There’s no shortage of voices explaining what Europe needs. I tried to collect the main recommendations here. The de-facto leaders of Europe, Merkel and Draghi, are doubtless very smart individuals who can clearly see what ought to be done if one had the common good in mind. I don’t believe the hyperinflation argument is anything but a populist stalling tactic.
What we are observing is the elite of the Eurozone accurately picking up a democratic demand and then deliberately offering something that sounds like the demand but is in fact the opposite, an attempt to distort and defuse what is earnestly demanded.
Eurobonds – what is needed:
Eurozone states need to pool their debt into a common type of bond, or “Eurobond”, so that a billion Euros of Greek debt is indistinguishable from a billion of German debt, much like US treasury bonds are all alike and not denominated by state. Bond markets initially perceived Euro sovereign debt that way, creating a somewhat unhealthy credit boom in the periphery. When markets realized the bonds were not the same they attacked the debt rollover of the weakest economies in turn, Greece being the first, with loan shark rates that predictably destroy the indebted economy. Eurobonds would restore the ability for the whole zone to manage debt at the same rate, which will be low since zone-wide deficit is a few percent.
Eurobonds – what was offered:
The red-blue Eurobond proposal by a German think tank was an attempt to offer something called a Eurobond that expressly doesn’t have the desired effect. That proposal calls for “blue”, essentially high credit rating, bonds that meet tight fiscal criteria and “red” junk rated bonds that don’t. The scheme is no different from the status quo, as countries like Greece would package some existing “senior” debt as blue bonds and would only be able to issue new red bonds for their deficit and rollover needs. The red-blue Eurobond proposal is thus a distraction that protects creditors and bond speculators.
ECB – what is needed:
Europe needs a central bank that fulfils the role of monetary sovereign that EZ states no longer have. This means announcing a willingness to create Euros to buy an unlimited amount of government bonds, in other words a threat to convert any debt that the markets won’t take at reasonable rates into inflation. If the ECB would only do this, like the US Fed does, it would end speculation since any attack on the debt would be guaranteed to reduce it’s real value. It would also accomplish an in-zone transfer towards deficit states without the politically difficult step of taxing the Germans to subsidise the Greeks and the Spanish.
ECB – what was done:
The LTRO initiative of the ECB gives the bank the appearance of acting as a monetary sovereign while it refuses to do just that. The ECB created trillions of Euros but lent this amount to banks, rather than governments, at 1%. The banks then bought their own state’s bonds at around 5%. Not only does this grant the banks a gigantic public subsidy that should accrue to the states, it’s also designed to prolong the crisis. Sovereign debt remains a liability on state balance sheets and a toxic asset on the banks, making both unsound and liable to further attack. It is not pooled, but rather split along national boundaries. The ECB expressly refuses to announce convertibility of EZ debt to inflation that would end the crisis.
I observe these diversionary non-proposals and I hear, surprisingly, that the Merkel government is now contemplating the “unthinkable” – political union of the Eurozone. I’m all for political union because I believe in post-nationalist Europe, but I fear we’ll see one of the same: Claiming to bow to a democratic demand while doing the opposite in the service of capital.
United Europe – what is needed:
Europe needs the ECB to act as monetary sovereign to make EZ debt immune from speculation, just as the Fed or the Bank of England does. A better monetary policy, such as nGDP targeting, that benefits the entire zone is needed. Institutions of the Eurozone need to be elected, or subject to existing bodies that are elected such as the European Parliament. There is a democratic deficit in Europe but not a shortage of democracy. Positions of power that have become “technocratic”, which really means captured by concentrated interests, need to be once again subordinated to the democracy that exists.
United Europe – what we’re likely to hear:
If recent double-speak is any guide, we should expect to hear talk of political union that is in fact a move to a-political union. More powers will be demanded for the ECB or a central banking insurer/regulator, but neither body will be under political control or act as monetary sovereign. A European finance minister will be called for, to manage (in other words prevent) public spending but they won’t be elected. They will be appointed by a financial elite and expected to serve capital, just as the ECB president now is. Any constitutional moves labelled “political union” will likely be designed to prevent, rather than enable, the enactment of democratic decisions over the whole block.
So watch out. Talk of European political union coming from the present powers is likely to mean the opposite of what at first appears. I’d love to be proved wrong, but caution and apprehension are in order.