Europe can only overcome its national egotism and unite around a common cause when confronted with potentially disastrous crises, Peter Kažimír, state secretary at the Slovak Ministry of Finance, told EURACTIV.sk in an interview.
Peter Kažimír is state secretary at Slovakia's Finance Ministry.
The following is a translation of the original transcript, published in Slovak on www.euractiv.sk.
Over the weekend of 8-9 May, the EU adopted draft rules by agreeing a rescue fund that might substantially change its functioning and deepen the bloc's integration. Was this decision only made possible as a result of external pressure?
I will speak emotionally. With the minister of finance Ján Po?iatek, I have had the opportunity to participate in Eurogroup meetings and the Ecofin Council. We were largely disappointed by what we have seen. Initiatives currently presented by the [European] Commission actually answer our disappointment. I think that Europe is currently unable to discuss these serious issues. Or to be more precise, was not able to until the last few days.
The reason was a high level of egotism and protection of national interests. The crisis that came a year and a half ago managed to unite Europe on easier issues – the financial stimulus. Because providing stimulus from public resources is always easier than cutting expenditure or debts. Of course, I'm not trying to say that this was not important: on the contrary, it was very important at that moment.
The crisis developed in a logical order: it started in the financial sector, then moved to large industries and to small businesses, and then it hit citizens. The last ones on the hit-list are the states. And that is exactly what we are witnessing now: an attack against states.
Without dramatising too much, I would say that during that weekend (8-9 May), the crisis tried to return in a second round. Now it would hit even stronger, because it would aim at the states' very foundations, and through the financial sector ended again on the people's backs.
[Leaders] have managed to avert it for now by putting together a stabilisation mechanism, which surprised experts, politicians and the public, because it is a huge sum, but on the other hand we should see it as a pre-emptive mechanism. In fact, it should pre-empt any attack of financial markets.
To a large extent, financial markets are following their logic and the 'punishment' which they give to sinners is based on rational fundamentals, especially from the point of view of their debts, and now also running deficits of those countries.
It is difficult to argue with the market that there is a logical reason for increased deficits in European countries in the last two years. All rescue packages had their effect on higher deficits. Today we can see the first results: first news of economic revival, but it is still fragile.
Would Slovakia support stricter rules for the Stability and Growth Pact?
We are a small country, and as a small country we should support respect for rules. Also in the past, on our way to the euro zone, we had to fulfil all criteria for more than 100%: this is not always true for large countries. Small countries are much more endangered by the unbalanced situation. From this point of view a deal between the Germans and the French is crucial, and I'm sure that this discussion has already been running for some months.
Their deal plays a key role, because for some time now, two approaches dominate in Europe. The first includes adaptation of rules, special stability programmes and a softer return [to balanced budgets]. Others prefer a fast return to balanced budgets by tough consolidation.
Some argue that EU control over national budgets compromises national sovereignty. Would you agree?
I'll be very open. I cannot imagine that the Commission would get that competence with its current capacities. We have found through our experience of joining the euro zone that it is not ready for such a role.
This is proven by the fact that the International Monetary Fund is always a partner when designing debt restructuring programmes. I am not calling for the Commission to hire a thousand more bureaucrats, but if it wants to play that role – and I think that it should – it has to undergo internal changes.
Officials and experts from the Commission would have to be at the level of OECD or IMF experts. The European Commission will need a team of specialists for individual countries. And they will have to get rid of the standardised approach. We have very bad experiences with the stereotyped approach of the Commission, which has complicated our entry into the euro zone.
But providing that it works well, I am not against such a mechanism and I do not see it as a compromise with sovereignty at all. Of course, we should speak about the details, and those are still unclear. But I think that all the fuss about threatened sovereignty is largely biased and politically motivated.
For many politicians, any interference with budgetary policy is taboo. But I am afraid they have to forget that taboo, especially when they belong to the euro. Even if it is not admitted publicly, it was proved that a common monetary policy, without a common economic policy, is hardly sustainable.
In spite of some reservations, this project (monetary union) was launched and proved to be very successful, also because it has profited from the positive period in the global economic cycle. But now we have got into problems and we need to give a very clear and powerful answer. I think this situation will help bring about substantial changes. Just like people, states – which after all are only made up of human beings, take difficult decisions only at the last moment, under pressure. That is exactly what we have seen on Monday early in the morning (10 May).
