members of theEuropean Union that are not part of the Monetary Union, its fun-damental proposal is to force the euro countries to ensure thattheir public finances are balanced. Further proof of that purpose isthat the Treaty will come into force when it has been ratified by atleast twelve euro countries. A key aspect of the agreement is the so-called BudgetaryAgreement that forces those countries to tighten their budgetarydiscipline and which introduces the balanced budget rule, a rulethat must be included in national legislation and, preferentially, inthe Constitution. The structural deficit must not exceed a specificlimit and cycle deficits are accepted, resulting from substantialdownturns in the economic activity, provided that they do notalter the balanced budget rule in the medium term. And, in the 279
    • The European Monetary Union: the Never-Ending Crisis case that the deficit exceeds the permitted limit, a series of auto- matic penalties are envisaged.12 7. Outcome of the Measures Adopted so far Judging by the data that appeared in early April 2012, recovery from the downturn has not yet started, in particular, as far as the peripheral countries are concerned: volatility remains high both on the sovereign debt markets and on the variable income ones – in the case of the latter, the downward trend is reflected by the drop in share prices of the most exposed banks to the sovereign debt of those countries – and the doubts persist regarding the capa- city of several of them to meet their obligations. Which is not at all strange for several reasons. The required restructuring to bring the debt back to more bea- rable levels would hinder, in the short term, the growth capacity of the five countries, as economic recovery would be further compli- cated by the shrink in their tax revenue. And all of this would occur in a climate of recession and economic stagnation that appe- ars to have taken hold of the European Union, over all, and the Monetary Union, in particular.1312 The full text of the Treaty can be seen at the European Council website.13 The forecasts can be seen at the European Economic Forecast, Autumn 2011 (online). 280
    • The Future of the Euro The situation of Greece is at the forefront of all the economicanalysis of the euro zone as very few believe so far that the recentlyapproved second bailout will result in the country solving pro-blems and many believe that a third bailout will soon be on thecards. And those doubts regarding the future of the Greek economyare spreading to the rest of the peripheral countries and, to a greatextent, to the very future of the Monetary Union. Despite the measures approved so far, the decision processes havedragged on as an agreement needs to be reached by country repre-sentatives, who are very aware of the opinion of their citizens, andby representatives of community institutions. Long processes, wheremultiple opinions, sometimes discrepancies, are mixed, that increa-se the uncertainties regarding the future of the euro, even thoughthe disappearance of the single currency could raise much morewide-ranging problems than the current ones trying to be solved.8. Consequences of the Breakup of the Euro The breakup of the Monetary Union could occur should one ormore member states decided to leave the single currency and rein-troduce their own currency. That split could either be due to thedeparture of one or more weak-economies or to one or morestrong-economies breaking. In either of the two cases, the Unionwould be broken. 281
    • The European Monetary Union: the Never-Ending Crisis From the legal perspective, such a possibility does not currently exist as the Maastricht Treaty does not include any clause that opens up the way; only the 200714 Lisbon Treaty accepts the voluntary withdrawal of a member state from the European Union, but says nothing about the Monetary Union. This may be because the architects of the common currency always thought that, given that the single currency was an extremely important step in the political and economic construction of Europe, the decision of each country should be irrevocable. Yet, leaving the legal aspect on one side, despite its importance, the collapse of the Eurozone would lead to a series of disastrous con- sequences for the country or countries that had left the euro, for the Eurozone overall and for the world economy. Let us first consider the departure of a weak economy. The mere presumption by its citizens of leaving would result in a large-scale transference of deposits from its banks towards other banks located outside the country, given that nobody would want to see their euro assets converted into balances in the devalued currency; the Government in question would be forced to impose, as a preventive measure and prior to the decision to abandon the euro, a limit on withdrawing deposits and a strict exchange rate control. As it is to be supposed that part of the private debt of the country would be held by foreign institutions, individuals and companies would find them- selves in the worrying situation of having to face such debts with a14 Art. 50 of the Treaty regarding the voluntary withdrawal for a member country. 282
    • The Future of the Euronational currency of a lower value. With respect to the sovereigndebt, the problem would be the same: the Government would becompelled to honour it at a higher cost. And the internal economicadjustments would be of such a magnitude that the main purposesought by returning to the national currency – regaining the exchan-ge rate policy and, thus, making the exportable goods more compe-titive – would take many years to occur. Without even going into thesocial and legal conflicts that would occur, in that country, as a seve-re recession for an unforeseeable length would occur. If the country decided to abandon the euro were a very strongeconomy, would there be more advantages than disadvantages? It isnot easy to answer that question, for two reasons. First of all, becau-se the foreseeable outcome is that its currency would appreciate,which, even though it would mean an initial advantage, would alsoraise problems. For example, and from that moment onwards, itsbanks would have deposits in the new currency, but it is to be sup-posed that part of its assets would be for operations with residentsin the euro zone and, therefore, the financial brokers would have toface losses through that channel, and would moreover have to faceits fiscal obligations in the new currency. Second, and this is themore important aspect, the appreciation of its currency would affectits competitiveness in the remaining euro countries – the main mar-ket of all the countries of the Monetary Union – which, undoub-tedly, would hit its growth capacity for many years to come.1515 On these aspects, see “Euro break-up: the consequences” of UBS InvestmentResearch, 6/9/2011 (online). Also the opinions of Eric Dior: “Leaving the euro zone: a 283
