SECRETARIA DE ESTADO DE ECONOMIA Y APOYO A LA EMPRESA

MINISTERIO DE ECONOMÍA Y DIRECCION GENERAL DE POLÍTICA ECONOMICA COMPETITIVIDAD

UNIDAD DE APOYO

CUADERNO DE DOCUMENTACION

Número 95

Weekly Digest 14

20 Junio-5 Julio 2012

Alvaro Espina Vocal Asesor 5 de Julio de 2012

Weekly Digest 14: 20 Junio- 5 Julio 2012 Abstract La pregunta surgió precisamente en vísperas del Consejo Europeo ¿Y si, llegados al punto de bifurcación, Alemania decidiera irse? Las intempestivas declaraciones de Berlusconi (recogidas en este WD) plantearon bien el dilema al que se enfrentaba la UEM. O Alemania cedía, o no quedaban más que tres opciones: el euro desaparece y se vuelve a l a cesta de monedas de común acuerdo (esto no l o dijo Berlusconi); se van Italia y España (y muchos otros, hasta dejar la eurozona reducida a su núcleo, de modo que Alemania se quedaría con el Euro), o se va Alemania y refunda el marco (sola, o con cuatro o cinco países de su entorno monetario). Tácticamente, la opción preferida por Berlusconi era esta última. David Marsh, que ha estudiado bien la historia de la edificación del euro (y todos sus antecedentes), concluye que hasta ahora Alemania siempre se ha mostrado reticente hacia la unión monetaria, pero al final siempre ha cedido… hasta que un dí a deje de hacerlo ¿Iba a ser esto así una vez más? Los retos a los que se enfrentaba Angela Merkel (especialmente desde el desencuentro abierto con Grecia, al que venía a unirse el del líder del principal partido político italiano) hacían temer que l a historia no se repitiera: esta vez, Alemania podía rechazar la rendición económica (como para dar satisfacción a Berlusconi). Dadas las preferencias manifestadas reiteradamente por Alemania, la probabilidad de rechazo era menor si se ofrecía la plena integración política. Además, esto es algo que cuenta con precedentes históricos. Brendan Keenan1 recuerda que la unificación del Reino Unido hace 400 años se produjo precisamente como consecuencia de la crisis financiera denominada Scottish Darien Scheme (una operación piramidal diseñada para financiar el establecimiento de una colonia escocesa, denominada Nueva Caledonia, en lo que ahora es Panamá), que arruinó a Escocia y acabó resolviéndose unificando los dos parlamentos y emitiendo deuda del nuevo Reino Unido por 400.000 libras para compensar a los inversores (y comprar algunas voluntades, como se hizo un siglo más tarde para la unificación con Irlanda). Este fue un ejemplo más de lo que hemos dado en llamar “la federación a palos”, pero casi todas lo han sido, más o menos. Y, cuando no se ha acertado con la fórmula de una federación condicionada, la anexión se ha producido por la fuerza — como ocurrió con los Estados Confederados de América, tras la secesión iniciada en Carolina del Sur en diciembre de 1860 y la subsiguiente Guerra civil —, o c on la “destrucción mutua asegurada” —como sucedió tras la Guerra del Peloponeso, en que ambas federaciones helenas fueron anexionadas por Macedonia, que destruyó la democracia griega, como temían Pericles y Demóstenes —.

¿Qué es lo que determina el tamaño de Estados y Federaciones? Pero el que las uniones o federaciones estatales no hayan surgido necesariamente de procesos voluntariamente decididos por los pueblos, sin ningún tipo de interferencia (como sí ocurrió con la reunificación alemana de 1989, pero en un pa ís previamente

1 Periodista financiero irlandés conocido por haberse enfrentado al profesor Morgan Kelly acusándole de magnificar la inminencia y la dimensión de la crisis financiera de su país en un programa de la primera cadena de televisión el 30 de Septiembre de 2008: http://www.youtube.com/watch?v=EI5o8qsTVoM 1

unido), no quiere decir que hayan sido menos firmes y duraderas. Eso ha dependido siempre del diseño institucional y, en última instancia, ya bien entrado el siglo XX, de la voluntad democrática de los pueblos. Sin embargo, en cada etapa histórica el contexto internacional ha marcado unas condiciones relativamente estrechas para el tamaño y la capacidad mínima eficiente de las unidades políticas estatales. En su Política, Aristóteles estableció que es ta capacidad mínima viene dada por las necesidades de “autosuficiencia”, pero no precisó bien el significado del término (aunque su condición subsiguiente de preceptor de Alejandro permita pensar que, en su opinión, las viejas polis griegas ya no reunían tal condición). La historia se ha encargado de definir empíricamente las condiciones de “autosuficiencia” de los Estados. Durante la edad moderna, la pugna evolucionista por la dominación de territorios cada vez más amplios —dirigida por grandes dinastías patrimonialistas, como los Habsburgo o l os Valois-Orléans —, señaló el tamaño mínimo eficiente para que un territorio sobreviviese como estado autónomo, ya que los estados modernos fueron creados por y para la guerra (en palabras de Charles Tilly). El primer ejército moderno (o el último medieval) fue el que reunieron los Reyes Católicos para la toma de Granada, y contaba con 60.000 hom bres (50.000 infantes y 10.000 caballeros). Montesquieu observaría después que durante el Antiguo Régimen la leva máxima que podía imponer un m onarca no s uperaba el 1% de la población de sus estados.2 De modo que, ya desde sus inicios, para pintar algo en la Europa moderna un monarca debía disponer de territorios poblados, al menos, por seis millones de súbditos, que era la población aproximada de los reinos de la corona de Castilla bajo los RRCC (ya que no existía unión de armas con las otras coronas). Más tarde, los recursos extractivos y el trasvase intercontinental de metales monetizables elevó desmesuradamente la capacidad monetaria3 de la dinastía austracista, que se vio multiplicada por la modernización financiera4, hasta situar el dintel en 300.000 hombres en armas (más o m enos equivalente, sin recursos extraordinarios, a un territorio con treinta millones de súbditos), que se convirtió en el nuevo estándar de autosuficiencia (véase el diagrama que sigue) para participar en el juego de los estados modernos (articulados en la fachada atlántica de Europa). A partir de Westfalia, la hegemonía se dividió entre las potencias marítimas (o talasocracias) y las del continente. Tras la Guerra de Sucesión española, con la instalación de los Borbones en España,5 los pactos de familia reforzaron la superioridad militar francesa

2 Véase mi “La resistencia a la Monarquía de España y el sistema europeo de estados”, Sistema, nº 164, Spbre. 2001, pp. 43-67, en: http://www.ucm.es/centros/cont/descargas/documento6136.pdf 3 Véase mi “Oro, plata y mercurio, nervios de la Monarquía de España”, Revista de Historia Económica, Vol. XIX, nº 3, otoño-invierno 2001, en: http://e-archivo.uc3m.es/bitstream/10016/2174/1/RHE-2001- XIX-3-Espina.Montero.pdf (pp. 507-538). 4 Véase mi “Finanzas, deuda pública y confianza en el gobierno de España bajo los Austrias”, Hacienda Pública Española, nº 156. 1/2001, en: http://www.ucm.es/centros/cont/descargas/documento6138.pdf (pp. 97-133). 5 Tras Westfalia, España dejó de contar de manera autónoma en el sistema europeo de Estados; entre otras cosas, por su incapacidad para resolver los problemas fiscales y de la deuda a lo largo de los siglos XVII a XIX, cuyos sucesivos fracasos marcaron también la quiebra del Antiguo Régimen (financiera y política) y la orientación de las políticas del primer tercio del siglo XX, con la polémica sobre el patrón oro. Además del trabajo citado en la nota anterior, véase mi “De la caída del Antiguo Régimen a la Segunda República: un enfoque neokeynesiano de la economía española”, Sistema, nº 155-156, en: http://biblioteca.meh.es/PdfPublicaciones/Literaturagris/DE%20LA%20CA%CDDA%20DEL%20ANTI GUO%20REGIMEN%20A%20LA%202%AA%20REP.pdf (abril, 2000, pp. 175-209). 2

en el continente (con un residual Sacro imperio romano germánico —SIRG — cuya tenue alianza detenía las ansias de expansión f rancesa hacia el oeste, como había sucedido desde la coronación de Carlos de Gante). La revolución francesa y la guerra contra el Directorio elevaron la capacidad regular de movilización francesa por encima del 2% (como ya sucediera en la República de Roma, que llegó a movilizar a un 8% de la población, según Montesquieu). Ello, unido a la expansión bonapartista y a la recluta de nativos no franceses, elevó su capacidad de conscripción en 1812 hasta 900.000 hombres (600.000 en la Grande Armée y 300.000 en la península ibérica, equivalentes a un 5% de la población francesa). Esta capacidad no sería alcanzada por Rusia hasta 1850 (850.000 hombres, pero equivalentes solo a un 1,5% de su población).6 Estado Moderno: Finanzas y milicia

• Los Habsburgo dispusieron del monopolio de los principales recursos extractivos de especies metálicas del planeta (beneficiándose del arbitraje intercontinental entre el oro y la plata de China a Europa). Los demás, tuvieron que “adaptarse” para sobrevivir. • La “Fortuna” americana explica el ingente aumento de capacidad financiera y militar durante 150 años: – 1550: Carlos V movilizó a 150.000 hombres. Coste = 9 millones ducados (el triple de sus ingresos fiscales). – 1630: Felipe IV movilizó a 300.000 hombres. – Sólo superado puntualmente por Francia en 1694 (400.000 = 2,1% de la población). En 1710: Inglaterra + Holanda = 300.000 (2,8%). • La apuesta imperial de la Monarquía Hispánica elevó el umbral mínimo eficiente para jugar al juego del Sistema Europeo de Estados (SEE), definido finalmente en Westfalia (cuando todos quedaron exhaustos por un tiempo).

La Unificación de Alemania surgió también de necesidades bélicas. Primero, se formó la C onfederación alemana del norte, en torno a Prusia, para disputar la cuestión de Schleswig-Holstein a Austria en 1866. Más tarde, se añadió la alianza de Prusia con los estados alemanes del sur para la guerra franco-prusiana en 1870-1871, a cuyo término se formó el Imperio Alemán. Como argamasa del mismo, Bismarck estableció por primera vez el sufragio universal (1871) y su correlato, el estado de bienestar, con tres seguros básicos: de salud (1883), de accidentes (1884) y de incapacidad y vejez (1889) —a los que vendría a unirse en 1911 el seguro de desempleo, instaurado por Lloyd George en Inglaterra conjuntamente con el seguro de salud, importado de Alemania, que, a su vez, lo introduciría entre 1914 y 1918, primero con carácter temporal, y más tarde como instrumento de lucha contra la revolución de tipo bolchevique7 —. A partir de entonces, la industrialización acelerada haría descansar la capacidad de supervivencia militar en la potencia económica y en la estrategia de alianzas, binomio

6 Datos de Charles Tilly, Coerción, Capital y los Estados europeos 990-1990, Alianza, 1992 [VO: 1990] 7 Sobre la oposición de los empresarios alemanes a este seguro antes de la Primera Guerra mundial, puede verse Thomas Paster, “German Employers and the Origins of Unemployment Insurance. Skills Interest or Strategic Accommodation?”, MPIfG Discussion Paper 11/ 5, abril, 2011, disponible en: http://www.mpifg.de/pu/mpifg_dp/dp11-5.pdf 3

que marca el ciclo de las dos guerras mundiales (denominadas “guerras civiles europeas”), tras las cuales el sistema de equilibrios ya no será europeo, sino mundial, concretado en la guerra fría (con episodios de confrontación convencional fuera de Europa) y en la estrategia de “disuasión mutua asegurada” (que no depende de los efectivos humanos, sino de la potencia nuclear). Las reglas de autosuficiencia de los estados, en lo que se refiere a su tamaño relativo, habían venido cambiando también en términos económicos desde la revolución industrial. Adam Smith señaló que “la división del trabajo depende del tamaño del mercado” y Douglas North relacionó directamente el ascenso de Occidente con la aparición del estado moderno, por su idoneidad para abrir espacios económicos amplios, capaces de generar economías de escala, y para imponer el estado de derecho, que minimiza los costes de transacción. La formación de mercados nacionales de ámbito estatal constituyó la primera etapa de la modernización económica, pero enseguida este marco resultó demasiado estrecho no solo para aprovechar las economías de escala sino, sobre todo, para contrarrestar la dotación asimétrica de factores. La formación del sistema internacional de intercambios, a partir del tratado franco- británico de comercio de 1860, dio un fuerte impulso a la equiparación de precios de los productos y a la convergencia de los precios y la productividad de los factores, de acuerdo con los nexos entre lo uno y lo otro observados por Heckscher y Ohlin. Esto benefició a los países menos proteccionistas de Europa, cuyo crecimiento se vio impulsado por la especialización productiva y la explotación de complementariedades, reduciendo el impacto negativo del tamaño de los mercados domésticos sobre las economías de escala. En cambio, en los países más proteccionistas, como España, este proceso no se produjo, acumulando atraso económico. Albert Carreras8 estima que para cuando España ratificó su cierre comercial, adoptando el Arancel Cambó de 1922, el umbral mínimo para aprovechar las economías de escala cuadriplicaba ya el tamaño de nuestro mercado nacional. Las carencias de la vía proteccionista no harían otra cosa que magnificarse tras la implantación de las democracias, en el período de entreguerras, que impusieron la generalización de los Estados de bienestar (que tendrían una expansión máxima durante la segunda posguerra), ya que la capacidad para implantarlos y su sostenibilidad iba a depender en buena medida del crecimiento económico, la productividad y la competitividad de los países. Pero incluso en los países europeos más abiertos, el tamaño del mercado interior directamente accesible importó mucho para el desarrollo de estrategias competitivas internacionales, que requerían desarrollar nuevas estructuras empresariales, como estableció Alfred D. Chandler Jr. (en Strategy and structure), para quien el estándar competitivo —ya desde finales de siglo XIX — fue la gran corporación multidivisionaria, a la que consideró como la verdadera “mano visible” del progreso económico, favorecida enormemente por la existencia de un m ercado de origen de ámbito continental en Norteamérica.9 El país europeo que logró superar mejor esas limitaciones fue precisamente Alemania, debido a que su especialización —basada en un suministro superabundante de ingenieros, de acuerdo con el “modelo de

8 Véase “La industrialización: una perspectiva a largo plazo”, Papeles de Economía Española, nº 73, 1997, pp. 35-60. 9 Véase Chandler, Alfred D. Jr. The Visible Hand: The Managerial Revolution in American Business. Cambridge, Mass, 1977.Versión española: MTSS, 1988.

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Charlottemburg” (por la Technische Hochschule Charlottenburg, fundada en 1879) y en un sistema muy potente de formación secundaria profesional10 —, permitió a sus empresas aprovechar masivamente las economías de alcance,11 aplicando el avance del conocimiento básico a la diversificación de la producción y de los procesos productivos, lo que le permitió disponer, ya en la etapa de entreguerras, de un potente elenco de empresas trasnacionales.12 En todo caso, la percepción de que el espacio económico competitivo eficiente requiere, como mínimo, mercados de tamaño continental (además del problema latente de las guerras intraeuropeas) impulsaron la integración económica continental durante la segunda mitad del siglo XX, al mismo tiempo que se consolidaba paulatinamente el sistema internacional de comercio. Uno y otro alcanzaron su conformación definitiva a comienzos de los noventa, con la entrada en vigor del Mercado Único Europeo en 1993 y la firma del Acta final de la Ronda Uruguay del Gatt, en Marrakech el 15 de abril de 1994.13 Esa es precisamente la fecha de aparición de internet, que produjo la digitalización de todo el sistema de interacción social y económica y un enorme salto adelante en el proceso de integración a escala global, que afectó muy especialmente a los segmentos más móviles y digitalizables del sistema económico (especialmente, a todo el sistema de información y a las modalidades de los servicios más directamente relacionadas con la información y la comunicación, como ocurre con los servicios financieros). De ahí que durante su primera década y media de desarrollo la globalización económica haya sido en primer lugar y predominantemente una verdadera oleada de la globalización bancaria y financiera. Dado el papel que cumple el sistema financiero en la economía moderna (de la que estos servicios tienen la función de actuar como “Éforos”, en palabras de Schumpeter, y como “los nervios y la materia gris”, según Stiglitz), la globalización financiera arrastra y determina la del conjunto del sistema económico y constituye, por tanto, el mayor ataque jamás registrado a l a autosuficiencia de los estados nacionales en su capacidad para disponer de una cierta capacidad de acción con relación al sistema económico. No es extraño, por ello, que el replanteamiento del problema de suficiencia se produzca precisamente coincidiendo con la crisis financiera de la globalización,14 ya que el incumplimiento de aquel papel crucial por parte de la banca hace descarrilar todo el sistema.

10 Véase mi “Recursos humanos, formación tecnológica superior y sistema de profesiones”, en: http://biblioteca.meh.es/PdfPublicaciones/Literaturagris/Formacion%20tecnol%F3gica%20profesiones% 20y%20empleo.pdf 11 Que son precisamente las economías de escala no asociadas al tamaño. Véase Alfred D. Chandler Jr., Scale and Scope., The Dynamics of Industrial Capitalism. HUP, Cambridge, MA, 1990. Versión española: Prensas Universitarias de Zaragoza, 1996 12 Véase A. Teichova, M. Levy-Leboyer y H. Nussbaum (eds). Empresas multinacionales, finanzas mercados y Gobiernos en el siglo XX, MTSS, 1990, 2 vols. 13 Véase A. Espina, "La mundialización de la economía, el desarrollo económico y los derechos sociales fundamentales", Revista de Trabajo, nº 3, Argentina, julio/agosto 1994, pp. 17-44, en: http://biblioteca.meh.es/PdfPublicaciones/Literaturagris/Mundializaci%F3n%20Desarrollo%20Derechos %20sociales.pdf 14 Para una perspective histórica de la crisis, véase: Christopher Kobrak & Mira Wilkins (2011): The ‘2008 Crisis’ in an economic history perspective: Looking at the twentieth century, Business History, 53:2, 175-192 (y los artículos de ese número especial de la revista) 5

El problema de la autosuficiencia de los estados: treinta años de crisis financieras en el sistema global. Una visión gráfica15 Además de las facilidades que otorga la tecnología digital a la capacidad del sistema financiero para actuar por encima de cualquier barrera espacial, el proceso tecnológico coincidió con la dinámica de desregulación impulsada por la revolución conservadora de Ronald Reagan (que afectó especialmente a es tos servicios), durante los años ochenta, y por la larga etapa de relajación de las reglas y las prácticas de supervisión bancaria, financiera y de los mercados de valores impulsada principalmente por Alan Greespan desde la presidencia de la Reserva Federal (pero no solo por él), hasta bien entrado el primer decenio de este siglo. Aunque los únicos responsables de las prácticas que abocaron al mundo a la segunda Gran Contracción no fueran exclusivamente ellos, sí cabe afirmar que la gestación, impulso y dirección de todo este proceso correspondió a las políticas regulatorias y financieras del gobierno norteamericano, a la lenidad y dejación de responsabilidad de los supervisores de los mercados en ese país, a la política monetaria y bancaria de la Fed, y a l as prácticas de la gran banca internacional residenciada en Wall Street (y subsidiariamente en la City).16 Respecto a l a Gran recesión, Doug Noland afirmó: “…. buena parte de la culpa la comparten Nueva York, Londres y otras plazas, pero no se puede negar que ésta ha sido, en su núcleo esencial, una burbuja de crédito inducida desde Washington.” La evidencia recogida en su blog a lo largo de años de sorda denuncia merece un examen en profundidad.17 Eso no qui ere decir que las otras áreas del mundo hayan tenido un c omportamiento estrictamente “virtuoso”, ni que Washington no se encargase de encontrar colaboradores por todas partes.18 Sin embargo, aunque el esfuerzo de regulación del sistema financiero global solo puede ser multilateral (como se trató de hacer, a finales de los años noventa, a través del programa denominado “Nueva Arquitectura Financiera Internacional”),19 la senda que se impuso finalmente con la llegada del nuevo siglo fue la del unilateralismo norteamericano, haciendo uso del predominio absoluto de su sistema financiero en relación con el de cualquier otra área del mundo con capacidad de

