The deal we need to overcome the eurozone crisis
The euro zone needs greater European cohesion, more responsibility from its member states and increased coordination if it is to overcome the current crisis, argues Maria João Rodrigues in an exclusive op-ed for EurActiv.
The following contribution was sent exclusively to EurActiv by Maria João Rodrigues, a former employment minister of Portugal, a professor of European studies at the Université Libre de Bruxelles and a policy adviser to the EU institutions.
"The next eurozone summit should be decisive to overcome the eurozone crisis and strengthen European unity. Two key issues seem to be at stake:
- Defining a solution to make Greek public debt sustainable, involving private investors, but without being considered a default;
- defining a more comprehensive deal whereby this step forward in European solidarity should be based on stronger commitments regarding national responsibility and coordination.
The June European Council was unable to bring the eurozone crisis under control. The lack of a credible solution for the Greek case can contaminate other countries and the banking system in the euro zone. An urgent and credible solution is needed for the Greek case, but this should be underpinned by a more comprehensive deal regarding the euro zone as a whole.
A more systemic solution is needed, building on the general reform of economic governance which is underway and leading to a necessary quantum leap in the Economic and Monetary Union.
The Greek case is now the major test and, beyond the big effort being undertaken by the Greek government regarding necessary structural reforms, we need to have new developments in the European instruments to deal with the sovereign debt crisis:
- Reducing the loans' interest rates and extending maturities in order to enable recovery and better conditions for repaying the debt;
- buying in the primary markets, but also buying in the secondary markets, by swapping national bonds with the triple A bonds provided by these European instruments: private investors will take some losses in this swap but will have the benefit of moving to higher quality bonds;
- designing more balanced adjustment programmes where fiscal consolidation is combined with the concern to foster growth: otherwise it will difficult to achieve the full repayment of the debt.
Finally, the EU should develop a European rating agency to ensure that all these efforts are not undermined by rating agencies, which are not in line with transparent criteria of credibility.
It is important to explain that all these developments will be much less expensive and risky for the euro zone than the contagion effects in case of hard restructuring, hitting countries and banks. It also important to explain that, so far, there is no transfer from creditor to rescued countries, but rather loans and quite rewarding loans plus guarantees to provide the conditions for European borrowing and lending.
A more effective rescue package is decisive to ensure more financial, economic, social and political stability in the euro zone.
To underpin this step forward in European cohesion, a more comprehensive deal is needed in the EMU, which should be based on three fundamental principles: more European cohesion, more responsibility and more coordination. These three principles can be implemented by building on the existing instruments under negotiation.
More responsibilities of member states:
- The reviewed Stability and Growth Pact should enforce more fiscal discipline, while preserving room for key investment;
- A new macro-economic surveillance will be developed, while preserving a balanced approach;
- A better implementation of the national reform programmes to support growth, job creation and fiscal consolidation.
More European coordination of policies:
- The Euro-plus Pact should frame a deeper coordination of policies in the budgetary, tax, economic, social and financial area in order to promote not only fiscal sustainability but also competitiveness, growth and job creation.
More European cohesion:
- The new Community budget should be used to reduce not only regional divergences but also major macro-economic imbalances. A new own resource should be introduced: a financial transaction tax at EU level;
- Project bonds for private investment in new European networks for transports, energy and information should be underpinned by public guarantees to be provided by the Community budget and the EIB [European Investment Bank] in order to appeal to more private investors, notably pension funds;
- Euro-bonds should also be used to support key public investments and should be issued for this purpose by the EIB or by the current EFSM, the European Financial Stability Mechanism, based on the Community Budget and managed by the European Commission. The access to these euro-bonds should be conditional on the respect of fiscal discipline;
- The EFSF and the ESM should evolve to become a real European mechanism with decisions taken at European level, providing loans with lower interest rates and more balanced conditionality, supporting fiscal consolidation and growth and preventing default as much as possible.
The concrete solutions to overcome the eurozone crisis now seem clearer. Will this also happen with political will? There are moments of real choice and this will certainly one of them. In this case, postponing decisions will be a choice with many consequences."