    • The European Monetary Union: the Never-Ending Crisis The departure from the Eurozone of any country, or several countries, would break up the Monetary Union in both political and economic terms. In economic terms, because the growing dis- trust of all its citizens would lead to substantial capital flights and, probably, to the collapse of different financial systems, which would cloud the very limited economic perspectives of the zone and would lead to a long recession. In political terms as its inter- national clout would be considerably reduced, based on a situa- tion, the current one, which is not particularly brilliant: its lack of political unity and its indecisiveness, which characterises it as a soft power area clearly reduce the international presence of a zone that, we should not forget, is, taken overall, the second economy and the second market of the world.16 Its breakup and the ensuing recession would cloud the international presence of that group of countries to unimaginable limits. And without taking into account the likely decline of the European Union. It is interesting to observe the distancing that many non- European analysts show when considering the spasms of the Monetary Union. Which is the equivalent, in many cases, to con- sidering them as a local problem: the Eurozone is having to bear great tensions, arising from the sovereign debt crisis, and there is a question mark over its survival. And they go no further. They forget that, in a world of fully integrated financial markets, theuser’s guide”. IESEG School of Management (Lille Catholic University), October 2011(online).16 With World Bank and World Trade Organisation data for 2010. 284
    • The Future of the EuroEurozone crisis would have a global impact. For two reasons. Firstof all, because a good part of the sovereign debt is in bank port-folios; secondly, because the credit insurances (CDS) are, pos-sibly, held by financial institutions around the world. In December 2011, 513,000 million euros of public debt of thefive peripheral countries (Greece, Ireland, Italy, Portugal and Spain)appeared in the portfolios of European banks.17 If we take intoaccount that the financial institutions around the world are linkedby a series of international transactions, it is not difficult to con-clude that the breakup of the euro would have global repercussions. In the March 2011, the CDS linked to European sovereign debtstood at 145,000 million dollars.18 Neither of these two figures arehigh but they are sufficiently important for the upheavals of the eurozone, following on from the breakup of the currency, to be transferredto other regions of the world with substantial multiplying effects. It therefore can be supposed that the Monetary Union willmanage to overcome this crisis. Yet, from our point of view, thecurrent firewalls – the bailout funds, however they are called – andthe budgetary obligations, included in the Treaty on Stability,Coordination and Governance, will not be enough to overcome17 Jenkins, P. y Stabe, M: “EU banks slash sovereign holdings”. With European BankAssociation data (online).18 ISDA: “The Impact of Derivative Collateral Policies of European Sovereigns andResulting Basel III Capital Issues”, 19/12/2011 (online). 285
    • The European Monetary Union: the Never-Ending Crisisthe current problems and ensure that the Monetary Union is thethreshold to what, when all said and done, has been what theywanted to achieve through the single currency: a certain degree ofPolitical Union. An additional link is therefore now needed.9. The Missing Link The endeavours aimed at solving the crisis have so far been alongtwo paths: creating financial instruments to avoid the bankruptcy ofsome governments – the most worrying case is Greece – and strengthe-ning the obligation of member countries to reach and maintain a rea-sonable budgetary balance. Important steps, but which have not mana-ged to eliminate the continuous tension that has been observed in thefinancial markets, tension that the interventions of the EuropeanCentral Bank have only managed to soften. Soften, not eliminate. Note that all the actions undertaken so far – bailout and rules –do not imply any joint liability. It involves combining financial aidand remembering that fiscal policy in a single currency arena mustbe very similar and very prudent in all member countries. The lia-bility therefore falls on the Government of each country. Yet these measures will not be sufficient if the aim is to shore upthe badly constructed building of the Eurozone. It would be neces-sary to show that the members of the Monetary Union are capableof jointly and severally assuming liability of the problems of all its286
    • The Future of the Euromembers. And what is necessary, to affirm that joint liability, is toissue the so-called Eurobonds or Stability Bonds; in other words,bonds jointly issued that will replace, totally or partly, the currentsovereign debt. That measure, that would be a highly importantstep forward in the construction of the common building that isbased on the single currency, would result in three far-reachingconsequences: the sovereign debt crisis of some countries wouldbe rapidly alleviated; the cost of future issues would be reduce as aconsequence of the overall solvency; and the financial system ofthe Eurozone would be more resistant to any future upheaval, andthe overall financial stability would therefore be strengthened.This decision necessarily implies the setting up of a common trea-sury and likewise the application of a fiscal policy. Clearly, that decision would entail many economic difficultiesand highly complex political problems, as the citizens of the mostprosperous and stable countries of the Union will be not verywilling to accept that type of shared liability which they would seeas the financial problems of others being placed on their shoul-ders. Yet we should not forget that that possibility has already beenraised by the European Commission itself, precisely to attain thoseobjectives.19 And we should not forget, above all, that, as I haveattempted to explain in this paper, the end of the Monetary Unionis not a zero-sum game, where there are winners and losers; it is anegative sum game, where everyone loses.19 See European Commission: “Green Paper on the feasibility of introducing StabilityBonds”, 23/11/2011.COM (2011) 818 final (online). 287
    • The European Monetary Union: the Never-Ending Crisis288