15 Los cuadros y gráficos de esta sección están extraídos de Luc Laeven y Fabián Valencia, “Systemic Banking Crises Database: An Update,” IMF Working Paper , Research Department, WP/12/163, Junio 2012, disponible en: http://www.imf.org/external/pubs/ft/wp/2012/wp12163.pdf 16Véase mi trabajo La Década Maravillosa y la Recesión Global de 2007-2009; Documentos de Trabajo- Instituto de Estudios Fiscales, ISSN 1578-0244, Nº. 2, 2010, págs. 1-142. Disponible en papel y en línea: http://www.ief.es/documentos/recursos/publicaciones/documentos_trabajo/2010_02.pdf La síntesis de la gestación de la crisis se encuentra en p. 74 y ss. 17 Véase “A Washington-Induced Bubble”, 6/Mar./2009, en: http://www.safehaven.com/article/12772/a- washington-induced-bubble. Una selección de sus trabajos entre septiembre de 2000 y marzo de 2009, en: http://biblioteca.meh.es/PdfPublicaciones/Literaturagris/2009_87-anexo%20Doug%20Noland.pdf 18 Landon Thomas Jr. examina la “colaboración española” en: “Spanish Officials Hailed Banks as Crisis Built,” NYT, 26/Junio/2012, en: http://www.nytimes.com/2012/06/27/business/global/spanish-officials- hailed-banks-as-the-crisis-built.html?nl=todaysheadlines&emc=edit_th_20120627. Llegada la crisis, esto terminó pasando factural. Véase Luis Garicano, “El declive de la ‘marca España’”, 29 JUN 2012 http://economia.elpais.com/economia/2012/06/29/actualidad/1340981455_955765.html 19 NAFI. Véase A. Espina, “La Nueva Arquitectura Financiera Internacional”, Leviatán, nº 84, en: http://prensahistorica.mcu.es/es/catalogo_imagenes/grupo.cmd?posicion=1&path=1000164219&presenta cion=pagina (Verano 2001, pp. 85-121) 6

acción unitaria,20 y del peso inexpugnable de las instituciones norteamericanas en la “innovación” financiera (que en muchos casos no f ue otra cosa que “arbitraje regulatorio,” en las fronteras de lo que se entiende por fraude de Ley) y en el diseño y diseminación de productos tóxicos, a través del mundo cada vez más masivo y complejo de l os instrumentos derivados21 y de la denominada “banca en la sombra” (con su enorme capacidad para encubrir el riesgo sistémico)22 que quedó, por definición, fuera de cualquier forma de regulación (cosa que escandalizó a K indleberger y a Mynski), siendo así que estos instrumentos e instituciones desempeñaron un papel crucial en las grandes crisis financieras del siglo XX y lo harían también en las del siglo XXI. Hasta esta última, parecía que la capacidad del sistema financiero internacional para acumular riesgo sistémico repercutía sólo en la perifería económica del mundo. Pero la Gran Recesión demostró que esta impresión era ficticia y que nadie quedaba a salvo de las fluctuaciones (aunque Europa alentase al principio esperanzas de “desacoplamiento” respecto a EEUU), como se observa en el gráfico I, en lo relativo al ciclo, y en el gráfico II, en la frecuencia y extensión de las crisis bancarias de la globalización.23 Gráfico I.- Ciclos de crisis bancarias

20 Para ilustrar el papel desvaído que desempeñaron las instituciones europeas en aquel proceso, véase también el trabajo mencionado en la nota anterior, 21 Gary Gorton imputó a estos instrumentos la responsabilidad del pánico de 2007: “Information, Liquidity, and the (Ongoing) Panic of 2007,” American Economic Review, American Economic Association, vol. 99(2), pp. 567-72, Mayo 2009, disponible en: http://www.nber.org/papers/w14358. En la situación actual , para Simon Johnson los derivados tienen hoy gran importancia en la interconexión entre la crisis del euro y el riesgo sistémico del sistema bancario americano: “U.S. Banks Aren’t Nearly Ready for Coming European Crisis”, 24/06/2012 (en este WD) 22 Véase Nicola Gennaioli, Andrei Shleifer y Robert W. Vishny, “A Model of Shadow Banking”, NBER Working Paper 17115, Junio 2012, en: http://www.nber.org/papers/w17115 y Enrico Perotti, “The roots of shadow banking”, 21/Junio/2012, en: http://www.voxeu.org/index.php?q=node/8118 (en este WD) 23 Para el impacto de las red de bancos globales (principalmente americanos) en el contagio de la crisis, véase Sebnem Kalemli-Ozcan, Elias Papaioannou & Fabrizio Perri, “Global Banks And Crisis Transmission”, NBER Working Paper 18209, Julio 2012, en: http://www.nber.org/papers/w18209

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A la vista de estos dos gráficos resulta patente que la capacidad de acción de los estados nacionales en el núcleo director de la economía global resulta prácticamente nula, a no ser que se disponga de un t amaño de actividad y una capacidad de acción unitaria similar, al menos, a la de EEUU. Porque en el mundo financiero global la masa crítica y el tamaño, importan. Sin ellos, las economías son simples títeres de la acción del más fuerte y tienen que bailar al son que toca su director (que en esta ocasión fue principalmente Alan Greenspan), y sufrir sus consecuencias. Helmut Schmidt entendió perfectamente que esa era una de las primeras prioridades de la edificación de la nueva unidad política europea, tras la aparición del Euro: disponer de capacidad para negociar con norteamericanos y japoneses el control adecuado sobre los mercados financieros (ya que todavía no aparecían en la escena los países emergentes, que refuerzan todavía más esos desequilibrios de peso entre estados).24 Gráfico II.- Frecuencia de las crisis bancarias sistémicas en el mundo 1970-2011

Esto no quiere decir que, en ausencia de la Gran recesión, la crisis del euro no hubiera aparecido, antes o d espués, dada la dificultad del proyecto, que rompía con todo lo sabido en materia de macroeconomía internacional y de las condiciones idóneas para la formación de áreas monetarias. Pero no se habría presentado de forma tan perentoria, y las condiciones para superarla hubieran sido otras. No hay más que comparar ésta con la crisis bancaria y de la burbuja inmobiliaria sueca a mediados de los noventa, que en un contexto internacional expansivo pudo r esolverse en un pl azo de tiempo razonable25 (aunque empleando las herramientas macroeconómicas aconsejadas por el conocimiento macroeconómico disponible, sintetizadas mejor que nadie por Paul Krugman y Richard Layard en el artículo de FT recogido en este WD). En nuestro caso, cinco de las seis herramientas utilizadas de forma recurrente para resolver este tipo de crisis (gráfico III) no se encuentran en manos de los estados de la UEM, por lo que sería necesario para hacerlo disponer de una “reserva federal”, como

24 En entrevista para La Vanguardia, 16-III-1997. 25 Véase en este WD el artículo de Peter Wolodarski, “Suecia: una cura de déficit no viene mal” 8

señalaban Aaron Tornell y Frank Westermann en NYT. 26 Lo que sucede es que una reserva Federal requiere un Tesoro federal, y esto se pone de manifiesto especialmente con ocasión de las grandes crisis bancarias, que imponen grandes costes fiscales, pérdida de producción y poder adquisitivo y aumentos de deuda pública y de la moneda en circulación extraordinarios, como se observa en el cuadro I: en promedio para los países avanzados, pérdidas de un tercio del PIB, aumento de la deuda pública en una quinta parte y costes fiscales equivalentes al 4% del PIB. Cuadro I.- Resultados de las crisis bancarias, 1970-2011

Gráfico III.- Diferencias en el policy-mix de las crisis bancarias

26 “Europe Needs a Federal Reserve”, 20 Junio, 2012, en este WD.

9

Cuadro II.- Resultados de las crisis y su “resolución”, en la Eurozona y EEUU

El Cuadro II permite observar que la crisis bancaria-tipo durante los últimos cuarenta años no ha tenido una intensidad muy diferente en la Eurozona que en EEUU. Cabe pensar que la diferencia que se observa en las cinco primeras columnas se debe al retraso europeo en la resolución de la crisis bancaria actual. En cambio, la desproporción de las medidas de liquidez en uno y otro caso se debe probablemente a las economías de escala y a los diferentes niveles de segmentación de uno y otro espacio, ya que la integración bancaria norteamericana permite que la liquidez fluya sin barreras por todo el espacio geográfico a t ravés del canal bancario, mientras que en Europa la inversión de los flujos financieros privados a medida que avanza la crisis produce la paradoja de un exceso de liquidez en los bancos del núcleo (hasta el punto de que el BCE estudia rebajar a cero el tipo pagado por los depósitos) y un g rado de iliquidez extremo en los bancos de la periferia, interconectados unos y otros a través del sistema Target2, que hace posible un “pánico bancario silencioso y a cámara lenta”, lo que ha facilitado la huída de depósitos desde la periferia hacia el centro en los últimos años, con la consiguiente necesidad de inyectar liquidez adicional en los bancos privados periféricos, a través del Sistema Europeo de Bancos. Ahora bien, todo ello podría haberse evitado (o paliado considerablemente) de haberse actuado con arreglo a los conocimientos de que disponemos y a la experiencia sobre este tipo de crisis.27 Lo que sucede es que quienes soportan actualmente menores riesgos (cualquiera que haya sido la trayectoria que condujo a la situación asimétrica actual) no desean avanzar en medidas que supongan compartir riesgos superiores a los inicialmente previstos sin elevar al mismo tiempo las medidas que garanticen una responsabilidad efectiva de quienes los asumen o ha n asumido en el pasado, y probablemente algo más. Porque para acometer este tipo de acciones simétricas dentro de la Eurozona bastaría, a lo sumo, con avanzar hacia una forma tímida de “federalismo sui generis”, como la propuesta p ara “Completar el Euro” (Completing the Euro),28 realizada por el “Grupo Padoa-Schioppa,” bajo los auspicios de Jacques Delors y Helmut Schmidt, sintetizados en el trabajo del coordinador del grupo, Henrik Enderlein, recogido en este WD, que parece situarse a medio camino entre la pretensión alemana y lo que Francia estaría en disposición de hacer en estos momentos. Pero todo lo hecho y dicho hasta aquí por los dirigentes alemanes, incluida la actuación durante el Consejo Europeo de Junio, y —lo que es todavía más significativo — las ideas expresadas por lo más nutrido de la inteliguentsia alemana indican que no existe

27 De ahí que Liaquat Ahamed afirme rotundamente “Europe’s bankers have forgotten the lessons of the Depression”, FT 22 de Junio, 2012, en este WD. 28 Disponible en: http://www.notre-europe.eu/uploads/tx_publication/CompletingTheEuro_ReportPadoa- SchioppaGroup_NE_June2012.pdf 10

en la Alemania del siglo XXI la más mínima voluntad de comprometerse hasta el final en la supervivencia del euro a través de medidas que signifiquen un simple paliativo (a lo que Merkel y Schäuble suelen referirse como “las soluciones fáciles”). Y lo que parece fuera de toda consideración es que, después de acumular un capital considerable de competitividad y reformas desde su propia reunificación, Alemania se encuentra actualmente en disposición de demandar a sus socios, como contrapartida a compartir los riesgos de los demás a t ravés de la unión fiscal, un avance efectivo e irreversible hacia la unión política. Nos encontramos probablemente frente a una encrucijada como la que presentó Alexander Hamilton e n su Report on Public Credit (1790),29 que condujo a una nueva Constitución norteamericana. Todos los indicios indican que ese es el punto al que ha llegado Alemania, aunque puedan surgir ciertas dudas.

Salvar a Europa: ¿Es suficiente con asumir el consenso técnico y “pagar el precio” político?

Probablemente la síntesis más acabada sobre la agenda para sacar a la eurozona de la franja de alto riesgo, sobre la que existe un amplio consenso técnico —especialmente dentro del CEPS —, es la que colgó Stefano Micossi en VoxEU el 21 de junio (Bring the Eurozone back from the precipice: An agenda for the European Council, en este WD). En este sentido, el diagnóstico estaba bastante claro. Dos de los más afamados macroeconomistas europeos (Charles Wyplosz y Paul de Grauwe), lo señalaron ya en 2010 y lo sintetizaban estas semanas en los trabajos reproducidos en este WD: Charles Wyplosz calificó el plan 2010 para superar la crisis de la Eurozona como de completo desastre. Su aplicación en cámara lenta ha permitido comprobar lo acertado del pronóstico paso a paso en cada uno de sus elementos. Es más, hoy puede anticiparse que la propia Alemania acabará viéndose abocada a la quiebra si no acepta la monetización de la deuda mediante la intervención del BCE, actuando como prestamista de última instancia. Los pasos dados en la cumbre de finales de junio van en la buena dirección pero son insuficientes y de ejecución muy lenta, por lo que no detendrán la espiral de los mercados (y esta puede acabar con todo el edificio antes de llevarlos a término). Por su parte, Paul de Grauwe afirma por enésima vez que solo el BCE puede detener la espiral especulativa, a lo que añade que la intervención directa del MEDE en la adquisición de bonos no haría otra cosa que acelerarla, de acuerdo con el modelo de las crisis de tipos de cambio formulado en su día por Krugman: básicamente la sustancia del mismo consiste en que, al disponer de capacidad desproporcionadamente limitada (el MEDE, al igual que los bancos centrales que defienden sus divisas utilizando sus escasas reservas),30 la intervención alerta a los mercados de que se acerca el final del juego, por lo que estos aceleran sus apuestas y ventas en descubierto, agotando inmediatamente el fondo disponible.31 El único que puede actuar es el BCE, porque no puede quebrar, siempre y cuando abandone el esquema aplicado por el SMP (con un programa limitado de compras, que tendría el mismo efecto alicorto) y asuma realmente su papel como prestamista de última instancia (para lo cual le bastaría con fijar un spread máximo admitido —por ejemplo, 300 pb —, y seguramente apenas tendría que

29 Disponible en: http://press-pubs.uchicago.edu/founders/documents/a1_8_2s5.html. Un relato histórico breve en: http://www.pbs.org/wgbh/amex/duel/sfeature/hamiltonusconstituion.html 30 Paolo Manasse generaliza el problema, de acuerdo con Salant y Henderson (1978), a toda política de intervención de precios: http://www.linkiesta.it/monti-bce-esm-debito-sovrano-italia 31 Véase la síntesis en: http://ftalphaville.ft.com/blog/2012/07/03/1070061/flooring-the-esm/ . 11

comprar bonos, porque eso devolvería la confianza al mercado). Alternativamente, puede actuar a través del MEDE, siempre y cuando este disponga de una licencia bancaria y pueda descontar los bonos en el BCE.32 Desde el otro lado del Atlántico, Aaron Tornell y Frank Westermann, llegaban, como vimos, a la misma conclusión, consistente verdaderamente en crear una “Reserva federal europea”, pero no daban el salto que dio Alexander Hamilton: ¿cómo es posible una Reserva Federal sin una Europa Federal? En esa línea, la entrevista de FT a Benoît Cœuré resulta perfectamente ilustrativa de los límites en que se mueve el debate. El miembro francés del consejo ejecutivo del BCE interpreta que la intervención del MEDE solo resulta suficiente para “aliviar temporalmente tensiones en el mercado secundario, que es para lo que fue creado…., pero no es un instrumento para la unión de transferencias”. Cœuré admite que, llegados a este punto, la unión monetaria no puede sobrevivir sin la unión bancaria —aunque de Grauwe duda de que el supervisor bancario de esta última puede “nacionalizar” un banco sin referencia a una “nación” (una “comunidad de destino” como concluye Notre Europe, que, sin embargo, no c onsidera verosímil un big bang a corto plazo) — e incluso sin una unión fiscal, pero pasa de puntillas sobre las implicaciones políticas de esta última, aunque en su discurso en Rio de Janeiro a finales de Junio demostró claramente que conocía a la perfección el informe de Hamilton (aunque solo se refiriese a los instrumentos técnicos: “cuando se emite deuda, hay que crear los instrumentos para amortizarla”).33 En la misma onda, el ministro delegado francés de asuntos europeos, Bernard Cazeneuve, señalaba (en respuesta obvia a las posiciones alemanas): “la integración política no puede ser el prerrequisito para las medidas de urgencia…..,” aunque “el refuerzo de las herramientas monetarias y financieras existentes y la mutualización de medios pueden justificar un pilotaje político más integrado”. Entrevistado por Moisés Naím en Turquía, Martin Wolf señalaba el carácter terrorífico de la actuación bancaria desregulada y del grado de permisividad de que habían venido disfrutando los bancos de inversión anglosajones, con consecuencias imprevistas pero devastadoras para todos, como ahora observamos. Lo que sucede es que el propio Wolf concluye que de los tres escenarios previsibles —a saber: “Europa Federal; statu quo- plus y la ruptura” — la salida más probable de la crisis sería el statu quo-plus, entendiendo por tal algo así como el consenso técnico con minimalismo político y de transferencias. Esto es, el sentido común (a partir de lo ya conocido, y de lo que parece factible y urgente a corto p lazo); los intereses políticos del mundo anglosajón (y, especialmente ahora, de David Cameron, que no podría sostener por más tiempo su euroescepticismo si Europa avanzase hacia la unión política, como afirma Gideon Rachman), y las tradiciones políticas nacionales, a l as que muestran especial apego algunos de los socios europeos, abogan por una solución realista, sin hacer depender la salvación del euro del gran salto “a lo Alexander Hamilton”.

32 La decisión del Consejo del BCE del 3 de Julio, estableciendo que el banco no admitirá bonos bancarios garantizados por entidades públicas, como colateral en las operaciones de crédito del eurosistema (http://www.ecb.int/ecb/legal/pdf/en_ecb_2012_12_f_sign.pdf), camina precisamente en la dirección opuesta. De ahí la urgencia de dotar al MEDE de estatus bancario. 33 Lo que indica que los debates sobre “la cosa” deben de ser habituales en el seno del Consejo del BCE. Véase el discurso en: http://www.ecb.int/press/key/date/2012/html/sp120628_1.en.html

12

El problema es que Alemania no está de acuerdo. Y no se trata solo de la dirigencia política alemana: la nula aversión al riesgo económico, m onetario y financiero de la población alemana y la observación de lo ocurrido durante los últimos veinte años de globalización han persuadido a los alemanes de que hacen falta otras reglas para que la vorágine financiera no devore periódicamente todo el crecimiento acumulado desde la crisis precedente. La Unión Federal Europea otorgaría al continente un peso suficiente como para contrarrestar el laissez faire financiero por el que muestra total preferencia el mundo anglosajón, ya sea forzando la aparición de un tipo de reglas comunes, menos propensas al riesgo, ya estableciendo algún tipo de barreras para evitar el riesgo de contagio fulminante (como en su día propusiera Joseph Stiglitz), lo que con toda probabilidad acabaría imponiendo tales reglas. En su comentario para el FAZ, Nils Minkmar se refiere al progama Merkel de forma velada: “ella anuncia que quiere regular los mercados financieros, prescribir a Europa una nueva forma de gobierno, salvar el clima y garantizar la prosperidad sostenible de Alemania, Europa y Occidente. Y al mismo tiempo, el círculo de los que se posicionan a su lado se hace cada vez más pequeño. En realidad, ella es el único miembro de su equipo.” La solución propuesta por Minkmar es que la Canciller se dirija directamente al conjunto de la población europea, pero es muy dudoso que en las circunstancias actuales ese camino diera buenos resultados (además, nadie se imagina a Merkel haciendo campaña por una Europa federal esgrimiendo el argumento de que eso le permitiría poner firmes a los poderes financieros del mundo: no parece ser su estilo). Al contrario, la dirigencia alemana —que contempla la opción federal como la solución óptima — considera que en la actualidad (y probablemente en el futuro, dados los precedentes históricos) no resulta factible dar los pasos decisivos en esa dirección a no ser que el resto del continente (y algo más) se encuentre al borde del abismo financiero (la “federación a palos”, de que se hablaba al comienzo). Además, debe contemplarse también el efecto de todo esto sobre el resto del mundo, y especialmente sobre los aliados trasatlánticos. Y resulta claro que, frente al riesgo de colapso, el resto del mundo se avendría bien a admitir la aparición de una potencia política de primer nivel, como precio a pagar por evitar la Segunda gran depresión. Paul Krugman parece haberlo visto claro ahora: en su entrevista para El País ya solo otorga una ligera ventaja a la probabilidad de supervivencia del euro (sobre la de ruptura) si se avanza hacia la unión política. El propio “chantaje” esbozado por David Cameron, con su amenaza de referéndum sobre la UE, viene a ser el reconocimiento de lo desesperado de su posición política si Europa avanza (y los mismos dirigentes británicos saben ahora que sin unión fiscal no hay moneda única, lo que nos devuelve al trilema). Ahora bien, ¿no contempla la dirigencia alemana ninguna solución subóptima, siquiera sea como paso intermedio hacia aquella? Los dirigentes europeos van manifestando poco a poco su acuerdo sobre la necesidad de reforzar los vínculos políticos y la transferencia de soberanía hacia Bruselas (aunque todavía no sobre la plena integración política cierta e irreversible, que implica el compromiso firme de los dirigentes para liderar procesos democráticos en esa dirección con vistas a ganar los inevitables referendos)34 ¿Llevará Alemania su exigencia hasta el punto de asumir la absoluta irracionalidad del supuesto alternativo? En su columna de Spiegel, Wolfgang Münchau

34 Aunque el camino iniciado en junio no es otra cosa que desandar el camino del tratado de Westfalia, como señalaba Enric Juliana: http://www.lavanguardia.com/politica/20120701/54319259428/plante- espana-italia-tendra-precio-soberania.html 13

estimaba que en ese caso nos dirigiríamos hacia la mayor cesación de pagos de la historia mundial, que costaría a la propia Alemania, como mínimo, entre el 40% y el 80% de su PIB ¿Qué es lo que ocurre para que ni siquiera el SPD se rebele en Alemania contra tamaña desmesura (a no ser que se haya producido un pacto tácito de remar todos en la misma dirección)? La respuesta de Münchau era nítida: el poder de la narrativa imperante en el país es tan fuerte que disuade a todos los políticos democráticos de ponerle remedio porque temen que, de hacerle frente, perderían su puesto. Y, lo que es peor, no s e trata solo de la narrativa que emana de la dirigencia política (que, ciertamente, ha reforzado la opinión imperante), sino de un sentimiento cada vez más extendido entre el electorado alemán: en el mes de junio, por primera vez la mayoría de los alemanes pensaban que habría sido mejor mantener el marco en lugar de adoptar el euro (el 55%, frente al 46% en noviembre de 2011),35 algo que seguramente habrá empeorado desde entonces, tras el brusco giro de las perspectivas de la economía alemana, que anuncian ahora estancamiento durante 1912 y 1913. Bien es verdad que el empeoramiento se atribuye unánimemente a la crisis del euro, que Alemania ha venido controlando.36 La hipótesis de Münchau resultaría escasamente verosímil si no fuera porque algo así ya ocurrió en 1930, c uando el SPD fue incapaz de oponerse a la política de Heinrich Brüning, económicamente suicida, que condujo, además, al suicidio de la democracia en 1933. También ahora, concluye Münchau, “la política de Merkel nos lleva al infierno de Dante, y quién entra en él p ierde toda esperanza”. Pero no por eso existe la más mínima certeza de que al final Alemania ceda, porque, en sus propias palabras, “… en el transcurso de esta crisis me he dado cuenta de lo rápido que la histeria colectiva irracional se apodera de un país democrático”.37 ¿Es posible que los dirigentes alemanes estén jugando con el fuego de esa irracionalidad, como herramienta para impulsar su proyecto, o s e trata de un r iesgo genuino que no s aben o t odavía no han podido controlar? El lunes 25 Wofgang Münchau recomendaba a Mario Monti obligar a Merkel a enseñar todas sus cartas en la cumbre del día 28, pl anteando directamente la apuesta final: denunciando el carácter falaz de las medidas-placebo (concebidas como simple señuelo para distraer a los mercados) y retándola a adoptar las decisiones clave ya, so pena de afrontar directamente la destrucción del euro, ofreciendo su propia dimisión como primer ministro de Italia (lo que actuaría muy probablemente de detonante para la ruptura de la eurozona). Al día siguiente, la crónica del corresponsal en Bruselas para FT indicaba claramente que Monti no tenía otro remedio que lanzar el guante, porque se le está agotando el tiempo de su mandato, que no dura más que un año, y en Septiembre se reabre la campaña electoral (en la que Berlusconi afirma postularse como candidato a ministro de finanzas, para mayor martirio de Wolfgang Shäuble).