Let's look at the other side – solidarity and support measures. You have agreed on a mechanism, which should provide eurozone countries some breathing space for stabilisation. But some voices – like IMF chief Dominique Strauss-Kahn in an interview for the Financial Times – argue that the euro zone needs more: for example, a system of short-term fiscal transfers between member states. Do we need more?
I will not discuss this topic. I think it is very dangerous, because some things often happen also on the basis of expectations, which are brought to life by similar discussions. With such debates at the highest level we could automatically create expectations that it will happen. This is harmful and dangerous.
But nothing guarantees that the Stabilisation Mechanism will be enough. We may reach the point where the euro zone needs to split up and countries have to return to their national currencies. Are we able to quantify how much that would cost?
There was no time for such analysis, because Slovakia learned about the extraordinary meeting of Ecofin on Saturday morning (8 May) and on Sunday evening participated in the decision-making. I do not think that any country has such an analysis. The ECB [European Central Bank] or the Commission might have it.
Technically, the break up of the euro should not be a problem. But before we come to the decision of breaking up the euro zone, we have to realise that such a process would have fatal consequences for the whole of Europe.
Journalists and some politicians from non-eurozone member states often simplify the situation and create the fiction that the problem does not apply to them. It is not true.
The gradual failure of the euro zone would have a fatal impact on the development of all European economies, our trade partners…we live in an interconnected world, so nobody would be sheltered.
Again from the aspect of pure economic theory, it is possible [to break the euro zone], but in real life it is not a proper alternative. It could be performed only in laboratory conditions, although I am aware of the fact that we have supporters of laboratory reforms on the national political scene. They have even tested some of them in this country.
During the eurozone summit, some voices were stressing that speculators were responsible for the crisis but did not cite specific examples. Who are those speculators?
The word 'speculate' has negative connotations. But speculations are basically operations which use imbalances on the market with the aim of making a short-term profit. When you look at the last two or three years of the euro, there was no chance to make a profit from it due to sustainable growth and stability. But today, the market is hyper-sensitive and almost frightened. It reacts to any negative information – from the eruption of a volcano to the macroeconomic data of countries.
Anyhow, I do not agree with the thesis that speculators are responsible for Greece's problems. Obviously it is possible that they have precipitated its fate and attacked Greece like jackals would attack a wounded animal. But we have to search for the primal cause within Greece, in the several decades where problems have piled up. It is hard to talk about it. But when sitting at the same table an adult person declares to you and to the group of other ministers that the deficit is 4% when it is actually 12%, this is simply a lie. Markets were not responsible for that.
Another claim is that markets behaved like 'a pack of wolves'. Spaniards are examining the role of the media, rating agencies and investors in the crisis…
A month ago, or maybe earlier, we received information that a meeting of big hedge fund managers had taken place. There was even speculation that it was a reaction to EU plans to strengthen regulation. But I am not a supporter of some conspiracy theories.
On the other side is the fact that power is concentrated in the hands of financial oligopolies. You can not blame them for their efforts to make a profit no matter what it takes, because they are operating in an environment without ethics, morality or rules. But it may lead to the destabilisation of the whole system. The irony is that governments had to save markets just a couple of months ago.
Discussions about financial market regulation have been taking place for a while, since the beginning of the financial crisis in the USA. There have been two groups in Europe – on the one hand, people like the former German finance minister, who compared investment funds to locusts, and on the other hand, economic liberals who consider financial markets as engines creating innovative ways of funding the real economy, which risk being halted by stricter regulation. What is your view?
Nobody on Earth can think that things are going to remain the same as they used to be. I understand that this is the wish of many. We passed through a period of huge economic development, partly artificial, based on those 'perfect laboratory funding tools' which are driven by over-consumption. Going back to the golden times is obviously a very attractive solution in many circles. Politicians need to reach quick results during one electoral term. Global leaders are politicians as well. People like to believe they will have better conditions. And also bankers want to earn as high bonuses as in the past.
The world will sail through these stormy waters, but it can not return back to where it was. Markets will be the same. If the markets are not the cause of the crisis, then it is a failure of regulation, coupled with the opacity of new elaborate financial tools and their disconnection from the real economy. This has to be reflected in changes to regulation.
No, I am not a supporter of returning back to the conservative banking of the 19th century, but we have to talk about failures and their corrections. I would not call it stricter regulation but better regulation.