Sunday, 16 May 2010

Europe: It Is Now or Never


(Wolfgang Staudt, Skyline)



[Edoardo Montenegro, Turin] - "Euro is the point of no return for Europe, - Carlo Azeglio Ciampi agreed with Helmut Khol in 1993. - Not only we will not go ahead without the Euro, but we will also risk to go behind to the nationalisms and ghosts of the Thirties" (1).

Last Sunday the EU was able to set up a €720 million plan to save the Euro (2). The financial markets were impressed by the huge amount of money released and by the decision of the European Central Bank to invest in government bonds (3). But the Euro did not take advantage of the plan and fell to $1.24 on Friday, when financial markets lost €170 billion (4).

Speculators are aware that politicians will need courage to cut public deficits and that the ECB is actually printing money it will be difficult to reabsorb: they bet that governments will use inflation to come out of the crisis and that the eurozone will break, the PIGS thus devaluating their currency (5).

Time is running fast for Europe. As recalled by Mario Monti, a monetary union can work only if the job and capital market are really integrated (6). To begin with, as Wolfgang Munchau explained, a single European sovereign bond and a minimal fiscal union should soon be created (7).

Italy took part to the negotiations standing on the right side of the table. Nevertheless, it is clear that holding the largest public debt of the UE, Italy will be the most relevant indirect beneficiary of the plan.

Granted the support of France and the short-sighted isolation of Britain, the destiny of Europe lays in the hands of Germany, which for the first time in history has the opportunity to lead Europe peacefully. Will it take the chance to do it?

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(1) "L'euro è il punto di non ritorno della costruzione europea, senza l'euro non solo non andremo avanti ma c'è il rischio concreto di tornare indietro, ai nazionalismi e agli spettri degli anni Trenta". Carlo Azeglio Ciampi, "Completiamo (e presto) la costruzione dell'Europa", Il Messaggero, May 11th 2010. At that time, Mr Helmut Khol was the German Prime Minister and Mr Carlo Azeglio Ciampi - President of the Italian Republic from 2001 to 2008 - was the Italian Prime Minister.

(2) In addition to Greece, under the attack of financial speculation for several weeks, Portugal and Spain seemed in great difficulty. This unprecedented speculative attack brought the EU, the ECB and the IMF to take action immediately before the reopening of the financial markets on Monday. ("Piano salva euro fino a 720 miliardi. GB: no al fondo contro le crisi", repubblica.it, May 9th 2010).

(3) Ralph Atkins, "ECB divided over policy U-turn", ft.com, May 11th 2010.

(4) Luca Pagani, "Borse, scende anche Wall Street. Europa giù forte, Milano a precipizio", repubblica.it, May 14th 2010.

(5) Portugal, Italy, Ireland, Greece and Spain.

(6) "Une zone monétaire ne peut avoir une monnaie solide et une économie performante sans être dotée d'un marché unique digne de ce nom, avec, notamment, une mobilité élevée du travail et des autres facteurs de production. Nous en sommes loin."  Arnaud Leparmentier, "Il faut un marché unique avec plus de concurrence", interview with Mario Monti, lemonde.fr, May 11th 2010. President of Bocconi University in Milan, Mario Monti was European Commissioner for the Internal Market from 1995 to 1999 and European Commissioner for Competition from 2000 to 2004.

(7) Wolfgang Munchau, "The eurozone must take responsibility or it will split", ft.com, May 10th 2010. In his article, Mr Munchau recalls the Blue Bond Proposal by Jacques Delpla and Jakob von Weizsacker (bruegel.org) and suggests that a 5% central fiscal policy might be sufficient to work as a European automatic stabilizer against unemployment.

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