35 Véase: http://www.efxnews.com/story/12976/majority-germans-want-return-deutsche-mark-survey 36 http://www.spiegel.de/international/business/german-economy-shows-dangerous-signs-of-weakening- a-842240.html 37Histeria sintetizada en la frase de Thilo Sarrazin: “¡Echemos a G recia y todo volverá a f uncionar!” Véase: http://www.spiegel.de/wirtschaft/soziales/euro-krise-wie-merkel-uns-in-den-ruin-treibt-a- 839903.html (interpretada con la ayuda del traductor de Google) 14

La “coronación” de frau Merkel Llegados a este punto nos encontramos ante un verdadero ejercicio de política- representación,38 en que las diferentes partes actúan como en un teatro; pero no en una farsa histriónica, sino más bien en una especie de “gran teatro del mundo,” tal como lo entendían nuestros dramaturgos barrocos, para quienes los grandes personajes se movían a impulsos de una especie de destino que los dominaba y, al expresar su drama, entraban en comunión con el público, que veía así canalizadas y reforzadas sus convicciones y preferencias. Jeffrey Alexander lo expresa afirmando que la actuación simbólica del político de nuestro tiempo trata de establecer una comunidad con los espectadores que le permita trasmitir de manera vívida y expresionista el significado de su relato (que, a su vez, aporta significado a la existencia cotidiana). De ahí que, en la Europa de la angustia frente a la crisis, la narrativa conservadora alemana (común a todo el núcleo de la eurozona), e incluso la sobria expresión corporal de Angela Merkel, resulte especialmente atractiva por el carácter simple y primigenio de su mensaje, articulado en torno al buen sentido económico del ama de casa suava39 —que sabe que no puede gastar lo que no tiene, ni vivir por encima de sus posibilidades —, y al buen sentido moral (luterano) de castigar a aquellos que se han propasado en el dispendio, sometiéndolos a una dieta de frugalidad punitiva (ocultando que con el castigo excesivo a los “dispendiosos” se castiga igualmente a los frugales, que tendrán mayores dificultades para recuperar lo que les prestaron de manera imprudente). Frente a la simplicidad y la pegajosidad de este mensaje, la otra parte se ve obligada a emplear un razonamiento, que, por muy simple que sea (apoyándose en las identidades contables básicas de la macroeconomía), carece del atractivo del lenguaje intuitivo, resulta frío y especioso, más propio de intelectuales y políticos profesionales que del hombre de la calle, o bien se ve obligado a expresarse en paradojas, como lo hiciera Keynes en su “paradoja de la frugalidad”. Esa es la tarea que se propuso hace ya tres siglos Bernard de Mandeville en su Fábula de las abejas. O vicios privados, prosperidad pública, que ha dado lugar a l a más abundante literatura especulativa acerca de la pretensión pedagógica del polígrafo holandés, cuya propuesta de fundar la prosperidad de los países sobre el carácter práctico, utilitario y hedonista del hombre corriente (empleando una astucia de la razón similar a la de la mano invisible de Adam Smith), fue denunciada también en su tiempo como el peor ataque a la moral de los británicos, aunque acabaría convirtiéndose en el fundamento de la economía política moderna. La semana larga que transcurrió entre la cumbre del G20 y el Consejo Europeo constituye una pieza muy completa del mundo de pura representación política en que nos encontramos. Ya en los Cabos, la Canciller dejó ver que, por mucha presión que se le hiciera, no admitiría avances hacia la salvación del euro si no había avances políticos efectivos. Todo el mundo anglosajón (aunque no solo) vio en ello una actitud dilatoria para no asumir sus responsabilidades globales. Hay que tener en cuenta que en todo este mundo existe en primer lugar el temor a que el retraso de la solución europea confirme la recesión de segunda vuelta —o de que un fallo en el calendario conduzca al colapso del euro y hunda al mundo en la depresión —, pero también una cierta prevención a que una Europa con unión política resulte demasiado fuerte y llegue a disputar a EEUU el

38 Para un desarrollo de esta línea de análisis, véase Jeffrey C. Alexander, The Performance of Politics. Obama's Victory and the Democratic Struggle for Power, OUP. Octubre 2010. 39 Véase en este WD el curioso artículo de David Brooks sobre “El poder de lo particular”. 15

liderazgo económico occidental. De ahí que todas las recomendaciones provenientes de este mundo insten a constituir ya la Reserva Federal Europea.40 En cambio, el tiempo de Angela Merkel es otro. Se trata de un tiempo pedagógico, que permita hacer madurar en el imaginario colectivo de los alemanes de a pié el proceso de sublimación de sus pulsiones innatas más primarias —o sea su pasión adquisitiva (la exigencia de “la libra de carne,” del prestamista que ve peligrar la devolución de su peculio) —, transformándola en una pulsión de poder (la de una Europa concebida como una Alemania grande, o más bien, como la realización efectiva del sueño alemán de siempre: la reconstrucción del SIRG).

Y todo ello realizado con parsimonia, sin mención explícita del objetivo perseguido, facilitando que sea su propio público quien termine por arrastrarla hasta ese punto, pero sin precipitarlo; entregando, eso sí, a la audiencia más amplia de la futura Federación pequeños avances, para evitar que cunda la desesperación (“Alemania no puede decir siempre no”, afirmaría el Comisario alemán de la UE, Günther Oettinger, actuando como “campeón” de la dama y descubriendo el significado pedagógico de su gesto en la cumbre). Pero ella sabe que tiene las espaldas bien guardadas, y cuenta con los avisos que surgirán enseguida de entre sus propias filas, afirmando de manera tonitronante que no tolerarán más cesiones, como hizo al día siguiente el líder del CSU, Horst Seehofer, amenazando con romper la coalición (¡!). Estos avances se administran, además, con gran economicidad: El lunes, día 25, se tuvo conocimiento del documento de 10 pá ginas elaborado y filtrado por “el cuarteto de Bruselas” (Van Rompuy, Draghi, Barroso y Junker) presentando el trilema de las tres uniones: bancaria, fiscal y política, por ese orden, con ciertas precisiones de calendario y sugiriendo algunas anticipaciones, como la posibilidad de rebajar la presión sobre los bonos soberanos accediendo a que los rescates bancarios no pasen por los presupuestos estatales, etc. Sin embargo, una vez publicado el martes 26 en la Web del Consejo, el documento final solo contenía 7 páginas, y las propuestas habían quedado aguadas (pero habían estado ahí, como simple borrador, y significaban promesas de futuro, a alcanzar llegado el momento, pari pasu con otros avances). Van Rompuy asumió el encargo de preparar para fin de año un documento de propuestas para “fortalecer la UEM”. Porque hay públicos de varios niveles. Y en primer lugar se encuentran los que comparten la actuación en el mismo escenario, sus propios colegas del Consejo, que deben verse conmovidos por su esfuerzo, y acompañarla y ayudarla a conducir a sus

40 Además del artículo de Aaron Tornell Frank Westermann, ya citado, véanse en este WD los editoriales de NYT, “The Trouble With Ms. Merkel”, de 19 de Junio y de FT “Eurozone weighs another palliative”, de 20 de Junio, urgiendo a convertir ya los fondos de rescate en bancos para que puedan acudir a la ventanilla de descuento del BCE. En las antípodas se encuentra Hans-Werner Sinn, que tras los acuerdos del Consejo de 28-29 de junio, decidió encabezar una campaña contra la unión bancaria, mientras Peter Bofinger hacia lo propio con los economistas europeistas en favor de la estrategia Merkel.. 16

connacionales alemanes al buen puerto (sin presumir demasiado exhibiendo las inevitables derrotas parciales de la canciller, o presentándole públicamente sus excusas, como hizo Mario Monti el día 4 en Roma, anticipándolas en el FAZ, que es el púlpito para dirigirse al conservadurismo alemán). Porque en la lógica de la representación está que ellos se conmuevan también ante las dificultades que atenazan a Frau Merkel: dentro de su propio partido; en la coalición; en la negociación con las oposiciones para sacar adelante el pacto fiscal; en los equilibrios con el tribunal de Karlsruhe; por no hablar de sus aliados finlandeses u hol andeses que, por mucho que la apoyen en los planes de austeridad, se muestran férreamente apegados a sus plenas soberanías nacionales (aunque no lo serán tanto cuando suene el grito de ¡la nave va! y haya que decidir entre subir o quedarse en tierra, como les acaba de suceder a los irlandeses). Primus inter pares de la UE, François Hollande concluyó su entrevista con Merkel previa a la cumbre en el Elíseo reclamando tablas, al afirmar: “Tendremos tanta integración como sea necesaria y tanta solidaridad como sea posible”. En cambio, Frau Mekel insistía en la necesidad de “más Europa” y en que “vamos a hablar del futuro político de la Unión Económica y Monetaria”. Wolfgang Münchau se hacía eco en las vísperas de lo urgente e imprescindible (salvar a España e Italia): “Un acuerdo para permitir que el ESM recapitalice directamente a los bancos, para que disponga de una licencia bancaria que le permita apalancarse y comprar bonos directamente. En esencia, esta es la propuesta de François Hollande. No se trata del mínimo para salvar el euro, sino del mínimo necesario para llegar a fin de año” Luego, durante la cumbre, Mariano Rajoy y Mario Monti se repartirían los papeles: bloqueando el primero la aprobación del plan de crecimiento (imprescindible para Hollande) hasta que no se avanzase algo en la unión bancaria (que beneficia a España, pero igualmente a Francia, Italia y, en última instancia, tambien a A lemania, como sugiere Martin Wolf), y bloqueando el segundo la tasa sobre transacciones bancarias (imprescindible para Merkel, debido al acuerdo con sus oposiciones internas) hasta que no se adoptase un p rograma de reducción de los diferenciales de los bonos “para remediar los fallos en los mercados de deuda soberana” (que afectan a la mitad de la UEM). Pese a que la cumbre pareció cumplir las exigencias mínimas planteadas por él mismo como pasaporte para llegar a fin de año, en su columna de Spiegel del cinco de junio Münchau consideraba que las decisiones a medias del Consejo Europeo pueden acelerar la crisis, en lugar de detenerla. Porque, tras sopesar las primeras impresiones, nadie se llamó a engaño: en el Consejo de Junio de 2012 “El verdadero vencedor de Bruselas fue Merkel” (Münchau dixit). Y no porque en el Consejo se impusiese finalmente la “teoría de la coronación”defendida por el Bundesbank desde los años ochenta, según la cual la unión monetaria solo es aceptable una vez se haya completado la unión política. Eso es lo que apreciaba Wolfgang Proissl en su columna de Financial Times Deutschland, sintetizando aquella teoría al comentar el discurso pronuciado por Jens Weidmann a mediados de Junio, en el que establecía taxativamente que “la unión bancaria con supervisión común, garantía de depósitos y autoridad de liquidación-reestructuración solo es posible a partir de un a cuerdo entre todos los miembros de la Eurozona para establecer una unión fiscal con todas las de la ley, con transferencia de soberanía presupuestaria, reglas fiscales estrictas y sanciones cuasi-automáticas”. Pero esa era solo “la teoría de la coronación del Bundesbank” (unión monetaria, unión bancaria, unión fiscal), compartida aparentemente hasta ahora por la Canciller. Sin embargo, llegados a 17

este pùnto, hay algo más: “la teoría de la coronación de Angela Merkel” incluye un cuarto eslabón, que no es otro que la unión politica, o sea los Estados unidos de Europa. Desde coordenadas teóricas, económicas, filosóficas y políticas completamente diferentes, Amartya Sen comparte en buena medida esto último, aunque no el resto de sus presupuestos: “Los problemas que estamos presenciando hoy en Europa son principalmente el resultado de errores políticos: son castigos por haber adoptado una mala secuencia (primero la unidad monetaria; más tarde la unidad política); por un mal razonamiento económico (que incluye no hacer caso de las lecciones económicas keynesianas, y descuidar la importancia que tienen los servicios públicos para los europeos); por tomar decisiones autoritarias, y por una persistente confusión intelectual entre reforma y austeridad. Nada es hoy en Europa tan importante como un reconocimiento clarividente de lo que ha funcionado mal en la realización de la magnífica visión de una Europa unida.” Ese es el debate que se abre ahora. Porque a nadie se le pasa por la cabeza que la Unión política europea pueda establecerse simplemente a través de un acuerdo entre dirigentes adoptado en Bruselas. Ni que un responsable del Tesoro europeo, con atribuciones por encima de los parlamentos nacionales (o sea, titular de un procedimiento de soberanía compartida, en el que las decisiones de estos últimos se encontrarán sometidas a severas restricciones) pueda escapar a la elección democrática directa. Ni que pueda haber un titular del Tesoro (un “Súper Mr. Euro”) con tales atribuciones sin el respaldo de un Presidente Europeo. Lo que aparece en el horizonte, pues, es un nue vo Tratado. El debate ya no puede demorarse porque lo que parece claro es que la resolución definitiva de esta crisis no se completará hasta que Alemania cuente con garantías de que el nuevo Tratado se adoptará, y de cuántos estados se comprometerán de forma irrevocable en el nuevo proyecto político. Por el momento, Martin Wolf ya percibe una alianza objetiva entre los cuatro mayores estados del Euro. ¿Qué es lo que hace de Alemania el principal impulsor de esta nueva unidad política? No es difícil responder a esta pregunta. Sin remontarse a la Filosofía del Derecho de Hegel (con sus disquisiciones dialécticas en torno al orden de prelación entre la sociedad civil y el estado), en la historia contemporánea Alemania es el único gran país europeo que puede aproximarse a la idea del estado con una perspectiva constructivista, ya que ningún alemán perteneciente a las últimas diez generaciones ha atravesado toda su biografía perteneciendo al mismo estado. Y la primera que no lo ha hecho es Angela Merkel, que ha vivido bajo tres configuraciones diferentes de estados alemanes: la Alemania Federal, la Alemania democrática y la Alemania Unificada. Desde el final de la Segunda Guerra Mundial esa vivencia se ha visto asociada (en la realidad, o en las aspiraciones) a la idea de un f uturo estado europeo. Además, dada su extraordinaria aversión al riesgo monetario, Alemania es también el país que siente de manera más lacerante la incapacidad de Europa para hacer oír su voz a la hora de introducir anclas regulatorios en la globalización económica, monetaria y financiera. Eso no quiere decir que la Europa que surja de esta encrucijada histórica vaya a ser una “Europa alemana” (aunque muchas de las reglas económicas del nuevo Tratado sí lo serán), porque en última instancia la nueva unidad política acabará siendo lo que decidan sus ciudadanos, a través de decisiones democráticas, y no lo que decida ningún directorio (aunque la alianza franco-alemana, recompuesta y reforzada con motivo de las celebraciones del 60º aniversario de la reconciliación entre los dos países, puede actuar una vez más como locomotora). El artículo de Amartya Sen que aparece en este WD da pistas de todo ello. Así como Merkel dice lo que necesita que aparezca en el nuevo Tratado, convendria que los demás también tuvieran preparadas sus propuestas. 18

Contenido

1. 'Hollande Should Confront French with Economic Reality'. Spiegel. 04/07/2012. Pág. 23 2. Austerity is undermining Europe's grand vision. By Amartya Sen, 3/Jul/2012. Pág. 25 3. A step at last in the right direction. By Martin Wolf. 3/Jul/2012. Pág. 27 4. German Party Leader Threatens To Axe Coalition. Spiegel. 03/07//2012. Pág. 30 5. El fin del método Merkel. Por Nils Minkmar. 3 julio 2012. Pág. 32 6. “Si España no tiene éxito en esta crisis, el euro tampoco lo tendrá” Paul Krugman. 3 Jul 2012. Pág. 35 7. Why the EU summit decisions may destabilise government bond markets. By Paul De Grauwe. 2 Jul 2012. Pág. 38 8. Blackmail cannot be UK’s Europe policy. By Gideon Rachman. 2 Jul 2012. Pág. 42 9. Is opinion on the summit beginning to shift?. Eurointelligence. 02.07.2012. Pág. 44 10. Outfoxed by Club Med.German Dominance in Doubt after Summit Defeat. Spiegel. 02.07.2012. Pág. 47 11. 'Germany Can't Always Say No'. Spiegel. 02.07.2012. Pág. 55 12. Primero, los deberes nacionales. Por Michele Boldrin. 2 Jul 2012. Pág. 58 13. The real victor in Brussels was Merkel. By Wolfgang Münchau. 01.07.2012. Pág. 61 14. Horizontes europeos. Editorial El País 1 Jul 2012. Pág. 63 15. One more summit: The crisis rolls on. By Charles Wyplosz. 30 Jun 2012. Pág. 64 16. La vuelta al mundo con Martin Wolf. Por Moisés Naím 30 Jun 2012. Pág. 66 17. La paja española y la viga europea (o viceversa). Por Gabriel Tortella 30 Jun 2012. Pág. 68 18. El declive de la ‘marca España’. Por Luis Garicano 29 Jun 2012. Pág. 69 19

19. Merkel Knows the Dealing Isn't Done. By Carsten Volkery. 29/07/2012. Pág. 72 20. Tres en uno. Por Xavier Vidal-Folch 29 Jun 2012. Pág. 74 21. A deal and an initially positive market reaction. Eurointelligence. 29.06.2012. Pág. 76 22. Los desafíos del rescate. Por Xavier Vives. 29 Junio, 2012. Pág. 78 23. Suecia: una cura de déficit no viene mal. Por Peter Wolodarski. 28 junio 2012. Pág. 80 24. Germany offers vision of federalism for the European Union. By Anthony Faiola y Michael Birnbaum., 27 Junio 2012. Pág. 82 25. A manifesto for economic sense. By Paul Krugman and Richard Layard June 27, 2012. Pág. 84 26. Merkel and Hollande disagree politely. Eurointeligence. 28.06.2012. Pág. 87 27. Merkel: Not over my dead body; Monti throws down gauntlet. Eurointelligence. 27.06.2012. Pág. 90 28. Gli alibi (facili) che non aiutano. By Alberto Alesina. 27 Junio 2012. Pág. 92 29. Pour Bernard Cazeneuve, le ministre délégué aux affaires européennes, "l'intégration politique ne peut être le préalable aux mesures d'urgence". AFP. 26 junio 2012 . Pág. 94 30. Look beyond summits for euro salvation. By Martin Wolf. 26 Junio, 2012. Pág. 95 31. The Tommaso Padoa-Schioppa Group report: What is now needed to solve the crisis. By Henrik Enderlein. 27.06.2012. Pág. 98 32. Van Rompuy scales back eurozone plan. By Peter Spiegel. 26 Junio, 2012. Pág. 101 33. Merkel says Nein to deposit guarantee fund and euro bills. Eurointelligence. 26.06.2012. Pág. 103 34. EU plan to rewrite eurozone budgets. By Peter Spiegel. 25 Junio 25, 2012. Pág. 105 35. How to shift Germany out of ‘can’t do’ mode. By George Soros. 25 Junio 25, 2012. Pág. 107 36. What was Spain supposed to have done?By Martin Wolf. 25 Junio 25, 2012. Pág. 109

