My answer to the 154 economic professors expert in paranoia

154 German economics professors published a statement in the Frankfurter Allgemeine Zeitung on 22 May. The main message was that the Bank Union should not lead to a Risk Sharing Union. The 5 points of the argumentation are the following:

  1. If the European Stability Mechanism is used as planned as a backstop for the rescue of banks, the incentive for banks and banking regulators to clean their bad debts will be reduced. This at the cost of growth and and financial stability.

My answer would be, no if this is the very ultimate backstop of a process which should be calibrated to avoid systemic risk, and which would not exclude any bail-in for irresponsible players. And our professors should have noticed that in June 2017 the Single Resolution Board declared itself non competent for the case of two Venetian banks, leaving the Italian state alone, which costed 17 billion to the Italian taxpayers. The proof of the non-automaticity of the European capacities. Then please no demagogy and le us avoid too short cuts, which only play with German obsessions but not with the reality.

  1. If, say our professors, the ESM is transformed as planned into a European Monetary Fund under European Law, it will fall under the influence of countries, which would not belong to the Eurozone. Since the respective countries would lose their veto right for urgent decisions, the lender countries could be overruled. The German Bundestag could then for instance lose its controlling right.

My answer: we can easily make of the EMF an Enhanced Cooperation between the Euro countries, and the first point falls. And let us be fair, even if we would invite all the non Euro countries of the EU to participate to these votes (which I am not at all in favour of), a voting right which would be given in proportion to the GDP or to the contribution to the EMF would not give much power to the non euro countries. But misters professors we definitely need a more efficient governance for this ESM/EMF in order not to repeat the ridiculous soap opera of the 2010-2012 years. In this respect the governance of the ECB could be an excellent example for the EMF to follow. And where the Bundestag is concerned, it is not in the interest of Germany to continue to have the Bundestag as the only Veto Parliament of the Eurozone. Democratic control for the Eurozone should be taken at the level of the European Parliament reduced to the representatives of the Eurozone. This would address also the point of the necessary democratic sovereignty rightly raised by the court of Karlsruhe.

  1. If the banking deposit Insurance scheme is communitarized as planed, all the costs of the mistakes done in the past by banks and governments will be socialised, say our professors.

No not necessary the mistakes of the past, it depends very much of the conditions of the starting point. But considering the future, this is indeed a very serious point and then an excellent reason for being finally very serious about the banking and financial regulation and supervision in the eurozone. Then we would rather quickly review the disastrous governance of the various agencies which have been already created in the frame of the Banking Union and which are totally paralysed by a pure intergovernmental governance. It would be a real crime to continue on this route. Here your critical voices would have been more useful misters professors…

  1. The European investment fund planned for macroeconomic stabilisation purposes and the Fond planned to support structural reforms would authorise further transfers and credits to countries, which in the past hesitated to do the appropriate reforms, say again our professors. In their opinion it would be a mistake to reward inappropriate behaviours. With the interbank payment system Target 2 Germany already accepted ECB liabilities above 900 billions which do not bring any interest and are not to be reimbursed.

Misters professors why do you mix here macroeconomic policy and pure payment instruments?… What is the reason to evoke here Target2 when speaking about these two funds? Would you like to say that Germany is not the very first beneficiary of the payment flows within the Eurozone?

On the ‘‘sins‘‘ of the past of many Eurozone countries (including Germany which is still not respecting the Maastricht criteria…) let us be serious and confess that they have been tolerated by an intergovernmental Europe in which Germany had and still has an extremely important say. Then misters professors the ‘‘sins‘‘ of the PIGS and also yours. These are the sins of a Europe which did not dare to control and react before it was too late. The truth is that the Maastricht criteria were never met, only 5 out the 11 countries did meet them at the creation of the euro in 1999. And til the crisis of 2010 these makes 11 years where Europe showed big but so comfortable negligence. But beyond these sins which still have to be addressed, at least where the indebtedness is concerned, please be fair enough to admit that these criteria are not enough at such, even if they were applied. A single market strengthens the concentration of the economy in various pools of excellence, and then some members might be very much affected by the attraction of these European Excellence hubs. This redefinition of the economic space is acceptable only if this concentration is compensated by an help on structural reforms, or during crisis time.

And since any penny counts for you please calculate all the money which could have been saved and further earned if Europe would have objected a true European solution to the crisis of 2010-2012. Then let us not repeat this awful and costly scenario.

  1. A European finance minister with fiscal capacity which would be the interlocutor of the ECB would contribute to further politicise the monetary policy. The big bond purchase by the European Central Bank (2‘550 billion € since September 2018) is already the equivalent of state financing through the Central Bank.

False and true. False as far as the Finance Minister is concerned. Was and still is the presence of a German Finance Minister a real problem for the independence of the Bundesbank? True, due to the total absence of European political leadership the ECB had to go far beyond its normal responsibilities during the crisis. And one of the reasons for calling for a European Finance Minister is exactly to put an end to this European political deficit and let the ECB return to the limits of its mission, instead of further being the backup of a total deficient, if not absent, European political leadership.


Personally I see this declaration of these 154 professors more as the expression of the usual defensive German conservatism and of its psychological obsessions, than as a clever contribution to the debate. It is nevertheless useful, even it is only for taking notice of the importance of this conservatism among the German establishment.

But let us be fair, it does not mean that France‘s approach is the most appropriate one today. Pertinent long-term visions are very much useful in order to fix a long-term agenda, but what we desperately miss today are immediate concrete steps to agree upon. It is also a bit naïve to think that we can easily and quickly build today in a comfortable environment what even the high pressure of the crisis did not succeed to let us do. I fear that we have to wait for the next crisis to dare to build a macroeconomic stabilisation fund. And nothing wrong with this, since it is not realistic today in the current fiscal, debt and psychologic environment.

It would be also a mistake to think that the next crisis will need the same solutions as the last ones. And we have unfortunately already the prove of this. The next crisis is already looming with the Italian populist storm and its impact of the yields on the Italian, Spain and Portuguese debt. And this in a global context of a threat of a global trade war initiated by Mr Trump. Then let us first concentrate on our today‘s urgencies.

This does not mean that we do not need to reform the Eurozone, and the detailed plan presented by Bruno Lemaire last November remains excellent. But let us do that progressively, in fact exactly as he presented it in Berlin. The first stage is to finalise the Banking Union, to create a Capital Market Union, to harmonise the bankruptcy laws and taxation in the Eurozone. Well let us do this seriously and as quickly as possible, and please on an efficient and democratic way. In this respect, and as already mentioned, the instruments already created for the Banking Union could be very much improved if we want this time to be serious on this topic.

If we would already do all this, we would much more contribute to the Eurozone stability than by spending too much time debating long terms visions against irrational national paranoia. Let us be very serious and consequent on what we can do today, the rest will come later on.

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