Neither good growth and employment figures nor the worse than expected performance of the populists in the Netherlands or France can be fooled by the EU’s sense of crisis. The Rome Declaration tries to demonstrate unity, and the White Paper of the EU Commission outlines options for the further development of the Union. However, central economic questions are not addressed.
The debate about the future of Europe should be conducted constructively in Germany. It benefits from a stable EU and contributes decisively to the further development of Europe. Often, however, the discussion is lost in defensive reflexes or theoretical treatises. A central discussion will have to be asked: How can the stability of the euro area be increased? Despite all the reforms, the euro area remains unstable. The euro will always be more vulnerable to political risks than a currency in a real federal state.
The hope in Germany to return to the original Maastricht rules, however, is at best naive. Neither the no-bail-out clause nor budgetary control are currently credible, nor were they before the crisis. The no-bail-out clause was also suspended with the consent of Germany, because its application in Greece would have led to a financial crisis. Conversely, budgetary monitoring does not work because no Member State is seriously willing to have its budgetary policy dictated by Brussels. Germany has also repeatedly violated the rules. It would be equally naive to dream of a centralized federation. The Social Unions, discussed in Brussels, are more confused than positive.
The first focus of a sensible reform rate should be on the stability of the financial system. This can prevent an undesirable communalisation of the costs of a state insolvency by the participation of private creditors. Secondly, the credibility gained by this would allow the ineffective rituals of the Stability Pact to be overcome. Those who do not follow the rules themselves bear the responsibility and must, in an extreme case, live with a state insolvency. The rules could then be monitored mainly by national institutions.
In principle, there should be European aid programs only if the debt is sustainable. But, according to the experience of the Greek debt crisis, it is doubtful whether the Eurozone, in its current form, would have the power to make a program dependent on the involvement of private creditors. This issue could become acute as interest rates rise, while growth in some countries remains weak.
Real federations like the United States have completely centralized the responsibility for the financial system. As a result, the financial system remains stable even if turbulences in a federal state occur. Financial stability in a monetary union can ultimately be made meaningful only at the Union level.
What are the next steps for the financial system of the euro area? A European Deposit Guarantee Scheme is just as important as stability as balance sheets for government bonds in banks and concrete steps to clean the balance sheets. Institutionally, it would be conceivable to merge the existing liquidation fund with a new European deposit insurance system. The European Stability Mechanism (ESM) could be behind this authority. This would complement the banking unions and be the necessary complement to the joint banking supervision. The ESM would therefore develop into a kind of EU Monetary Fund that would deal with government spills and at the same time keep the financial system stable.
The credibility would be strengthened if capital markets were deepened and Europeanized. This could reduce dependency on banks and cushion asymmetrical shocks. For this the capital marketunion would have to be taken seriously; One would have to come to greater harmonization, for example, in the area of insolvency law.
The Eurozone has a paradox to solve: if it wants greater self-responsibility for national budget policy, then it must accept greater centralization in banking and financial issues. Self-responsibility for states, and thus a credible no-bail-out clause, can only work with a stable financial system.
A stronger capacity for investment and public goods would also contribute to stability in the eurozone. The Eurozone suffers from the fact that it can only rely on the ECB at low inflation to reach the inflation target. The EU does not have enough funds to support the central bank.
It is time to have an honest debate on Europe in Germany. The difficult issues must also be tackled. Germany has to take responsibility for a more stable Euroraumarchitektur, even if this can mean costs in the short term, such as the contribution to the Deposit Guarantee Scheme. It is also thanks to the euro for Germany as well as for a long time no longer. The long-term benefit largely outweighs the short-term costs. Whether it is in Greece or in terms of the still weak demand in Germany: Europe looks to Germany and is dissatisfied with the status quo. The approach outlined here would be an opportunity for a compromise.
-GUNTRAM B. WOLFF