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37. The Power of the Particular. By David Brooks. 25 Junio 25, 2012. Pág. 113 38. Germany to Confront United Euro Bloc at Summit. By Patrick Donahue. 25 Junio, 2012. Pág. 116 39. Central Banks Commit to Ease as Threat of Lost Decades Rises. By Simon Kennedy & Rich Miller. 25 Junio, 2012. Pág. 119 40. Euro blueprint maps way to banking union. By Alex Barker & Gerrit Wiesmann. 24 Junio, 2012. Pág. 123 41. Why Mario Monti needs to speak truth to power. By Wolfgang Münchau. 24 Junio, 2012. Pág. 125 42. The Great Abdication. By Paul Krugman. 24 Junio, 2012. Pág. 127 43. U.S. Banks Aren’t Nearly Ready for Coming European Crisis. By Simon Johnson. 24- Junio, 2012. Pág.129 44. How policy has contributed to the great economic divide. By Joseph E. Stiglitz. 23 June 2012. Pág. 132 45. Europe’s bankers have forgotten the lessons of the Depression. By Liaquat Ahamed. 22 Junio, 2012. Pág. 134 46. Income Inequality, Tax Base and Sovereign Spreads. By Joshua Aizenman & Yothin Jinjarak. Junio 2012. Pág. 136 47. Global deleveraging scorecard—US takes the lead. McKinsey Quartet. Junio 2012. Pág. 140 48. Race to save euro will follow ‘Grexit’. By Willem Buiter. 21 Junio, 2012. Pág. 141 49. Bring the Eurozone back from the precipice: An agenda for the European Council. By Stefano Micossi 21 Junio 2012. Pág. 143 50. Berlusconi says Italy should quit eurozone unless Merkel changes course. Eurointelligence. 21.06.2012. Pág. 150 51. The roots of shadow banking. By Enrico Perotti. 21 Junio 2012. Pág. 154 52. Germany may face bankruptcy unless it accepts ECB debt monetisation. By Charles Wyplosz. 21.06.2012. Pág. 159 53. The Eurozone’s May 2010 strategy is a disaster: Time to pay up and end this Crisis. By Charles Wyplosz. 20 Junio 2012. Pág. 161 54. Withdrawal from EU core would leave us an impotent spectator. By Brendan Keenan. 21.06.2012. Pág. 165

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55. Germans strike deal on eurozone pact. By Quentin Peel in Berlin.21.06.2012. Pág. 167 56. Don’t count on Germany’s economic surrender. By David Marsh. 20 Junio, 2012. Pág. 169 57. Europe Needs a Federal Reserve. By Aaron Tornell &Frank Westermann. 20 Junio, 2012. Pág. 171 58. Transcript: FT interview with Benoît Cœuré. 20 Junio, 2012. Pág. 173 59. Eurozone weighs another palliative. FT editorial. 20 Junio, 2012. Pág. 178 60. The Trouble With Ms. Merkel. NYT Editorial. 20 Junio, 2012. Pág. 179

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07/04/2012 01:26 PM The World from Berlin 'Hollande Should Confront French with Economic Reality' The new French government may have to drop its opposition to austerity after new figures reveal that the economy is not doing as well as expected. German commentators argue that tough spending cuts will be needed if Paris wants to meet its deficit targets. After the new French prime minister announced bleak figures for the country's economy, tough months ahead are expected in France. The news could mean that Paris, too, is forced to embrace austerity, despite French President François Hollande's vocal opposition to belt-tightening of the kind that Berlin favors. "The situation is serious," French Prime Minister Jean-Marc Ayrault told the French parliament on T uesday, reacting to figures from the state auditor which showed that previous growth forecasts had been over-optimistic. The French economy is now only expected to grow by only 0.3 percent this year, rather than 0.7 percent, as the previous government of former President Nicolas Sarkozy had predicted. Growth would be higher in 2013, a t 1.2 p ercent, Ayrault said, but that is still below the 1.75 pe rcent forecast. The Court of Auditors also revealed that the government will need to find savings of €33 billion ($42 billion) next year in order to reach the European Union's deficit goal of 3 percent of gross domestic product. Cuts of between €6 bi llion and €10 billion will already be needed in 2012 if France is to achieve a deficit of 4.4 percent of GDP for this year, a milestone which it has already promised as part of a budget plan sent to Brussels. The French prime minister said that the new government would tackle the problem by focusing on s timulating growth rather than the tough austerity which has marked German Chancellor Angela Merkel's approach to the euro crisis and which has been strongly criticized by Hollande. Ayrault said that the government still planned to create 150,000 state-funded jobs and hire many more teachers and police, as Hollande had promised during his election campaign. The prime minister also confirmed that the government was to go ahead with raising taxes on t he wealthy. Under the plan, an income tax rate of 75 percent will be imposed for income of more than €1 million. Ayrault denied that the government would drop its opposition to economizing, and observers believe that tough cuts will be unavoidable next year -- a development likely to anger French voters after Hollande's anti-austerity pledges during his election campaign. The announcement of the revised figures has fuelled fears that France might also become a candidate for an EU bailout if it does not get its finances in order. France's debt level could exceed 90 percent of GDP in 2012, a level which economists consider the tipping point, and the country already lost its Standard & Poor's triple-A credit rating earlier this year. On Wednesday, German commentators take a look at the implications of the new figures. 23

The center-right Frankfurter Allgemeine Zeitung writes: "New French Prime Minister Ayrault faces enormous challenges. The budget deficit is higher than planned, the debt burden has reached the limits of sustainability and interest payments have become the largest item in the government's budget." "The public sector in particular will have to make sacrifices. It will not be possible to sort out the national finances without public sector lay-offs and a multi-year salary freeze. This will be painful for Hollande, because civil servants are among the Socialists' core supporters." "Since 1974, no French government has presented a balanced budget. Of course, France is not alone in Europe in that respect. All across the continent, the key issue is to develop a new kind of European politics that can be financed sustainably." The center-left Süddeutsche Zeitung writes: "In his first policy speech, Prime Minister Jean-Marc Ayrault announced the kind of thing one might expect from a pragmatic French Socialist. He wants to stop racking up new debt, reduce government spending, introduce a fairer tax system and invest in young people and education. That sounds reasonable, even if the accent should be placed more on austerity than on increasing taxes." "But Ayrault also declared a revolution, almost in passing: France will no l onger be ruled by presidential decree from the Élysée Palace. In the future, employers associations and trade unions, municipalities, associations and NGOs would be involved in major decisions in the areas of the economy, labor market, education and environment, promised Ayrault. He is an expert on Germany ... and this indeed sounds a lot like the German model. ... If it happens, it will mark the end of the hyperpresidential command economy that Sarkozy preferred. French politics would become more democratic and transparent. But the forces of inertia in Paris are strong. Hollande still has to prove that he can resist the tempations of the Élysée's aura of omnipotence." The conservative Die Welt writes: "Hollande is a sun king without riches. In this situation, the French president could of course continue to follow the strategy with which he had been successful so far, namely, to demand nothing from his own electorate while at the same time calling on his economically powerful German neighbors to show more 'solidarity' with the other impoverished southern Europeans. It's questionable how long the European Union can last when one of its key partners believes he can compensate for a lack of willingness to reform through clever tactical games. If Hollande wants to prevent his country -- and Europe -- from collapsing, he will have to make clear very soon how he intends to carry out structural reforms in his country." "Hollande has no option but to make huge cuts in the bloated public sector. That means reducing the number of officials as well as the quantity of benefits. There is too much of both. France has the second highest public expenditure in the EU. ... Hollande requested a hard-hitting report, and he got it. Now it's up to him and his government to take the necessary action. He should no longer lull the French into a false sense of security, but confront them with economic reality." -- David Gordon Smith URL: http://www.spiegel.de/international/europe/german-commentators-forecast- austerity-in-france-a-842546.html

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Austerity is undermining Europe's grand vision Economic policy is triggering disaffection among nations – the very thing the pioneers of unity hoped to erase

Amartya Sen guardian.co.uk, Tuesday 3 July 2012 21.00 BST

The poet WH Auden evoked the fears that inspired the pioneers of European unity. Photograph: Harry Redl/Time Life Pictures/Getty Images The dream of the unification of Europe goes back at least to the 15th century, but it is the nastiness of the world wars in the 20th century that established its urgent need in our time. The challenge was well described by WH Auden in early 1939: In the nightmare of the dark / All the dogs of Europe bark, / And the living nations wait, / Each sequestered in its hate. It is important to appreciate that the movement for European unification began as a crusade for cross-border amity and political unity, combined with freer movement of people and goods. Giving priority to financial unification, with a common currency, came much later, and it has, to some extent, started to derail the original aspiration of European unity. The so-called "rescue" packages for the troubled economies of Europe have involved insistence on draconian cuts in public services and living standards. The hardship and inequality of the process have frayed tempers in austerity-hit countries and generated resistance – and partial non-compliance – which in turn have irritated the leaders of countries offering the "rescue". The very thing that the pioneers of European unity wanted to eliminate, namely disaffection among European nations, has been fomented 25

by these deeply divisive policies (now reflected in such rhetoric as "lazy Greeks" or "domineering Germans," depending on where you live). As a result, the costs of failed economic policies extend well beyond economic lives (important as they are). There is no da nger of a return to 1939, but it does not help Europe to have dogs barking, sequestered in resentment and contempt – if not hate. On the economic side, too, the policies have been seriously counterproductive, with falling incomes, high unemployment and disappearing services, without the expected curative effect of deficit reduction. So what has gone wrong? Two issues need to be separated out: one, the counterproductive nature of the policy of austerity imposed on (or, as in Britain, chosen voluntarily by) governments; and two, a reasoned suspicion about the lack of viability of the shared euro. The moral appeal of austerity is deceptively high ("if it hurts, it must be doing some good"), but its economic ineffectiveness has been clear at least since Keynes's debunking of "the remedy of austerity" in the Great Depression of the 1930s, with unemployment and idle capacity due to a l ack of effective demand. It is also self- defeating in reducing public deficits, because austerity tends to depress economic growth, so reducing a government's revenue. Much of the eurozone has been shrinking rather than expanding since the inception of these policies. However, we have to go well beyond Keynes in understanding the harm done by the ill- chosen cult of austerity. We have to ask what public expenditure is for – other than just strengthening effective demand (on which Keynes concentrated, focusing on the expenditure itself, rather than on t he services it supported). Savage cuts in important public services undermine what had emerged as a social commitment in Europe by the 1940s, and which led to the birth of the welfare state and the national health services, setting a great example of public responsibility from which the entire world would learn. Turning to the second problem – the euro, with fixed exchange rates for all countries in the zone – economies that fall behind in the productivity race tend to develop lack of competitiveness in exports, as countries such as Greece, Spain or Portugal have been experiencing already. Competitiveness can, of course, at least partly be recovered through slashing wages and living standards, but this would lead to great suffering (much of it unnecessary), and generate understandable popular resistance. Sharp increases in inequality between regions can be remedied, to be sure, by large-scale migration within Europe (for example, from Greece to Germany). But it is hard to assume that persistent population inflow to the same countries would not generate political resistance there. The inflexibility of fixed exchange rates of the euro is inherently problematic when the economic performance of countries continues to differ. A unified currency in a politically united federal country (such as in the US) survives through adjustment mechanisms (including large internal migration and substantial transfers) that cannot yet be a norm in a politically disunited Europe. If European economic policies have been economically unsound, socially disruptive and normatively contrary to the commitments that emerged in Europe after the second world war, they have been politically naive as well. The policies have been chosen by

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financial leaders with little attempt to have serious public discussion on the subject. Decision-making without public discussion – standard practice in the making of European financial policies – is not only undemocratic, but also inefficient in terms of generating reasoned practical solutions. For example, serious consideration of the kinds of institutional reforms badly needed in Europe – not just in Greece – has, in fact, been hampered, rather than aided, by the loss of clarity on t he distinction between reform of bad administrative arrangements on t he one hand (such as people evading taxes, government servants using favouritism, or unviably low retiring ages being preserved), and on the other, austerity in the form of ruthless cuts in public services and basic social security. The requirements for alleged financial discipline have tended to amalgamate the two in a compound package, even though any analysis of social justice would assess policies for necessary reform in an altogether different way from ruthless cuts in important public services. The problems we are seeing in Europe today are mainly the result of policy mistakes: punishments for bad sequencing (currency unity first, political unity later); for bad economic reasoning (including ignoring Keynesian economic lessons as well as neglecting the importance of public services to European people); for authoritarian decision-making; and for persistent intellectual confusion between reform and austerity. Nothing in Europe is as important today as a clear-headed recognition of what has gone so badly wrong in implementing the grand vision of a united Europe. • Follow Comment is free on Twitter @commentisfree http://www.guardian.co.uk/commentisfree/2012/jul/03/austerity-europe-grand-vision- unity/print

ft.com comment Columnists July 3, 2012 7:21 pm A step at last in the right direction By Martin Wolf

By Martin Wolf I was in Ischia, off the coast of Naples, during the latest eurozone summit. Many of the Italians present during the award of this year’s Ischia prizes for journalism thought that Italy had won two victories over Germany: in football, at the European championships, and in economics, at the European summit. Then came the football final, against Spain. How much is likely to be left of the summit euphoria a few months from now? The answer, I believe, is: something, but not all that much. The 19th crisis summit was better than many of its disappointing predecessors. But the game has not yet changed. Helpful steps were taken. The most important were the agreements to allow the eurozone’s rescue funds to recapitalise undercapitalised banks directly, rather than provide money via vulnerable governments (of particular benefit to Spain and 27

potentially enormous benefit to Ireland) and to buy sovereign bonds in the market (of apparent benefit to Italy and Spain). It was also agreed that loans from rescue funds would not be senior to existing loans, which should reduce the risk of panics by lenders. Leaders also agreed a €120bn ($151bn) package of measures to promote growth. On the principle that support should coincide with control, the European Central Bank is to be given responsibility for a new system of European banking supervision, as a step towards what protagonists hope will be a true banking union. More On this story/ Merkel faces up to stormy parliament// Eurozone private sector lending falls// Survey shows German investors’ shaky mood// ECB to relax loan rules for Spanish banks// Bailout fund should buy euro debt On this topic/ Markus Kerber Nein-sayers’ bold steps// Sentiment turns bearish towards euro// European groups leap into bonds// The Short View Extreme market turbulence slows Martin Wolf// The case for truly bold monetary policy// Look beyond summits for euro salvation// A bitter fallout from a hasty union// Best not to pin hopes on UK’s plan A-plus

Yet what was not agreed is even more important. The list includes any increase in the funds available for the European Stability Mechanism (capped at €500bn); eurozone bonds, in any form; and a eurozone-wide deposit guarantee or bank resolution regime. Beyond this, the challenge of rebalancing competitiveness within the eurozone remains huge and, in the best of circumstances, long-lasting. Meanwhile, it needs to be stressed, the ECB has no intention of being buyer of last resort of sovereign bonds. Thus the most important positive element is the movement towards breaking the mutually destructive links between banks and sovereigns. This is a step towards the eurozone equivalent of the US troubled asset relief programme, or Tarp. A consequence must be to take the responsibility for supervision out of the hands of national governments. The result is also going to be a huge further increase in the powers of the ECB. At the same time, this is only a small step towards a full banking union, which would require a bigger fiscal back-up than anything now available. Rational Spaniards and Italians still cannot regard a euro in one of their banks as being as safe as a euro in a German one, largely because elevated insolvency and break-up risks evidently remain. Meanwhile, the growth package, partly illusory and presumably to be spread over some years, is a mere bagatelle, at barely more than 1 per cent of eurozone gross domestic product. The decision to let the rescue funds buy government debt in the market is even less meaningful and could prove destructive, as the Belgian economist, Paul de Grauwe, now at the London School of Economics, argues in a recent article. The outstanding debt of Italy and Spain is close to €2.8tn, or a little less than six times the size of the ESM. It is well known from the work on c urrency crises of Paul 28

Krugman, the Nobel laureate, that speculators can bet safely against a fund known to be too small to stabilise a market. The only credible stabiliser is an entity with infinite firepower. In the case of sovereign finance inside the eurozone, the only entity able to protect a country against self-fulfilling runs on its sovereign debt is the ECB. Since the ECB is unwilling to act in this role and leaders are unwilling to give the ESM the powers to force it to do so, these proposals amount to spitting in the financial winds. Markets may have worked this out: while bond spreads have fallen, they remain dangerously elevated (see chart). What makes the agreements seem potentially more significant than on face value, however, are that: first, there was actual progress towards a higher degree of integration; and, second, a coalition formed between France, Italy and Spain. The latter suggests that the political dynamic of the eurozone might have altered with the rise to power of François Hollande. It also seems to confirm that Germany does not wish to seem isolated, provided it does not have to concede on fundamental principles. However these shifts certainly do no t show that the path to true fiscal or banking unions now lies open. Either would require a far greater sense of solidarity than now exists. For the reasons I advanced last week, I remain sceptical of the feasibility of agreeing such unions or of making them work, if they are agreed. In substance, then, these are small steps, incapable of achieving the three necessary conditions for an end to the crisis: a definitive separation of banks from sovereigns; financing of weak sovereigns on m anageable terms during the lengthy period of economic adjustment and retrenchment; and, above all, a return to healthy economic growth. Let us not be too grudging: the decision to allow the ESM to recapitalise banks directly is possibly very important, both in itself and for what it portends. It might transform Ireland’s position. Nevertheless, the biggest danger is that the economics of the eurozone are deteriorating fast. Joblessness reached 11.1 per cent in May, the highest on record for the zone. Worse, apart from its refusal to intervene in sovereign debt markets on the needed scale, the ECB is hopelessly late in taking necessary monetary action. With austerity biting in vulnerable countries, everybody is feeling the pinch: even Germany is not immune to downturns in big trading partners. It is conceivable that the eurozone will struggle through this economic trench warfare over the next several years. However, the costs – not just economic but also political – are likely to be enormous. Yes, the eurozone does need a new constitution. But the priority is to get economies moving. Until then, the risks of further crises remain. [email protected] http://www.ft.com/intl/cms/s/0/284c3146-c430-11e1-850c- 00144feabdc0.html#axzz1zg6Le0Sy

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07/03/2012 05:12 PM Row Over Euro Policy German Party Leader Threatens To Axe Coalition Chancellor Angela Merkel faces growing resistance to her European policy from within her own coalition. Horst Seehofer, the leader of the powerful CSU party, sharply criticized the outcome of last week's EU summit, and threatened to let the coalition government collapse if Berlin makes any more concessions to ailing euro members. Bavarian governor Horst Seehofer, the leader of the conservative Christian Social Union party (CSU) which is part of Chancellor Angela Merkel's center-right federal government coalition, has criticized the outcome of last week's European Union summit and threatened to let the government collapse if Berlin makes any further financial concessions to ailing euro member states. "The time will come when the Bavarian government and the CSU can no longer say yes. And I wouldn't then be able to support that personally either," Seehofer said in an interview with Stern magazine released on Tuesday. "And the coalition has no majority without the CSU's seats." The CSU is the Bavarian sister party to Merkel's Christian Democratic Union. Germany's billions of euros in aid and guarantees were already "borderline," said Seehofer, who is known in Germany for his combative, occasionally populist style. "My biggest fear is that the financial markets will ask: Can Germany cope with all that? That is the point I regard as the most dangerous of all." Seehofer said several euro countries needed to drop their debt mentality. "The fact that others want to get at our money without asking too much of themselves is deeply human," he said. "But it won't solve the problem." Seehofer has repeatedly attacked the German government on a n umber of issues in recent weeks including a controversial childcare benefit for stay-at-home mothers, a pet project of his party. He told Stern that the government needed to explain the agreements made at the EU summit, where Merkel backed down and agreed to demands from Italy, Spain and France that troubled banks should receive aid directly from the permanent bailout fund, the European Stability Mechanism (ESM). 'European Monster State' "We were debating about the stability pact in the Bundestag (Germany's federal parliament). And at exactly that time the government leaders of some euro countries were working to soften precisely those stability criteria. Who is supposed to understand that?" Seehofer also criticized a s uggestion by Finance Minister Wolfgang Schäuble that Germany should hold a referendum on a new constitution that could relinquish national powers to Brussels. "Hands off our constitution! We have this constitution to thank for 30

the most stable state and the most stable democracy there has ever been in German history. We don't want a different constitution," said Seehofer. He said he wouldn't accept the transfer of major powers to a "European monster state." He said he would turn the next general election and the Bavarian regional election, both scheduled for 2013, into a vote on Europe. "We will put this question to the people." Merkel on Tuesday denied there were any differences between her and Seehofer on European policy. She said her coalition was united on the issue. Alarming Data From Greece Expected The euro crisis could worsen in the coming days. The Greek government said it would present alarming figures on the recession and unemployment to visiting inspectors from the "troika" of European Union, European Central Bank and International Monetary Fund on Wednesday. The figures show that the current austerity program imposed by the international creditors was counterproductive, said government spokesman Simos Kediglos on Tuesday in a TV interview. The Greek government wants to renegotiate the terms of the €130 billion ($165 billion) bailout package. The inspectors will have to assess Greece's progress on reforms to determine whether the country qualifies for the next tranche of aid totalling €31 billion. Meanwhile, there was speculation in financial markets that Slovenia may become the sixth euro-zone member to seek aid after Greece, Ireland, Portugal, Spain and Cyprus. A spokesman for the European Commission declined to comment. cro -- with wire reports URL: http://www.spiegel.de/international/europe/german-csu-leader-horst- seehofer-attacks-angela-merkel-over-euro-policy-a-842380.html Related SPIEGEL ONLINE links: • The World from Berlin: Germany Debates a Euro Bailout Referendum (06/26/2012) http://www.spiegel.de/international/germany/0,1518,841014,00.html • Merkel's Tactical Victory: Smart Concessions from a Seasoned Negotiator (06/29/2012) http://www.spiegel.de/international/europe/0,1518,841772,00.html • Outfoxed by Club Med: German Dominance in Doubt after Summit Defeat (07/02/2012) http://www.spiegel.de/international/europe/0,1518,842056,00.html • The World From Berlin: 'Merkel Was Blackmailed Pretty Brutally' (07/02/2012) http://www.spiegel.de/international/europe/0,1518,842106,00.html • Merkel's EU Concessions: 'Germany Can't Always Say No' (07/02/2012) http://www.spiegel.de/international/europe/0,1518,842051,00.html • Decision on July 10: German Court Could Issue Injunction against ESM (07/02/2012) http://www.spiegel.de/international/germany/0,1518,842120,00.html • 'Fear and Uncertainty': The Euro Endangers German Economy (07/03/2012) http://www.spiegel.de/international/business/0,1518,842240,00.html • A Challenging EU Presidency: Crisis-Hit Cyprus Takes Europe's Helm (07/03/2012) http://www.spiegel.de/international/europe/0,1518,842229,00.html • Better Off Outside?: Euro Crisis Fuels Debate on British EU Referendum (07/03/2012) http://www.spiegel.de/international/europe/0,1518,842304,00.html

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Newsletter del 3 julio 2012

Cultura & Ideas Ideas CRISIS DE LA DEUDA El fin del método Merkel 3 julio 2012

"Cómo nadar a crol". Confíen en mí y déjenme hacer: el método de Angela Merkel ha llegado a su límite en la crisis que afecta a Europa. Si quiere que le apoyen en su política, la canciller debe dirigirse a los ciudadanos de toda Europa. Nils Minkmar El 16 de mayo de 2010, Angela Merkel pronunció un discurso durante el congreso de la Confederación Alemana de Sindicatos, en Berlín. No es un acontecimiento en sí mismo, ya que la canciller habla mucho. Pero la conclusión de su alocución es un buen ejemplo de los errores de comunicación en los que se ha perdido, y con ella, todo el país. Se presenta por tanto ante los sindicatos para exponer mil y un puntos, con la intención, como de costumbre, de ser a la vez muy respetuosa y pedagógica. Pero en el momento de terminar su discurso sobre la polémica cuestión de la jubilación a los 67 años, lanza una de esas frases que son su especialidad: "Estoy aquí para hablarles de la realidad tal y como es". Dicho de otro modo, yo no me ando con rodeos. Ahí se encuentra su error: en realidad habría que encontrar a otra persona para dirigirse a l os sindicatos. Pero en el sistema Merkel, sólo está Merkel y sólo seguirá estando Merkel. Con su "estoy aquí" quiere decir "¿qué más quieren?". Así es como se comporta hoy la mujer más poderosa de Europa.

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Un equipo con un sólo miembro Paralelamente, la canciller lleva a cabo un programa histórico mediante su ambición. Como otros dicen que van a traer café, ella anuncia que quiere regular los mercados financieros, prescribir a Europa una nueva forma de gobierno, salvar el clima y garantizar la prosperidad sostenible de Alemania, Europa y Occidente. Y al mismo tiempo, el círculo de los que se posicionan a su lado se hace cada vez más pequeño. En realidad, ella es el único miembro de su equipo. Muchos periodistas hablan de su gran eficacia "en un círculo limitado". Pero cuando se trata de reformar Europa, ya no se puede trabajar en petit comité. El método resulta entonces un desastre, ya que su resultado es una "política de gabinete" opaco, parecida a la que se desarrolló en la época del despotismo ilustrado: hombres y mujeres de valor y de espíritu, originarios de toda Europa, trazando planes y tomando decisiones a puerta cerrada. Sin embargo, esa época dio origen, no s in razón, a la era del Estado-nación: los príncipes y sus consejeros de noble linaje se dejaron acorralar sobre la pendiente fatal de la quiebra y no t enían otro medio para encontrar fondos que declarar a sus súbditos solidariamente responsables de sus deudas. La palabra "ciudadano" se tiñó de sonidos tranquilizantes para los mercados financieros de entonces: los ciudadanos serían los garantes de todos esos pequeños principados. La canciller ha esperado a l a crisis para aportar el fundamento político a su persona. Pero un día de estos, la política del "Estoy aquí" ya no funcionará, sobre todo cuando no se está donde se pretende estar. Hay que cambiar la estrategia Angela Merkel no ha emprendido una gira por las capitales de Europa del Sur para explicar la postura alemana. Podría decirles: ¿En qué les beneficia a ustedes, amigos, que los subsidios lleguen por los mismos canales que toman desde hace años? ¿Si los únicos medios adinerados siguen siendo el inmobiliario, las finanzas y el fútbol? Las personas de cierta edad pueden imaginarse lo que habría hecho Hans-Dietrich Genscher [ministro de Exteriores de Helmut Kohl]: prácticamente se habría asentado en Atenas, el ministro griego de Exteriores se habría convertido en su mejor amigo y se marcharía a hacer lo mismo a Roma, Madrid y Lisboa, antes de volver a Atenas y todo ello antes de que finalizara la primera semana de crisis. Estados Unidos constituye el modelo de diplomacia pública [la política exterior que se dirige directamente a los pueblos extranjeros]. Un país que envía a Bill Clinton y a George Bush padre al extranjero en periodo de crisis no pasa por antipático, sobre todo cuando llevan en sus maletas hospitales y centrales eléctricas. Es cierto que esta política les cuesta millones, pero sigue siendo menos que los cientos de miles de millones de los que es ya garante el contribuyente alemán. ¿Pero para quién y por qué? El Gobierno no dice nada, los diputados no comprenden gran cosa. Sin embargo, hay una persona que lo ve claro: "Podemos hacer como si fuera sencillo”, sermoneó ella, con su estilo característico, a un diputado. “Pero no lo es. ¡Y he puesto muchas energías en ello!".

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La solución está en los ciudadanos Tras años de esta crisis que se eterniza, se pueden percibir los límites de su método. No existe ninguna estrategia en materia de comunicación de crisis, lo que quiere decir que tampoco hay una estrategia política. En primer lugar, convendría identificar los estratos sociales que se interesan en Europa por la integración política, el crecimiento económico y el progreso técnico, por ejemplo, las clases medias ávidas de cualificaciones. Por todo el Mediterráneo, los padres ven cómo sus hijos, con talento y trabajadores, se quedan vegetando en el paro. Estos padres son los aliados lógicos de una política de reforma europea inteligente, pero ¿quién se dirige a ellos? Hasta ahora, cuanto más se trata la crisis, más escasean los que trabajan en su solución. Esto nos hace pensar en los últimos años de la Unión Soviética. En ese caso, la sociedad civil era muy débil. Pero en nuestro caso no lo es. Se pueden pedir ciertas cosas a los europeos. Los expertos del Boston Consulting Group, que no es de izquierda, han calculado que con un t ipo de imposición medio del 20% sobre el patrimonio privado de los europeos, se podría salir del atolladero. Queda por saber si seguirá aceptándose la financiación de los bancos a través de los impuestos. En un futuro próximo, viviremos y trabajaremos de un modo totalmente distinto. Podemos prepararnos para ello. Pero ella aún tiene que decirlo. "¿Qué más quieren?" Pues precisamente eso. http://www.presseurop.eu/es/content/article/2285781-el-fin-del-metodo-merkel

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Economía ENTREVISTA A PAUL KRUGMAN “Si España no tiene éxito en esta crisis, el euro tampoco lo tendrá” Paul Krugman pide una mayor intervención del BCE para solucionar la crisis europea Alicia González Madrid 3 JUL 2012 - 00:00 CET305

Paul Krugman, premio Nobel de Economía 2008. / SAMUEL SÁNCHEZ Físicamente, Paul Krugman (EE UU, 1953) ha cambiado poco en los últimos tres años. Pero su discurso sí lo ha hecho. Y mucho. Ya no pide un recorte de salarios del 30%, ni onerosos planes de gasto público, sino que pide al Banco Central Europeo (BCE) que actúe. Su disciplina y puntualidad tampoco han cambiado. Se entrega a la promoción de su nuevo libro ¡Acabad ya con esta crisis! con infinita paciencia. Café en mano, eso sí, que el encuentro se celebra a primera hora de la mañana. Pregunta. Imagine que soy un ahorrador español, ¿qué debo hacer con mi dinero? Respuesta. ¡Dios mío! No quiero ser responsable de los ahorros de nadie. Pero hay una posibilidad real de que el euro se rompa. Lo impensable es ahora posible. Obviamente no daría un consejo concreto, pero es una situación muy complicada y podría ser que algunas personas perdieran parte del valor de sus ahorros. No creo que estemos hablando de una situación catastrófica, pero tampoco de nada bueno. P. ¿Qué probabilidad le otorga a la ruptura del euro? R. Aún pienso que es menos probable que su salvación, pero por poco margen. Antes creía que la probabilidad era de uno contra cinco y ahora creo que es el doble, un 40%, porque la distancia entre lo que tendría que hacerse para salvar el euro y lo que la política ha puesto por ahora encima de la mesa es todavía muy grande. P. ¿Y aún ve la posibilidad de un corralito en España? El BCE debería permitir un mayor objetivo de inflación, del 3% R. Eso se enmarcaría en una ruptura del euro. No pretendía montar tanto barullo cuando lo dije [en una entrada de su blog]. Es algo que se aplicaría hasta que se introdujera la nueva divisa. Pero no es algo que vaya a pasar así como así.

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P. ¿Le afectaron las críticas del Gobierno español? R. Es normal que un Gobierno no quiera que un economista provoque pánico, yo no lo pretendo tampoco, pero tampoco quiero ser deshonesto. Por supuesto, un G obierno siempre dirá que esto nunca va a ocurrir. Es una de las reglas de las devaluaciones, se niega hasta que sucede. Estoy seguro de que el Gobierno no tiene intención de hacer nada de esto y que todo el mundo quiere seguir perteneciendo al euro y salvarlo. Pero también espero que alguien esté haciendo planes de contingencia. La situación es muy difícil. P. Ha dicho que ve pocas diferencias entre las políticas de Rajoy y las de Zapatero. R. Creo que hubieran hecho cosas muy distintas con un s uperávit de las cuentas públicas pero no en una situación como la actual. Parecía que iba a llegar Rajoy y se iba a solucionar todo, y lo cierto es que no ha cambiado las políticas del anterior Gobierno porque ambos tienen poco margen de maniobra. P. ¿Cree que el rescate a la banca que ha solicitado España será suficiente o hará falta más? R. España necesita un rescate de su sector bancario y necesita que se haga bien. Lo que pasó hace tres semanas fue un desastre, tanto que empeoró las cosas. El acuerdo de la reciente cumbre europea sí se parece más a un rescate para los bancos en problemas, los riesgos se comparten y no son asumidos en solitario por el Gobierno español, pero no resuelve el problema. Tampoco creo que un rescate soberano sea la respuesta, basta con ver lo que ha sucedido en Grecia o en Irlanda, donde no se ve atisbo de recuperación. Ni siquiera creo que haya recursos suficientes para un rescate a la griega de España. Lo que España necesita es un cambio en la política macroeconómica europea, que el BCE compre bonos para reducir los tipos. España no está en situación de decir “vengan a rescatarnos”, sino que necesita que cambie la política monetaria. P. ¿Económica también? R. Básicamente política monetaria. El BCE es el único que tiene herramientas suficientes para actuar. España tiene la desventaja de ser demasiado grande para ser rescatada, al estilo de Portugal, pero tiene la ventaja de que si España no tiene éxito, el euro tampoco. Así que el destino de España es el destino del euro. Lo que España necesita es que el Banco Central compre bonos P. ¿Los últimos acuerdos lograrán salvar al euro? R. Ha sido una cumbre mejor que las anteriores. La propuesta bancaria tiene sentido y, hasta donde sabemos, el resto de los acuerdos parecen razonables. Pero sobre todo dejan de limitar el foco de la UE a l a austeridad. Aunque estos pasos están lejos de ser suficientes, son apenas un 5% de lo que se necesita hacer. A no s er que haya más medidas, el euro no se habrá salvado. P. Acaba de presentar un manifiesto en favor del sentido común económico. R. La idea es que hay que hacer algo para contrarrestar la austeridad. Los hogares tienen que reducir su deuda y el Gobierno español no puede lanzar una política de estímulos en este momento. Alemania podría y debería hacerlo y el BCE debería facilitar liquidez tanto a los Gobiernos como a la economía en general para provocar un aumento de la inflación. El problema esencial de la economía española, de la banca, es que se produce un agujero por el estallido de la burbuja inmobiliaria y eso hay que compensarlo con 36

menor déficit comercial. No es una estrategia fácil. Irlanda lleva dos años y medio aplicando esa estrategia y parece claro que no va a funcionar. P. ¿Servirá de algo el plan de crecimiento de la UE? R. Es un pa so en la buena dirección, aunque apenas supone el 1% del PIB. Quizás pueda reducir alguna décima la tasa de paro de la UE, pero nada más. De todas formas, no creo que se pueda hacer mucho por el lado fiscal, al contrario que en EE UU. En España, el buen desempeño fiscal de antes de la crisis fue, en buena medida, gracias a la burbuja, así que ahora tiene que hacer un fuerte ajuste para atajar el déficit fiscal estructural, aunque quizás no tan rápido. No sabemos si eso funcionará, pero es la única bala. P. ¿Debería elevar el BCE su objetivo de inflación? R. Claramente. En un mundo ideal debería estar en el 4%, como sugiere el economista jefe del FMI, Olivier Blanchard, pero el 3% no está mal. El objetivo actual del 2% es, en realidad, un techo, así que los mercados interpretan la meta de estabilidad en torno al 1%, que no e s aceptable. Ahora no e s posible un objetivo inferior al 3% durante los próximos cinco años. P. ¿Y ampliar su mandato? R. Sería muy útil, aunque no creo que sea posible. Hace cinco años se podía discutir si una inflación estable y un desempeño aceptable de la economía real eran la misma cosa, pero ahora ya sabemos que no. Es posible, gracias a l as continuas bajadas salariales, tener un extenso periodo de precios estables con una economía deprimida. Así que el mandato único del BCE es muy limitado. P. ¿Pone Europa en peligro a la economía mundial? R. Sin duda, aunque a nadie le va bien, ni a los emergentes. Estados Unidos solo tiene mejor escenario por comparación con Europa. Mi tesis es que hay dos problemas estructurales que hay que atajar: uno es Europa, que tiene una moneda común, sin un Gobierno común; y otro, EE UU, donde uno de los dos principales partidos está literalmente loco. Y esa combinación hace que la recuperación sea muy difícil. P. Usted defiende que hay crecientes parecidos con los años 30. R. Creo que cada vez es más obvio que Europa se asemeja mucho a aq uella época e incluso algunas economías europeas están peor en términos de PIB o pa ro de lo que estaban en los años 30. EE UU está prácticamente igual, España está sustancialmente peor e Italia, también. No así Alemania, pero aquella fue una época terrible para ese país. Y la incapacidad para responder de forma efectiva es muy similar. El escenario político no e s tan malo como en los años 30, pero estamos viendo un aumento del extremismo, así que los paralelismos son muchos. P. ¿No hemos aprendido ninguna lección? R. Creo que hemos aprendido que no era una buena idea dejar caer al sistema bancario y hemos evitado el gran colapso financiero de 1931 aunque, viendo lo que está haciendo Europa, es difícil estar seguro incluso de eso. El resto es aterrador. Los discursos de David Cameron o de Angela Merkel son muy parecidos a los de Herbert Hoover en 1932. Así que ahí no hemos aprendido nada. http://economia.elpais.com/economia/2012/07/02/actualidad/1341254272_531202.html

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vox Research-based policy analysis and commentary from leading economists Why the EU summit decisions may destabilise government bond markets Paul De Grauwe, 2 Jul 2012 Among the questions still remaining since last week’s summit of European leaders is whether the new measures will stabilise government bond markets. This column’s answer is ‘no’. This was the nth summit meeting of European leaders billed as finally solving the Eurozone crisis. Yet there were a number of important and useful decisions taken at last week’s summit: • A new banking union with a European supervisor that has some teeth; and • the possibility of organising recapitalisations of banks at the European level. These are both positive steps. The last one in particular is important. One of the main weaknesses of the Eurozone lies in the fact that banking problems have to be resolved by the national government where the banks are located. As a result, insolvency of local banks threatens the solvency of the national government, leading to a vicious circle of interacting solvency crises of local banks and the local sovereign. Cutting the link between the two is therefore key to creating a more stable financial environment in the Eurozone. Banking union: Devil in the detail While the principle of a European mechanism for resolving banking crises is now accepted, major practical problems of implementation of that principle lie before us. • What will be the supervisory powers of the ECB? • Who will run the recapitalised banks? • What if a bank has to be nationalised? These and many other practical questions will pop up on t he road to implementing the new principle. The European Stability Mechanism The focus of this column, however, is on t he new role that is given to the European Stability Mechanism (ESM), otherwise known as its bailout fund, that should start its operations very soon. In addition to its conditional financial assistance to member countries, the ESM was given two new tasks. • The first one (that I just discussed) is that it will be able to directly recapitalise troubled banks.

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• The second one is that it will be allowed to buy government bonds in the secondary markets so as to prevent further destabilising surges in bond rates. These are eminently important objectives. Surely something must be done about the inexorable rise in the sovereign bond rates of a number of Southern European countries? These surges in the interest rates are only partly the result of bad fundamentals. For countries like Spain and Italy, a significant part of the increases in the spreads is the result of fear and panic in the markets that have the potential of driving countries into bankruptcy in a self-fulfilling way (De Grauwe and Ji 2012). The question then is whether the ESM will be able to stabilise the government bond markets. My answer is ‘no’. Why ESM will fail to stabilise government debt markets The ESM has financial resources amounting to €500 billion. Compare this with the total government bonds outstanding of close to €2,000 billion in Italy and of about €800 billion in Spain and it is immediately evident that the ESM will be unable to stem a crisis involving one of these two countries, let alone the two countries together. In fact it is worse. As soon as the ESM starts intervening, it will quickly destabilise the government bond markets in these two countries. The reason is the following. Suppose a new movement of fear and panic, triggered for example by the deepening recession in Spain, pushes up the Spanish government bond rate again. • To stem the tide the ESM starts buying Spanish bonds. Suppose it buys €200 billion worth of Spanish bonds. At the end of the operation it will be clear for everybody that the ESM has seen its resources decline from €500 billion to €300 billion. Less will be left over to face new crises. • Investors will start forecasting the moment when the ESM will run out of cash. They will then do what one expects from clever people. • They will sell bonds now rather than later. The reason is not difficult to see. Anticipating the moment the ESM runs out of cash forcing it to stop its intervention, they expect bond prices to crash. To prevent making large losses, they will have an incentive to bring their bond sales forward to the present rather than wait until the losses are incurred. Thus the interventions by the ESM will trigger crises rather than avoid them. This feature is well-known from the literature on foreign exchange crises. The classic Krugman model, for example, has the same features (Krugman 1969, see also Obstfeld 1994). A central bank that pegs the exchange rate and has a finite stock of international reserves to defend its currency against speculative attacks faces the same problem. At some point, the stock of reserves is depleted and the central bank has to stop defending the currency. Speculators do not wait for that moment to happen. They set in motion their speculative sales of the currency much before the moment of depletion, triggering a self-fulfilling crisis. Only the ECB can stabilise bond markets

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The only way to stabilise the government bond markets is to involve the ECB, either indirectly by giving a banking license to the ESM so that it can draw on the resources of the ECB (see Gros and Mayer 2010), or by direct interventions by the ECB. But the European leaders were unable (unwilling) to take that necessary step to stabilise the Eurozone. The ECB is the only institution that can prevent panic in the sovereign bond markets from pushing countries into a bad equilibrium, because as a money-creating institution it has an infinite capacity to buy government bonds. The fact that resources are infinite is key to be able to stabilise bond r ates. It is the only way to gain credibility in the market. The SMP is the wrong precedent The ECB did buy government bond markets last year in the framework of its Securities Markets Programme (SMP). However it structured this programme in the worst possible way. By announcing it would be limited in size and time, it mimicked the fatal problem of an institution that has limited resources. No wonder that strategy did not work. The only strategy that can work is the one that puts the fact that the ECB has unlimited resources at the core of that strategy. Thus, the ECB should announce a cap on t he spreads of the Spanish and Italian government bonds, say of 300 basis points. Such an announcement is fully credible if the ECB is committed to use all its firepower, which is infinite, to achieve this target. If the ECB achieves this credibility it creates an interesting investment opportunity for investors. The latter obtain a premium on t heir Spanish and Italian government bond holdings, while the ECB guarantees that there is a floor below which the bond prices will not fall. (The floor price is the counterpart of the interest rate cap). In addition, the 300 basis points acts as a penalty rate for the Spanish and Italian governments giving them incentives to reduce their debt levels. The ECB is unwilling to stabilise financial markets this way. Many arguments have been given why the ECB should not be a lender of last resort in the government bond markets. Many of them are phony (see De Grauwe 2011, W yplosz 2011). Some are serious like the moral hazard risk. The latter, however, should be taken care of by separate institutions aimed at controlling excessive government debts and deficits. These are in the process of being set up (European Semester, Fiscal Pact, automatic sanctions, etc.). This disciplining and sanctioning mechanism should then relieve the ECB of its fears of moral hazard (a fear it did not have when it provided €1,000 billion to banks at a low interest rate). Understanding the ECB’s reluctance The deeper reason for the ECB’s reluctance to be a l ender of last resort in the government bond market has to with its business model. This is a model whereby one of the ECB’s main concerns is the defence of its balance-sheet quality. That is, a concern about avoiding losses and showing positive equity – even if that leads to financial instability. When the ECB was instituted, it w as deemed necessary for that institution to issue equity to be held by the EU-governments. Thus the idea was created that in order to sustain its activities the ECB needed to obtain the capital of the member countries. This idea was reinforced in 2010 when a decision was taken by the Governing Council to 40

raise the amount of capital by €5 billion. It is useful to read the justification of this decision: “Taking into account the increase of the ECB’s balance sheet total over the last years, it is considered necessary to increase the ECB’s capital by €5,000 million in order to sustain the adequacy of the capital base needed to support the operations of the ECB” (ECB 2010). It is surprising that the ECB attaches such an importance to having sufficient equity. In fact, this insistence is based on a fundamental misunderstanding of the nature of central banking. The central bank creates its own IOUs. As a result it does not need equity at all to support its activities. Central banks can live without equity because they cannot default. The only support a central bank needs is the political support of the sovereign that guarantees the legal tender nature of the money issued by the central bank. This political support does not need any equity stake of the sovereign. In fact it is quite ludicrous to believe that governments that can, and sometimes do, default are needed to provide the capital of an institution that cannot default. Yet, this is what the ECB seems to have convinced the outside world. All this would not be a problem were it not that the ECB’s insistence on having positive equity is in conflict with its responsibility to maintain financial stability. Worse, this insistence has become a source of financial instability. For example, in order to protect its equity, the ECB has insisted on obtaining seniority on its government bond holdings. In doing so, it has made these bonds more risky for the private holders, who have reacted by selling the bonds. This also implies that if the ECB were to take up its responsibility of lender of last resort, it will have to abandon its seniority claim on the government bonds it buys in the market. What should be done? The correct business model for the ECB is one that has it pursuing financial stability as its primary objective (together with price stability), even if that leads to losses. There is no limit to the size of the losses a central bank can bear, except the one that is imposed by its commitment to maintain price stability. In the present situation the ECB is far from this limit (Buiter 2008). The creation of the European Financial Stability Facility (EFSF) and the ESM has been motivated by the overriding concern of the ECB to protect its balance sheet. This has been misguided. The enlarged responsibilities that are now given to the ESM are to be seen as a cover-up of the failure of the ECB to take up its responsibility of the guardian of financial stability in the Eurozone; a responsibility that only the ECB can fulfil. References Buiter, W (2008), “Can Central Banks Go Broke”, CEPR Policy Insight No. 24, Centre for Economic Policy Research, May. De Grauwe, P and Y Ji, (2012), “Self-fulfilling Crises in the Eurozone. An Empirical Test”, CEPS. De Grauwe, P (2011), “The ECB as a Lender of Last Resort in the Government Bond Market”, CESIfo. ECB, Decision of the European Central Banks of 13 December 2010 on the increase of the European Central Bank’s capital, (ECB/2010/26), Official Journal of the European Union. Gros, D and T Mayer (2010), “Towards a European Monetary Fund”, CEPS Policy Brief. Krugman, P (1979), “A Model of Balance-of-Payments Crises”, Journal of Money, Credit and Banking, 11(3):311-325. Obstfeld, M (1994), “The Logic of Currency Crises”. Wyplosz, C (2011), “They still don’t get it”, VoxEU.org, 25 October. http://www.voxeu.org/article/why-eu-summit-decisions-may-destabilise-government-bond- markets 41

ft.com comment Columnists July 2, 2012 7:20 pm Blackmail cannot be UK’s Europe policy

By Gideon Rachman “Life outside the EU holds no t error.” With that single phrase, Liam Fox has placed himself at the head of the large faction within the Conservative party that wants Britain to detach itself from the EU. As the euro crisis intensifies that faction will grow in size, both inside the Tory party and within Britain as a whole. Mr Fox, a former defence secretary, rails against what he calls “diktat from Brussels”. (Note the use of a German word.) He wants Britain to demand a big repatriation of powers from the EU – and to stalk out of the union, if and when Britain does not get what it w ants. Prime minister David Cameron is sufficiently rattled by the sight of Foxes on hi s Downing Street doorstep to have started muttering appeasingly about giving the anti-Europeans the referendum on the EU they demand. More ON THIS STORY/ Soaring youth unemployment stokes fears/ Interactive Youth unemployment/ Youth unemployment to remain high/ Steven Hill Youth job woe is not as bad/ Eurozone unemployment hits record high ON THIS TOPIC/ Cameron in delicate balancing act over Europe// Cameron considers EU referendum// Summit gives birth to common EU patent// Intransigence hides subtle shifts for EU GIDEON RACHMAN/ Our obsession with Iran obscures the bigger threat// Gideon Rachman Ambitions threatened by problems in own backyard// Greece has won Europe a respite – now it must use it// We isolate and overload Germany at our peril Mr Fox is right on one point. If it came to it, Britain could remain free and prosperous outside the EU. Where the Foxes are genuinely crazy is to argue that now is the time for renegotiation, followed by a referendum. The EU crisis is still unfolding. It may end with the eurozone turning into a genuine political union – or collapsing altogether. Those are starkly different outcomes, which would present Britain with very different choices. There is also an unattractive element of blackmail in the Fox strategy. He and his allies know that the eurozone is fighting for its political and economic life. Even though Britain does not use the euro, the Foxes want to threaten to hold up ha rd-fought agreements on the single currency – unless the other EU countries make concessions on longstanding, but irrelevant, British bugbears, such as fisheries policy, the common European arrest warrant and the budget. Such a c ynical and self-centred policy would almost certainly fail. In the process, it would also damage British interests by infuriating countries that will be our neighbours and trading partners, whatever happens to the euro. Even under current government policy, it is increasingly possible to envisage circumstances in which Britain does leave the EU. George Osborne, the chancellor, has urged Europe to follow the “remorseless logic” of monetary union and to press on 42

towards a fiscal union. He thinks this is the only way to prevent an economic disaster that would also engulf Britain. However, what Mr Osborne does not acknowledge is that this process also entails a remorseless logic for Britain. The more that the eurozone of 17 countries turns into a genuine fiscal, and then political, union, the harder it will be for Britain to stay inside the larger EU of 27 nations. Hitherto, Britain has always argued that the single market is the heart of the union. But, if the eurozone turns into a successful political union then, whatever the legal niceties, it would determine the future of the EU, and the cherished single market with it. It might then make sense to hold that referendum on E urope, since Britain’s choices would be clearer. It could join the new political union – an option that currently enjoys almost no s upport in Britain. It could choose some semi-detached relationship, involving membership of an outer core of the old EU. Or it could leave the union altogether. However, the chances of the eurozone metamorphosing into an effective political union are actually pretty slim. Even the much-heralded breakthroughs at last weekend’s summit are a million miles away from a true political union. There is still scant evidence that German or Dutch taxpayers are prepared to underwrite the banks of southern Europe, or that French voters are willing to see their national budget and beloved “social model” controlled from Brussels. And yet, as Mr Osborne and others have argued, if the euro does not transform itself into a genuine fiscal and political union, there is a strong risk that the single currency and then the EU itself will break up. A political earthquake on this scale would mean that Europe faced an entirely new set of questions. These questions are already being quietly examined by scenario-planners in foreign ministries around Europe. One German policy maker talks cheerily of “rebuilding Europe from the rubble” if the euro collapses. His assumption is that Germany would have two important partners in this reconstruction effort – France and Poland. Yet, if it came to that, Britain should also aspire to play a key role in the reconstruction of a post- euro Europe – achieving the central role in continental statecraft that it opted out of in the 1950s. To force the issue now, however, would be a big mistake. If the euro breaks up, there will be a lot of anger and recrimination. Some will blame the Germans, some will blame the southerners. And there will be those who blame “perfidious Albion”, for allegedly sabotaging the single currency from the outside. For the British voluntarily to bolster that conspiracy theory, by casting themselves as pantomime villains and wreckers, would be self-harm on an epic scale. The long shopping list of grievances assembled by Tory eurosceptics is not without merit. Some policies that are currently made in Brussels could legitimately be returned to Westminster. A reshaping of Europe will present Britain with real opportunities. But this crisis has a long way to run before the real reshaping takes place. Until then, the British should bide their time and let the rest of Europe slug it out. http://www.ft.com/intl/cms/s/0/a5d7a2b2-c3a9-11e1-966e- 00144feabdc0.html#axzz1zStjRRDY

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Eurointelligence Daily Briefing Is opinion on the summit beginning to shift? 02.07.2012

We noted that the Friday media comments on the summit were generally positive, but subsequent commentary was more cautious, in some cases even negative. There were no new major political development since the summit – the reaction in Germany was negative initially, but there was no widespread sense of outrage. The market reaction was unrestrained optimistic on F riday. It was without a doubt a proper market rally. Spanish spreads were down some 60bp, a nd equities were up everywhere. And it lasted all day, and was not reversed in overnight trading this morning. But as the FT writes, the markets are still not entirely convinced that this deal for real. They applauded the bond purchasing mandate and the direct equity injections, and of course the future role of the ECB as a bank supervisor, but there “nagging doubts” whether this deal really amounted to the silver bullet that some made it out to be. FT says it was a very good agreement In its main editorial on the summit, the FT says it was a very good deal because leaders staked out a pathway towards a global solution – via a banking union. It noted the dramatic market response on Irish bond yields, based on the statement that similar case would be treated in a similar way. There was now a hope that Ireland may regain access to the markets again. Günter Nonnenmacher warns of a backlash against those who blackmailed Merkel in Brussels In a surprisingly mild comment Frankfurter Allgemeine Zeitung’s political editor Günter Nonnenmacher endorses the summit results in principle. “It is the very essence of all negotiations especially in the EU that all participants have to compromise from their starting positions”, Nonnenmacher argues. “That is also true for Germany, even though it is the main pillar of the currency zone.” However, the tactical moves to get to the compromise are yet another story, he writes. “Mrs. Merkel was brutally blackmailed by politicians from the South, like the Italian Monti, the Spaniard Rajoy (supported by 44

the French Hollande) because their countries needed quick help and despite the fact that they share German basic beliefs in principle”, Nonnenmacher notes. He continues by pointing out that “political alpha animals” like Merkel had long memories and that Hollande with whom the chancellor has a strained relationship would be paid back in kind by Merkel at the next possible opportunity. Roberto Napoletano says the real work has yet to start Writing in Il Sole 24 ore, Roberto Napoletano says that it was now time to move from words to deeds, and decide how the primary and secondary market activities are being funded, whether there will be a banking licence for the EFSF/ESM, and how to recapitalise the Spanish banks directly. He writes that details matter. The good news is that the European Council has given out a clear signal that it is embarking on t he creation of a United States of Europe. Wolfgang Munchau says Angela Merkel was the true winner of the summit after all Wolfgang Munchau writes in his FT column that the summit deal looked like a political victory of Mario Monti over Angela Merkel. But the reality is different. The deal will do nothing for Italy because the main problem for Italy is not the procedural rules of the ESM – which have not changed all that much anyway – but its size. The problem is that the ESM is simply overloaded with Greece, Ireland, Portugal, Spain and Italy. Merkel has managed to keep Germany’s total liabilities constant. Munchau writes that the agreement for Spain is marginally better, but it faces three huge implementation problems, which the markets may not be seeing as yet: the first is that the conditionality on a deal on bank supervision is not trivial; the second is this may require an ESM-Treaty change as the current treaty makes an explicit reference to equity injections; and third, since the European banking system is woefully undercapitalised, the Italy problem applies here too: the ESM is simply too small. Mark Schieritz says the agreement is not what it appears to be Mark Schieritz also debunks the notion that the summit representated a victory over Germany. He says the size of the ESM has been left unchanged, and the direct bank recapitalisation route will take longer to set up than some people might hope for. He also makes an important point about seniority. Agreements to change the seniority matter little in practice, as we have seen when the ECB pushed through its interest in respect of Greek shares. The public sector will always find a way to push through its interests. Tsipras wants Greece to veto or get same deal as Spain Alexis Tsipras, the leader of the main opposition party SYRIZA, called on the Greek government to veto the new agreement to prop up banks unless Greece is allowed to benefit from it in the same way as Italy and Spain, Kathimerini reports. Tsipras accused the government of “looking on from afar as Angela Merkel made concessions and not having the essential boldness to ask for Greece to be given the same treatment.” Government spokesman Simos Kedikoglou, who has accused Tsipras of undermining the government’s efforts to negotiate with creditors, responded by saying that “the government will continue to strive to modify those policies that are leading the country into recession and thousands of Greeks into unemployment.”

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The Irish want their bank deal too With the Spanish bank deal in their back the Irish government is starting serious negotiations with the EU next week to get substantial reductions for its own bank debts. Irish prime minister’s spokesman said last night that there are similarities to the Spanish case there were important differences, not least that Spain does not have the same retrospection issue as Ireland. The Irish Times writes that officials are working on a possible cut of some €34bn, about half of total €63bn spent to date on bailing out the banks. A successful resolution is expected to lower Ireland’s overall debt fall from a peak of 117% to 100% of GDP. Finance minister Michael Noonan said over the weekend he wanted a successful outcome on the bank debt issue before the budget in December, which practically means before the next EU summit in late October. John McHale warns the Irish not to get carried away Writing in the Irish economy blog, John McHale urges caution. “While the euro zone leaders’ summit certainly exceeded expectations, the shift from dire pessimism to elation in the Irish press reaction over the last few days seems overdone. The big question across numerous articles seems to be how much of the €63 billion put into the banks will now be mutualised. Unfortunately, I don’t see anything in the post-summit statement that leads me to revise a view that the chances of other European countries absorbing already crystallised losses in the Irish banks are approaching zero – the ‘similar treatment’ statement notwithstanding. More positively, the chances of beneficially refinancing the promissory notes/ELA arrangement looks to have increased, which (depending on the details) could lead to a large NPV benefit, and thus significantly reduce the burden of banking-related debt. While this might partly explain the fall in bond yields, my guess is that the majority of the fall reflects a decline in the chances of a major euro zone crisis following financing difficulties in Italy and Spain. Excessively hyping what has been achieved runs the risk of later disappointment, undermining support for unavoidable adjustment efforts.” Asmussen about Greece: we can tweak, but targets remain There may be some room for small changes in Greece's bailout plan, as on the condition that these changes do not affect its targets, ECB board member Joerg Asmussen said in an interview with Kathimerini. "If [Antonis Samaras] wants to change the mixture of the revenue and expenditure measures this can surely be discussed. But with respect to the key results and goals of the program to make Greece more competitive and to reach a debt sustainability situation, I do not see room for change… And if the fiscal goals are shifted by one or two years into the future, that would immediately require additional external financing from the eurozone partners and the IMF.” http://www.eurointelligence.com/eurointelligence-news/home/singleview- restricted/article/is-opinion-on-the-summit-beginning-to-shift.html

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07/02/2012 12:15 PM Outfoxed by Club Med German Dominance in Doubt after Summit Defeat Chancellor Merkel suffered a bruising defeat at last week's Brussels summit after the leaders of Italy, Spain and France ganged up on her. Europe's power relations have shifted as a result. It looks like Germany will no longer be calling the shots in the EU. By SPIEGEL Staff It was Monti, of all people, "Super Mario," as he's called in Berlin. The affable economics professor from Lombardy, the man the German Chancellery felt was the best thing that could have happened to Italy. The man who could "save Europe," at least according to Time magazine. It was Monti, of all people, who dropped the bomb at 7 p.m . last Thursday. At the European Council summit in Brussels, the Italian prime minister announced he would not agree to the growth pact unless the European heads of state and government did something about the high interest rates Italy is being forced to pay on its government bonds. And Monti wasn't the only one. His Spanish counterpart, Mariano Rajoy, stood behind him. "Are you trying to take us hostage?" Danish Prime Minister Helle Thorning-Schmidt said indignantly. Then the German chancellor spoke up and said: "That's not helpful." It's a sentence Angela Merkel reserves for serious situations. The Italian prime minister should not believe that escalating the conflict would change anything, Merkel said, and pointed out: "I have to fly to Berlin at noon tomorrow for a vote in the Bundestag." But Monti stood his ground, knowing how much leverage he had. The markets were waiting for a decision. "Go ahead and fly home on Friday, and have them vote in Germany," he told Merkel. "I have until Sunday, and I'll wait until you return." He didn't have to wait that long. Less than 10 hours later, he had the chancellor where he wanted her. Merkel relented and rubber-stamped what she had previously rejected. "A simple act of solidarity without getting something in return would be absolutely fatal to the overall development of the euro," she had previously insisted. For Merkel, it was the reddest of all red lines, and now she had crossed it. Setting the Bar High If the European bailout fund buys up government bonds in the future to stabilize the prices of those bonds, the country requesting the assistance will be spared visits from the troika, the euro zone's feared supervision team of the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF). This is the fatal act of solidarity without something in return that Merkel had rejected until now. It's another step toward turning the euro zone into a European debt union. The other concessions seem harmless by comparison. Ailing banks will be able to receive aid directly from the European bailout fund in the future, under the condition that a European bank regulator is established within the European Central Bank (ECB).

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In relation to the aid package for Spanish banks, the European partners agreed to waive so-called preferred creditor status for the bailout fund, meaning that the fund will bear as much risk as private-sector investors. Merkel became the victim of her own management of expectations. In her years in the Chancellery, she has become a master of this discipline. Again and again, she has managed to set the bar for major European decisions just high enough so that she could easily jump over it, often ending up t he winner. The Germans were grateful to her. According to polls, Merkel remains the most popular politician in Germany. But why was the bar so high last week? After her appearance before the parliamentary group of her coalition partners, the pro-business Free Democratic Party (FDP), where she made the now-famous comment that there would be no joint liability "as long as I live," she was feted as the "Iron Chancellor." The influential tabloid Bild wanted to know: "Why is the chancellor now taking such a hard line in the euro crisis?" Merkel Meets Her Match With her public support for a tough and uncompromising course, Merkel had carried a strategy to extremes that had generally been useful to her in the past. She exploited her domestic political constraints to ensure that she would have to concede as little as possible on the European level. This time she was even more vociferous and reduced her own room for maneuver with her remarks. But now it looks as though the chancellor went too far -- and found her match in the Italian prime minister. Monti, a former European Union competition commissioner, managed to defeat Merkel with her own weapons. He blocked a €120 billion ($150 billion) growth pact until the Friday morning. He knew that Merkel could not go home without the package. She needed it in order to get the center-left Social Democratic Party (SPD) and the Green Party to support the fiscal pact, which is intended to force signatory countries to practice strict budgetary discipline, in a key parliamentary vote on Friday. (In the end, the fiscal pact passed with the necessary two-thirds majority.) Monti was able to prevail because he had a p owerful ally. The balance of power in Europe has shifted since new French President François Hollande came into office. His predecessor, Nicolas Sarkozy, had usually supported the German position in the end. But Hollande has forced Merkel onto the defensive with his own proposals, securing Spain and Italy as important allies. The French Socialist also has willing supporters in Germany. The SPD leadership is proudly proclaiming that it, together with Hollande, has driven the chancellor into a corner -- an impression Hollande is not likely to contradict. But it's a risky strategy for the Social Democrats. It could quickly backfire when it becomes clear how costly Merkel's defeat will become for the Germans. Unusual Alliance The fact that Monti would use every trick in the book to break the German resistance to further bailout loans was already becoming clear before the Brussels summit. The Italian committed the first foul at the G-20 summit of the leading industrialized and emerging economies two weeks ago in Mexico.

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During a break, the European members of the G-20 met with US President Barack Obama in a smaller room at the conference center in Los Cabos. To Merkel's surprise, Monti and Obama handed out a document that advocated direct purchases of sovereign debt by the euro bailout fund, without special conditions. Hollande and Spanish Prime Minister Mariano Rajoy supported the unusual Italian-American alliance. Merkel was not pleased, and the meeting was adjourned. Others who were present, including European Council President Herman Van Rompuy and European Commission President José Manuel Barroso, felt that it was inappropriate to discuss a domestic European problem with the US president. Four days later, Monti made another attempt behind closed doors. At a meeting of the four leaders in Rome, Monti, supported by Hollande and Rajoy, tried to reason with Merkel. But she stood her ground. Merkel's good relationship with Monti cooled off some time ago. She valued him at first, because he and his cabinet of nonpartisan technocrats were prepared to implement austerity measures and did not shy away from structural reforms. But then Monti's luck ran out, and the Italian media began painting him as a vicarious agent of "La Merkel's" austerity policy. "She's going to kill us," Il Giornale, owned by the brother of Monti's predecessor Silvio Berlusconi, wrote in a cover story. Monti became more and more adamant in his demands that the focus on austerity be expanded to include a growth dimension. 'Straight to Hell' In doing so, Monti was straying from the Merkel course. For weeks, he called for the issuance of euro bonds and ignored the increasingly irritable rejections from Berlin. Then he angered the chancellor by calling for a joint debt repayment fund, which she had already rejected when it was proposed by the German Council of Economic Experts, which advises the government. "We don't need new ideas constantly being aired in public," German Finance Minister Wolfgang Schäuble grumbled. Monti was undeterred. In fact, he began to invoke the catastrophe that could occur if the upcoming EU summit did not agree to effective measures soon to ease the interest-rate pressure on Italy and Spain. "There are 10 d ays left to save the euro," he warned, exactly 10 days before the summit. He did not deny rumors that he would step down if the chancellor didn't given in, and in the end he publicly threatened that a failure of the summit could very well send the euro "straight to hell" -- a risky strategy that could also be seen as an invitation to the markets to bet more strongly against the euro. Merkel's erstwhile partner had turned into one of her toughest opponents. Last Wednesday evening, the Taxpayers' Association of Europe celebrated Monti as a reformer at a reception at the offices of the German state of Bavaria in Brussels. He even had some words of praise for himself, saying that he was the "most German of all Italian prime ministers to date." And because of that, he added, Merkel ought to accommodate him now and do something about the high interest rates. Merkel had been forewarned, and yet in the end she was still surprised when Monti held the group of European leaders hostage. After all, he himself had promoted the growth pact that he was now blocking.

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Icy Atmosphere When the leaders of the 10 non-euro countries left the meeting at 1 a.m., leaving the 17 euro-zone leaders to continue the discussion, the mood was icy. In a press conference shortly after midnight, the French president had sided with the Italians and the Spaniards once again, saying that he could "understand" their demands. After that, the participants in the closed-door meeting got down to serious business. Finnish Prime Minister Jyrki Katainen fought against collectivizing debt. He made it clear that his country needed solid collateral in return for loans, as it had previously demanded from Greece. Spain, Cyprus and Italian, he added, would also have to provide the Finns with collateral, or his country would no longer come to their aid. Dutch Prime Minister Mark Rutte could no longer control himself, saying that he, like the Finns, also wanted to see collateral from Spain if the northern European countries were to help bail them out. "Otherwise there will no longer be any basis for assistance from my country," Rutte said. It was clear that Merkel wasn't alone in her position. When it came to important details, the chancellor could rely on the support of Austria, Malta, Slovakia and other countries. But Monti had the backing of two of the largest EU countries, Spain and France. And countries like Ireland and Portugal hoped that the Italian leader would prevail, knowing that if he succeeded they too could hold out hope of receiving aid without the tough conditions imposed by the feared troika. The European leaders were so divided that Cypriot President Dimitris Christofias, the patriarch of the group, finally had to appeal to the conscience of his counterparts. "Now you understand why I always go to China and Russia when I need help quickly," the Cypriot said. This was only half true. Cyprus also submitted a request for assistance from the euro bailout fund on Monday of last week, because Russia and China were no longer willing to provide it with assistance. Typical Compromise At shortly after 4 a .m. on F riday, the group of 17 f inally agreed to one of the compromises that are so typical of Brussels. Experts like Guntram Wolff of the Brussels-based think tank Bruegel have praised one item in the summit's closing statement in particular. "It's a revolution that the euro zone is now finally getting an efficient and shared banking supervision," says Wolff. Soon the banks will no longer be regulated by national agencies, but by a central institution. It's an attempt to end the disastrous mutual dependency of banks and governments. The Spanish banks, for example, are suffering substantial losses, because they hold a large share of Spanish government bonds. To rescue the banks, the finance minister has to go into more debt. This reduces Spain's credit rating, with the result that the value of the government bonds is pushed down even further. In the future, the banks will be supported directly by the permanent bailout fund, the European Stability Mechanism (ESM), so that the countries in question will not be forced to incur additional debt. But this aid will only be available once a functioning European banking oversight exists. This is the issue in which the Germans prevailed, following their motto: no money without supervision. It was their only success at the summit. 50

Because it will take a while until the new banking supervisory agency is operational, European leaders have devised a trick to help the Spaniards immediately. The aid, which could total up t o €100 bi llion, will be disbursed not to the government bank bailout fund, but to a private institution. The appeal of this solution is that it doesn't increase Spain's national debt. Half of the money is secured by a guarantee from the Spanish government. Devastating Message The chancellor suffered her biggest setback on a nother issue. In the future, countries that receive money from the bailout fund will have less stringent reform requirements imposed on them than before. It will be sufficient if they adhere to the recommendations of the European Commission, which are generally less tough than the conditions imposed by the International Monetary Fund (IMF). As a result, it is unlikely that countries will still be placed under the supervision of the troika of the EU, the ECB and the IMF in the future. This sends a d evastating message to the crisis-ridden countries: There is no poi nt in taking more reform measures than absolutely necessary. "It is unacceptable that large countries like Spain and Italy must satisfy fewer reform requirements than small countries like Portugal and Ireland," says Michael Hüther, director of the Cologne Institute for Economic Research. There is every indication that the countries that have already received bailouts, most of all Greece, will soon demand an easing of their austerity conditions. Does this mean bailout programs without troika supervision? "That's incorrect. It's not quite that simple," says a German government negotiator, defending the outcome of the summit. The easing of restrictions, he explains, only applies in the event that the permanent bailout fund must quickly buy up government bonds. The Germans are consoling themselves with the knowledge that they can delay aid payments if they consider reform efforts to be too lax. They have, after all, a blocking minority in the decision-making bodies of the bailout fund. In the end, however, it is hard to avoid the fatal impression that the Europeans feel that they need to constantly tinker with the framework of instruments that they have already agreed upon. As soon as a country is affected itself, it does everything it can to relax the rules. Party Rebels in Berlin Only a few hours after the fatal night in Brussels, the chancellor's aides were trying to dispel this impression, knowing that they could not be certain that their own members of parliament would vote for the fiscal pact in the Bundestag that evening. The mood was already bad in the parliamentary group of Merkel's center-right Christian Democratic Union (CDU) and its Bavarian sister party, the Christian Social Union (CSU). Many members asked themselves why, on the last day before the summer recess, they were suddenly expected to hectically vote on a project worth billions that will now have to be reviewed by the German Constitutional Court. Merkel's capitulation in Brussels hadn't exactly improved the mood. On Friday morning, Gerda Hasselfeldt, a senior CSU politician, and Alexander Dobrindt, the CSU general secretary, made their position clear to parliamentary floor leader Volker Kauder in the hallways of the Reichstag building in Berlin. "If there is aid 51

without conditions, it won't fly with us," they threatened. At that point, no one could rule out that the vote that evening would have to be cancelled. The parliamentary groups met at 3:30 p.m. Outside, Kauder was badgering Christian von Stetten, a CDU politician who was recently made head of a powerful faction within the conservatives' parliamentary group which represents the interests of small and medium-sized companies. Stetten had written to Kauder that he planned to vote against the bailout fund, which would have been a devastating signal for Merkel. In the end, however, the chancellor was lucky once again. On Friday evening, 493 of the 604 m embers of parliament present voted in favor of the ESM bailout fund. Nevertheless, Merkel fell short of the symbolic "chancellor's majority," where the chancellor reaches an absolute majority of the Bundestag's 620 seats without opposition support. That requires 311 votes from government parties, whereas only 300 members of the CDU, CSU and their junior coalition partner the business-friendly Free Democratic Party (FDP) voted for the measure. There were 16 di ssenters in the CDU/CSU and 10 in the FDP. Mounting Displeasure Merkel is paying a high price for success. Once again, the parliamentarians are only reluctantly supporting a bailout fund, some of whose rules were already obsolete on the day of the vote, as a result of the Brussels summit. The displeasure over the chancellor's bailout policy now reaches all the way to the top of the conservative parliamentary group. Merkel experienced this at first hand when she came to a meeting of her parliamentary group on Friday afternoon, arriving directly from Brussels. She had only slept for one hour, she said, garnering the sympathy of her fellow party members. But that was where their kind words ended. Several conservative members of the Bundestag promptly complained that Merkel's bailout policy had failed. Arnold Vaatz, a member from the eastern state of Saxony, said that he felt "personally disappointed," that the summit results were unacceptable, and that he would vote no. Vaatz isn't just any member of parliament, but the deputy leader of the conservative parliamentary group. The mood was so bad that CSU General Secretary Dobrindt reminded his fellow party members of the basis conditions for the bailouts. "We attach enormous importance to only providing money if conditions are also accepted. Otherwise we cannot support the results of the summit." But Merkel had abandoned this principle on the night of the summit, even if she firmly denied having done so in her government statement shortly before the vote. To keep their own majority together, Merkel and her supporters used a trick. On Friday evening, they only got the parliament to vote on the permanent euro bailout fund and the fiscal pact and hence on pr ovisions that to some degree have become outdated since the summit. The parliament will have to vote separately on the changes that were agreed to in Brussels. The End of the Franco-German Motor? This tactic provided Merkel with a majority, but it d id not satisfy her critics. "The chancellor is doing a great job. But in the end, every member will have to decide for

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himself," says Stetten, who ended up voting no. And Thomas Bareiss, a CDU economic expert, said resignedly: "The red lines are being shifted farther and farther. I don't see an end in sight. My fear is that the markets will demand full liability from Germany." CSU politician Dobrindt is already making it clear that the yes vote on the ESM says nothing about approval or disapproval of the results of the summit that ended early Friday morning. "There is no c arte blanche for the Euro Group's ideas that will eliminate conditionality for bailouts," says Dobrindt. The CSU's leader, Horst Seehofer, also mistrusts Merkel's assertions that the decisions reached on t he night of the summit have changed nothing about efforts to rescue the euro. Seehofer, together with the Bavarian state cabinet and the CSU executive board, wants to adopt a resolution that the CSU will only support future bailouts if they are tied to conditions. Betraying German Interests For Dobrindt, it is already clear who is to blame for the debacle: the Social Democrats. "By making the growth pact a condition of their approval of the ESM in the Bundestag, the SPD and the Greens exposed the German chancellor to extortion in Brussels," he says. "The SPD and the Greens betrayed German interests." On Friday, SPD members did their best not to celebrate too enthusiastically. They behaved as if they supported the interests of the state, and they did their utmost to prevent the impression from being created that they were mainly concerned with partisan politics. It was only in the hallways of the Reichstag building than some Social Democrats were visibly pleased about the negotiations. "It is pretty incredible what we've achieved," says budget expert Lothar Binding. Earlier, European Parliament President Martin Schulz, the Social Democrats' most prominent politician on the European level, had called on SPD politicians to vote yes in a speech to the party's parliamentary group. "François Hollande told me at the summit about how pleased he was about the German Social Democrats' negotiations," he said. "The European dimension is much bigger than what we are voting on." Schulz's remarks met with thunderous applause. A Force to Be Reckoned With In the end, it was indeed Hollande who made Monti's victory over Merkel possible. The Socialist politician has always felt that Merkel's strategy was wrong. He said it in the election campaign, and he has been repeating it since entering office. First, Hollande and his supporters fear that the rigid German position will lead to the collapse of the euro. They believe that austerity policies will plunge the crisis-ridden countries into an endless recession, and that they will eventually be unable to service their debts and will be forced to leave the currency union. For this reason, the French believe that more transfers from richer to poorer states are unavoidable. Second, France itself is in an economic and financial plight. And while Hollande's predecessor Sarkozy wanted his country to economize its way to recovery through German-style reforms, France's new president wants to tread far more cautiously, despite the significant austerity measures in the public sector that have been announced.

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Even if no one is saying it, there is a possibility that France itself could become a recipient of aid one day. Third, the demonstrative German dominance in Europe is at odds with French self- confidence. In the media and in some areas of politics, there is a sense of great relief that Hollande is showing his countrymen that he can corner the Germans politically. In doing so, he is demonstrating that France is still a force to be reckoned with. Focus on France There are also conservative commentators, such as the former conservative minister Bruno Le Maire, who are warning loudly that Hollande is destroying France's relationship with Germany. Hollande's strategy of forming an alliance against Germany has never worked in Europe, Le Maire warned a few days ago. To some extent, Hollande has now proven the opposite. The question is whether this alliance could also be a model for the future -- and how long Germany would continue to take part. For the first time in a long time, there was no joint German-French position paper ahead of the European summit. Although Merkel and Hollande have met often, their relationship is characterized by a businesslike normality. Now there were two opposing position papers before the summit. There was a German one calling for iron-clad structural reforms in Europe's peripheral countries and a political union, and a French one that contained everything that had already been decided on: short- and long-term growth measures, bailout funds for banks and countries in trouble, and a central European banking supervisory agency. The paper also contained various terms like euro bonds, euro bills or debt redemption fund, which all meant the same thing -- namely, that wealthy countries should guarantee the debts of poorer countries. Even in the runup to the summit, it was only the French proposals that were being debated, while the German ones were hardly discussed at all. As a result of French lobbying, almost all of Hollande's proposals -- including the euro bonds -- found their way into the letter that European Council President Van Rompuy presented as a compromise. In contrast, there was hardly any mention of the European budget controls that Germany is urging should be a precondition. Hollande cannot sell a transfer of sovereignty to Brussels to the French public, because the French are terrified that the Germans could soon have a say in how they spend their money. The Man Who Defeated the Germans But these are the key questions for Europe, issues that will be of crucial importance at the next summit in October or even before. Following the events of last week, France and Germany are further apart than they have been in a l ong time. It is doubtful that Hollande and Merkel will reach a compromise. Last Friday, after the late-night summit, a beaming Hollande stepped in front of the cameras. It wasn't a matter of winners or losers, he said. What had been achieved at this summit, he told the press, was the "renegotiation" he had called for in his campaign. As a result, he said, the French parliament could now join other European countries in ratifying the fiscal pact.

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"Southern Europe forces Merkel to capitulate," Le Monde wrote on Friday. For the French, Hollande seemed to be the man who defeated the Germans. REPORTED BY SVEN BÖLL, FIONA EHLERS, KONSTANTIN VON HAMMERSTEIN, PETER MÜLLER, CHRISTOPH PAULY, CHRISTIAN REIERMANN, GORDON REPINSKI, MATHIEU VON ROHR AND C HRISTOPH SCHULT Translated from the German by Christopher Sultan URL:http://www.spiegel.de/international/europe/german-dominance-in-doubt-after- summit-defeat-a-842056.html

07/02/2012 11:42 AM Merkel's EU Concessions 'Germany Can't Always Say No' In a SPIEGEL interview, German European Commissioner Günther Oettinger, 58, discusses Berlin's concessions at Friday's EU summit in Brussels, why he believes euro bonds are "conceivable" and his idea for a European political union that would look a lot like a United States of Europe. SPIEGEL: Commissioner Oettinger, did Germany learn the hard way, in recent weeks, that the Italians aren't just the better footballers, but also the more skilled negotiators? Oettinger: Italy deserved its victory in football. At the European Union summit in Brussels, there was an appropriate compromise that is acceptable for Germany and gives Italy a real chance. SPIEGEL: We find it hard to recognize a compromise. At the beginning of the summit, the chancellor didn't want to talk about short-term measures, but at the end she even agreed to them. Oettinger: Never before have the negotiating positions among the countries been so different and the pressure to reach a d ecision so high at the same time. It required flexibility from all participants. Italian Prime Minister Mario Monti wanted significantly more, but now he can finance his sovereign debt more favorably. In return, he had to accept a clear constraint, namely to reduce his net borrowing. SPIEGEL: The German government had to back down on two key issues: In the future, a euro bailout fund will be allowed to inject money directly into banks, and it will probably even buy up the government bonds of ailing countries. Oettinger: The direct financing of banks will not happen until the new banking regulatory agency begins its work. Although Italy will gain access to a European financing fund without direct control, there are guardrails for the necessary reforms and budget consolidation. SPIEGEL: Meanwhile, the International Monetary Fund, with its expertise, is being left out for the first time. Oettinger: Our people at the Commission are competent enough. SPIEGEL: You don't believe that the Commission will impose sanctions on bi g countries.

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Oettinger: The sanctions, which have already been signed into law, are extensive. Now we have to consistently apply the sanctioning mechanisms. SPIEGEL: There will be no euro bonds "for as long as I live," Merkel said last week. Why did she put it so drastically? Oettinger: She wanted to state her position clearly and define a no-go zone. It enabled her to create the necessary latitude domestically for other concessions to euro partners. She has to take into account the fact that the majority of Germans and most economists are opposed to euro bonds. But she also knows that Germany can't always say no. SPIEGEL: Do you believe that Merkel can sustain her tough stance against common bonds? Oettinger: I thought that the chancellor's statement was authentic. Everyone can understand Germany's position. But of course Germany, as the largest beneficiary of the European domestic market and the common currency, has an interest in the heavily indebted countries in Europe remaining capable of taking action. In the reform process in which the EU finds itself, we will most certainly agree to further acts of solidarity. SPIEGEL: You yourself said some time ago that euro bonds should be "considered as a final component of the euro rescue." Oettinger: I think that euro bonds are conceivable, provided all other necessary conditions are met. As a member of the European Commission, I support the draft proposal for various types of euro bonds that we published at the end of last year. But first we have to transform the common and economic and currency zone into a real political union. SPIEGEL: To that end, the presidents of the European Council, the European Commission, the Euro Group and the European Central Bank have made extensive proposals. However, the German government promptly criticized the document, saying it was biased. Oettinger: I feel that the proposals are an outstanding basis for engaging in the structural debate about tomorrow's Europe at all levels in the coming weeks. We are talking about a banking union, common economic policy, more democracy and democratic control and, ultimately, the founding of the United States of Europe. SPIEGEL: You mention a banking union. Do you think it's right for German savers to be liable for Spanish or Italian banks in the future? Oettinger: Yes, but only under two conditions. There has to be an effective European banking regulatory agency, and there also has to be a joint European deposit insurance fund ... SPIEGEL: ... which would draw on the existing national deposit insurance funds? Oettinger: That would probably not be the best solution. We should develop a European deposit insurance fund instead. SPIEGEL: That would be another step toward a liability community between rich and poorer EU countries. Oettinger: One shouldn't view rich and poor solely through the lens of the present. Germany is currently at the height of its economic performance. But we've also been the 56

"sick man of Europe" before, namely prior to the labor market reforms of then Chancellor Gerhard Schröder. SPIEGEL: The German government rejects the idea of a joint fund to pay off old debts. What's your position on that? Oettinger: Such a fund would only help Italy at the moment, because it has a debt ratio of 120 percent annual economic output. Even Spain didn't think much of the idea, while other countries were completely opposed to it. But we always have to find solutions that are reasonable for everyone. SPIEGEL: But the idea comes from the five members of the German Council of Economic Advisers (an independent panel that advises the government in Berlin on economic matters). They aren't exactly considered dubious. Oettinger: And the idea of a debt repayment fund isn't dubious, either. But is it the best conceivable approach? The fact is that it isn't just the Germans, but also the Dutch, for example, who are against it. SPIEGEL: Another idea by the quartet of presidents is that no country can take on new debt without the approval of the other euro countries. Oettinger: In essence, the 0.5-percent limit in the fiscal pact already constitutes a ban on new borrowing. I would favor lowering that limit to zero. But if a country in extraordinary circumstances were in fact forced to borrow money, it would have to file a petition with the European Commission and the Euro Group. SPIEGEL: How can we ensure that we don't lose democratic control by transferring further sovereignty rights to Brussels? Oettinger: We'll need a two-chamber system in the future. The representatives of the countries could sit in the second chamber, based on the model of the United States Senate. And, incidentally, the European Parliament has to play a decisive role in all other deliberations on the amendment of our EU treaties. SPIEGEL: German Finance Minister Wolfgang Schäuble believes the changes are so far-reaching that he believes a referendum will be necessary. Oettinger: First we have to design the new structures and then see what has to be done in terms of constitutional law. Under Article 146 of the Constitution, it will then be possible to present a new constitution to the people for a vote. Interview conducted by Christoph Pauly and Christoph Schult. Translated from the German by Christopher Sultan. URL: http://www.spiegel.de/international/europe/interview-with-germany-s- european-commissioner-oettinger-on-euro-efforts-a-842051.html

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Opinión LA CUARTA PÁGINA Primero, los deberes nacionales La unión política y fiscal europea solo será útil si antes los países, especialmente España e Italia, hacen las reformas estructurales que han demorado durante dos décadas Michele Boldrin 2 JUL 2012 - 00:01 CET

ENRIQUE FLORES Cuando, hace más de 20 años, empezó la aventura del euro, algunos pocos economistas discrepamos con aquella decisión. Argumentos económicos, antiguos y sencillos, mostraban que una política monetaria común requiere, antes de todo, una efectiva integración de las economías reales y unas políticas fiscales coordinadas. Debieron ponerse en pie antes y no después de la política monetaria común. La decisión de introducir el euro nos pareció, entonces, una huida hacia adelante debida a motivaciones exclusivamente políticas: diversas élites europeas veían la unificación alemana como un amenaza potencial, que, para ser neutralizada, necesitaba el sacrificio del todopoderoso Deutsche Mark en el altar de la unidad europea. Estas mismas élites deseaban que la estabilidad financiera alemana contagiara los demás países reduciendo el riesgo de inflación, y de devaluaciones, y, en consecuencia, los costes de financiación en los mercados internacionales. Mientras la primera motivación era central para Francia, la segunda importaba más a España y, especialmente, a Italia que, con una deuda pública que rozaba el 120% del PIB, ya afrontaba graves problemas para financiarla. Además, la adopción del euro preveía, a través de los fondos de cohesión, sustanciales transferencias de recursos desde los países del Norte de Europa a los del Sur e Irlanda.

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Hay otros factores —como, por ejemplo, que los alemanes no querían el euro— pero es inútil volver aquí sobre la historia de los últimos 20 a ños: es bien conocida aunque algunos prefieran olvidarla, por conveniencia política. Lo que importa es recordar que el euro fue una huida hacia adelante de una clase política incapaz de resolver directamente los problemas estructurales de varios países miembros de la UE. Nadie quería adoptar, en su propio país, las reformas necesarias para llegar a u na verdadera integración económica y fiscal. El euro pareció la poción mágica capaz, a costes políticos nulos, de aliviar los problemas internos unificando económicamente a Europa. Aprobar, después de la adopción del euro, las medidas económicas políticamente costosas fue la promesa que de inmediato se hicieron los países europeos entre sí en el acto, y que no respetaron. Los primeros años, como cabía esperar, fueron de bonanza y la alegría no f acilita reformas. Alemania se retrasó hasta 2003-04 en sus deberes. Francia lo intentó al principio del reinado de Sarkozy, cansándose pronto. Y los países mediterráneos se fueron de juerga. Grecia y Portugal hicieron lo opuesto de lo prometido, Italia no hizo nada y España empezó bien pero abandonó la senda reformista en los primeros años de este siglo. La crisis financiera no ha hecho más que registrar lo ocurrido: los problemas actuales de los países mediterráneos son exactamente los mismos que cuando empezó el proceso de adopción de la moneda común. Y son ellos, no los banqueros grises y malos, la causa verdadera y profunda de nuestras dificultades financieras. La moraleja es muy sencilla: los cambios económicos estructurales no s e pueden obviar ni con huidas políticas hacia delante, ni con drogas monetarias. Angela Merkel ha demostrado la sabiduría del líder que el papel continental de Alemania requería Esto no implica que no sea urgente resolver los dramáticos problemas financieros a los cuales nos enfrentamos: todo lo contrario. Cuando, como en el último año en Italia y España, la fiebre financiera se sube a niveles muy altos, el colapso puede ser repentino. Por esta razón, acuerdos como los de este fin de semana —especialmente en su parte bancaria, que importa directamente a España pero tiene validez general— son extremadamente importantes y no pueden ser ni infravalorados ni desperdiciados. Junto a otros, insistimos desde hace años en que las cajas son el problema más dramático y urgente para España y que la única solución correcta es nacionalizar las que estén en quiebra, sustituir a sus dirigentes actuales, recapitalizarlas y, después de haberlas limpiado de sus activos malos, privatizarlas con el fin de aumentar la competencia en el sector financiero nacional, muy inferior a lo deseable. Pero —es igualmente importante recordarlo—, una vez resuelto el problema de los bancos, las debilidades estructurales que no se han resuelto en una década, deben de ser abordadas. Los pasos dados en Bruselas pueden resolver la crisis europea, a la vez que ofrecen la clave analítica para entender las reticencias alemanas a la concesión de ayudas a España e Italia y la causa de las tensiones políticas intra-europeas de los últimos meses. La reticencia alemana a mojarse se funda en su experiencia negativa de los últimos 20 años, en los faroles de los anteriores gobiernos de España, Italia y, sobre todo, desde 2008, de Grecia. Y en la correcta percepción de que si salta la deuda alemana salta no solo el euro sino todo el sistema económico europeo. Los políticos alemanes no están, por otra parte, exentos de responsabilidades: aceptaron compromisos ambiguos hace 20 años y después dejaron que se violaran repetidamente, incumpliéndolos ellos mismos. Y lo que resulta más grave aún, se negaron a reconocer que había un defecto profundo en el diseño del euro, la carencia de todo mecanismo europeo de intervención bancaria en situaciones de quiebra. Durante cuatro largos años esto ha forzado el BCE a una 59

elección absurda entre “imprimir chocolate para todos” y el riesgo de que los bancos en quiebra hundieran a los países. Alemania no confiaba en que, después de que se le concediera el alivio temporal, los países de la Europa del Sur mantuvieran su palabra y tomaran las medidas estructurales necesarias. Los gobiernos de la Europa del Sur, preocupados por la urgencia dramática de su situación financiera, no ve ían ninguna razón para tomar medidas estructurales sin controlar, antes de todo, la fiebre financiera. Es peligroso trasladar a Europa los problemas que el Gobierno no se atreve a afrontar En las últimas semanas este enfrentamiento ha llegado a niveles muy peligrosos para todos. Merkel ha demostrado una vez más la sabiduría del líder dando los pasos que la lógica económica y su papel continental le pedían. Pero —y aquí entramos en el tema fundamental—, ahora les toca a España e Italia: deben cumplir con los deberes que han postergado, respectivamente, desde hace dos décadas. El verdadero riesgo, en este momento, es político: que el gesto alemán de cooperación reciba, como contrapartida, respuestas retóricas, reformas a medias y, sobretodo, una ulterior petición de huida política hacia adelante para trasladar a nivel europeo los problemas que no se logran resolver en cada país. Este riesgo tiene una nombre específico: la insistencia en la creación de los eurobonos y en la garantía europea de una parte sustancial de la deuda nacional como primer paso hacia la unión político-fiscal. Esta, como la monetaria 20 años atrás, sería hoy otra equivocada huida hacia adelante por parte de unas clases políticas incapaces de reformar sus propios países. Afirmar esto no es equivalente a denegar la utilidad futura de una unión político-fiscal, sino reconocer que esta es posible y útil solo si cada país hace, antes de todo y seriamente, los cambios internos que la faciliten. El Gobierno italiano, e Italia como país, tiene probablemente el trabajo más complicado, pero el de España no es poco. No está todavía claro si, aun después de los resultados esperanzadores del último Consejo de Europa, la clase política y el Gobierno en particular tienen bien diseñada la hoja de ruta de las reformas estructurales que es necesario que España adopte. Lo mismo vale para Italia. Concluyo este artículo antes de conocer quién será el campeón europeo de fútbol. Sea quien sea me parece obvio que, en los próximos meses, España e Italia tienen que jugar un partido mucho más importante para su futuro y es, afortunadamente, uno que ambos países pueden ganar. Espero que los dos pueblos pongan en el juego de las reformas la misma pasión que en el fútbol. Michele Boldrin es profesor de la Washington University in Saint Louis e Investigador de Fedea. http://elpais.com/elpais/2012/06/29/opinion/1340996182_066516.html

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ft.com comment Columnists The real victor in Brussels was Merkel

By Wolfgang Münchau July 1, 2012 7:42 pm Mario Monti faced down the German chancellor and won the battle. He will survive a few more weeks or months in politics. It was clever of him to threaten a v eto on something Angela Merkel badly needed. He had her in the corner. It was an example of classic EU diplomacy. But this was only the foreground spectacle. If you look behind the curtain, you will find that, for Italy at least, nothing has changed at all. The European Stability Mechanism was already able to purchase Italian bonds in the open market. The instrument was there, but not used. The agreed changes are subtle. Italy must still sign a memorandum of understanding, and subject itself to the troika – the International Monetary Fund, the European Central Bank and the European Commission. The procedure will be less invasive, more face-saving. But there will still be a procedure. More ON THIS STORY/ The Long View testing Spain and Italy defences// Lex Bank bailouts// Rajoy real winner despite Monti delight// Europe agrees crisis-fighting measures// Eurozone off on journey to central control ON THIS TOPIC/ US retailers eye EU growth potential// The Last Word A eurocrisis solution – a German exit// Global Market Overview Stocks and euro surge on E U summit deal// Euro stages dramatic bounce WOLFGANG MUNCHAU/ Monti needs to speak out// What happens if Angela Merkel gets her way// Wolfgang Münchau Saving Spain’s banks – and eurozone// Banking union can save the eurozone The real constraint for ESM bond purchases had less to do with the rules than with the overall size limit of the ESM. It has a lending capacity of €500bn – and that has not changed. No matter how you twist and turn it, the ESM is simply not big enough. It will inject equity into Spanish banks. It will need to refinance the programme for Greece, Ireland, and Portugal. It will soon have to cope with Cyprus and, who knows, maybe Slovenia as well. A full-scale programme for Spain still looks likely. I cannot see how you can fit Spain under the umbrella, plus Italian bond purchases. One of the lessons from the history of financial crises is that bazookas must be big to be effective. This one is not. Nor was the now defunct securities markets programme of the ECB. It did not stem the crisis because the ECB’s commitment was strictly limited – and contested by members of its governing council. The ECB still spent more than €200bn on t his programme, and yet it did not work. The ESM’s budget for bond purchases will probably be lower. Mr Monti may have secured the right kind of deal politically but to solve the ESM’s size problem he really should have insisted on a banking licence. With that, the ESM could have leveraged its lending ceiling to a more realistic level. It will not be able to do this now.

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This is why I believe the real winner of last week’s summit was not Mr Monti but Ms Merkel after all. She managed to keep Germany’s liabilities unchanged. Someone will have to explain to me how we can have no change to Germany’s overall liabilities, nor of ECB policies, and yet Italy and Spain can now be safe when they were not safe a week ago. The deal on Spain was marginally better – on paper. But it, too, is not what it seems. I see three obstacles: 1. A mandate to inject equity into the banks will be conditional on a political agreement for joint banking supervision. This is where Ms Merkel can still exact her revenge. Do not expect this to proceed easily. A joint system of banking would be a very big deal, and I doubt that a sensible agreement can be agreed by October. 2. Direct bank recapitalisations may require a change in the ESM treaty. I know this point is disputed. EU officials say they can do it by diktat. But I cannot see how one can conceivably let the ESM inject equity into banks directly when the treaty says specifically that the ESM lends money to member states for that purpose. Would the treaty not have mentioned this important detail? The head of the Bundestag’s budget committee also seems to think that a treaty change is now needed. 3. The new facility is still constrained by the same overall funding limits of the ESM as the bond purchases. I believe the Spanish banks will ultimately need a lot more than the €100bn earmarked for this programme once you take into account the effects of both the housing crash and the depression. The ESM is seriously overloaded. The most important event last week was probably not the agreement at the summit anyway, but the statement by Ms Merkel that there will be no eurozone bonds “for as long as I live”. My belief is that this statement reveals she is not serious about political union, to which she has been paying lip-service over the past few weeks. Her tactics remind me of the “coronation theory” of the 1980s: the Bundesbank used to say that monetary union was acceptable but only after full political union was completed. It was another way of saying never. I always suspected all this talk about long-term solutions might be a ruse. Now, it seems, we know. If Ms Merkel is right and there are no eurozone bonds in her lifetime, the eurozone will not survive. Without eurozone bonds or a change in ECB policy, Italy’s and Spain’s debt – and eurozone membership – is not sustainable. That was as true on Wednesday as it is today. [email protected] http://www.ft.com/intl/cms/s/0/960fb910-c1d7-11e1-b76a- 00144feabdc0.html#axzz1zStjRRDY

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Economía EDITORIAL Horizontes europeos La Eurozona se convierte en el centro de los nuevos planes de integración El País 1 JUL 2012 - 00:04 CET El Consejo Europeo celebrado en Bruselas no solo ha despejado algunas dudas sobre lo inmediato, sino que ha apuntado nuevos horizontes de integración. Los Veintisiete han encargado a su presidente, Van Rompuy, junto a otras instituciones y los Gobiernos, que presente de cara a octubre, para finalizarlo antes de fin de año, un nuevo informe para llegar a una “genuina Unión Económica y Monetaria”, con una hoja de ruta y un calendario. Estará basada en cuatro pilares: integración financiera, presupuestaria, económica y una reforzada legitimidad democrática. Tras una primera y demasiado breve discusión no cabe adelantar que vaya a ser fácil, sino todo lo contrario, llegar a un acuerdo que supondría un cambio radical hacia una unión política. Lo ocurrido estos días indica que algunos factores esenciales en la integración europea han cambiado. Para empezar, los próximos avances ponen a la Eurozona en el centro. Lo que, inevitablemente, reforzará la división de la Unión en dos velocidades: los que no quieren avanzar con los demás, como británicos y checos, junto a los que no pueden, y los del euro, aunque se mantengan instituciones comunes. También han surgido nuevas relaciones de fuerza. El presidente francés lo dejó claro al señalar que ha mantenido una “cooperación útil” con Merkel, pero “de forma diferente del pasado”. Y así, con la presión de España e Italia, ha conseguido que la canciller alemana cediera en lo referente a la financiación del sistema bancario español (y otros), y a la aprobación de un Pacto de Crecimiento y Empleo que, como pidió Hollande, acompañe al fiscal. Aunque tiene más de buenas intenciones que de efectividad, incluye la movilización de 120.000 millones de euros desde la UE (pero solo 10.000 millones de dinero nuevo). Y quiebra el monopolio conceptual del principio de la austeridad para salir de la crisis, aunque los planes nacionales, incluido el que tendrá que presentar España, se mantengan en esa línea. Merkel, que ha tenido que defenderse de inmediato en su Parlamento, no ha cedido tanto. Ha logrado asentar el principio de que no ha brá ayudas sin control y condicionalidad. Como primer paso, a concretar, el BCE adoptará un papel europeo de supervisión bancaria europea. ¿Sobre todos los bancos? Está por ver. Y ha recordado que aún se requiere la unanimidad para transformar algunas de las medidas aprobadas en realidades. La visión a largo plazo hubiera resultado vana sin un encarrilamiento de los problemas inmediatos, básicamente la separación del riesgo soberano del bancario, para salvar el euro. Sin duda, como señaló Rajoy, “el euro es el gran triunfador del Consejo Europeo”. Pero este se ve reforzado también por los nuevos horizontes que se abren y le añaden credibilidad. La viabilidad del euro ha estado en el candelero durante demasiado tiempo. Sin ella, de nada serviría una huida hacia adelante, en la que no ha y que dejar a los ciudadanos al margen del proceso. Pues serán ellos los que, al cabo, habrán de pronunciarse. http://elpais.com/elpais/2012/06/30/opinion/1341082228_494706.html 63

vox Research-based policy analysis and commentary from leading economists One more summit: The crisis rolls on Charles Wyplosz, 30 Jun 2012 The EU summit produced a vaguely worded agreement that can and has been read in different ways in different nations. This column provides a quick reaction to what was and was not decided. It concludes that useful progress was made, but this was far from the decisive turn-around that many had hoped for. The crisis will continue to unfold in the months ahead. Reading the official documents from the June 28 s ummit requires linguistic and divination skills. The texts are convoluted and clearly aim at giving various positive impressions while shying away from deep commitments. • The clearest result is that EFSF/ESM funds can be used directly to support banks. The summit attendees seem to have successfully drawn the conclusion that this was necessary from the disastrous impact of their mid-June decision on n ew lending to Spanish authorities to shore up their banks. Within hours, the main conclusion drawn by the markets was that the Spanish public debt had grown by €100 billion, bringing Spain closer to the fate of Ireland (bad bank debt dragging down a government with an otherwise healthy fiscal position). The new agreement suggests that in the future, banks will be bailed out by the collective effort of Eurozone countries. This means that should the bank rescue turn sour, losses will jointly assumed, in proportion to each country’s size – so, for examples, Greek taxpayers could take a share in poorly managed rescues of Italian banks. This is solidarity, but… • First, this arrangement is to be finalised by the end of the year. This means that, in the end, the Spanish debt will rise by €100 bi llion (the market participants who enthusiastically celebrated the decision by raising the price of Spanish bonds will eventually understand that). Ditto in the not unlikely case that some Italian or French banks wobble before December. • Second, conditions will be attached to such a rescue. These recommendations could be clever if they require “Swedish-style” bank restructuring whereby shareholders and other major stakeholders are made to absorb first the losses, and if a new clearly untainted management replaces the previous one. Such interventions limit the costs to taxpayers; they can even turn a profit. Of course, the conditions could also be silly, raising the costs to taxpayers to huge levels. At this stage, both outcomes are possible. • Third, the arrangement is linked to the establishment of a “single supervisory mechanism involving the ECB”.

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This could be a single Eurozone supervisor built inside the ECB, which would go a long way to plugging one the worst mistakes in the Maastricht Treaty (lack of a joint regulation and resolution regime for banks). But this is not what the official text says, which makes one suspect that policymakers have not agreed to something simple and clean. Most likely, they will keep negotiating and come with the usual 17-headed monster that exhausted diplomats are wont to invent. This is important because a contagious banking crisis that hits several large banks would require much more money than is available in the EFSF-EMS facilities. In that case, the ECB will have to step in. In fact, the whole idea to have a single supervisor trusted by the ECB is to make it possible for the ECB - at long last act - to as a lender of last resort. Unless the supervision regime is clear and clean, the ECB will not be able to do its job and a contagious crisis would turn into a full-blown disaster. Compact for Growth and Jobs The summit also agreed on a “Compact for Growth and Jobs”. This is a long and familiar litany of all the good supply-friendly reforms that have been advocated bi- weekly by the Commission for some twenty years plus a present to President Hollande. The present has been crafted in Berlin to give the new president a face-saving “victory”: he can go home and claim that he has obtained a victory in his determined war on austerity. The pact allows for the mobilisation of various EU facilities for a total amount of some 1% of EU. Given that these amounts are tied to all sorts of criteria (small and medium enterprises, energy and broadband infrastructure, and other great causes), that they will be spent “across the whole European Union, including in the most vulnerable countries”, and that “fast disbursement” by the European bureaucracy does not operate on the same time scale as a financial crisis, this compact costs little and will do nothing for the Eurozone debt crisis. Conditionality Lite Finally, the official texts include vague references to the possible use of EFSF/ESM funds to bail out governments with limited conditionality. It is very hard to understand what that really means beyond pleasing prime ministers Monti and Rajoy. Light conditionality, as they requested, is bound t o collapse at the foot of the Bundestag, which must approve every single loan. Conclusion At the end of the day, the summit was a little move in the right direction on ba nk supervision, but keep watching; we still don’t know what will actually be put in place. There was nothing on collapsing Greece, nothing on uns ustainable public debts in several countries, and no end in sight to recession in an increasing number of countries. There was no knock-out winner in this summit, but on points I’d have to say that the winner is the crisis. http://www.voxeu.org/article/one-more-summit-crisis-rolls

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Internacional EL OBSERVADOR GLOBAL La vuelta al mundo con Martin Wolf El editorialista de ‘Financial Times’ dice que periodistas y economistas fallaron al no ver la crisis Moisés Naím 30 JUN 2012 - 17:30 CET La crisis ha transformado a al gunos comentaristas económicos en personajes de fama mundial. Uno de ellos es Martin Wolf, el principal editorialista económico del Financial Times y seguramente uno de los columnistas más influyentes del momento. Hace unos días converse con él en Estambul. Pregunta. ¿Qué aspectos de la crisis le sorprendieron? Martin Wolf. El insuficiente capital propio que tenían los bancos y otras instituciones financieras para cubrir los riesgos que corrían. Captaban dinero a corto plazo y lo colocaban a largo plazo. Tenía puesta toda mi atención en la macroeconomía y no vi lo que estaba sucediendo con la microeconomía. Es el principal error que he cometido en mi carrera. Mi otro error fue no haberme percatado de cuan débiles e inadecuados eran los controles y regulaciones a los bancos. P. ¿Qué responsabilidad tienen los periodistas en esta crisis? M. W. Hubo muchos errores de omisión. Hemos debido ser mucho más agresivos y rigurosos en el escrutinio de los bancos, los reguladores etc. El problema es que, en general, los periodistas saben poco de economía y finanzas. P. Pero los economistas más renombrados tampoco se cubrieron de gloria. Ni previeron la crisis ni se ponen de acuerdo en cómo manejarla. ¿Quiénes fueron las excepciones? M. W. Nouriel Roubini alertó temprano sobre las burbujas de precios de ciertos activos financieros y su relación con el endeudamiento, y se dio cuenta que esa mezcla era explosiva. Robert Shiller analizó mejor que nadie lo que sucedía en el sector inmobiliario. Y Raghuram Rajan dio la primera campanada sobre la fragilidad del sector financiero y explicó cómo se estaba transformando en una amenaza para la estabilidad global. Pero, en realidad, no hubo m uchos más. Y lo cierto es que la teoría económica ortodoxa ha resultado inútil para prevenir lo que sucedió. P. Pero los jefes de Estado deben manejar la situación aunque las recomendaciones que les dan los economistas son de dudosa calidad. ¿Cómo califica usted el manejo que han hecho de la crisis George W. Bush, Barack Obama, Wen Jiabao y Angela Merkel? M. W. Bush, reprobado. Obama y Wen Jiabao, aprobados. Y Merkel aprobada como líder de Alemania y reprobada como líder europea. P. Pero Obama está siendo ferozmente criticado por su manejo de la economía. M. W. Así es. Sus críticos argumentan que la recesión de EE UU ha debido ser más breve y la recuperación más veloz y vigorosa. Pero según la experiencia histórica y el análisis objetivo, la crisis que heredó Obama ha debido causar una recesión aún más profunda de la que hubo, y probablemente hasta una fuerte depresión. Obama logro 66

evitar estas catástrofes y, desde que estalló la crisis hasta hoy, de las seis economías más avanzadas del mundo, la economía de EE UU es la que más se ha recuperado. P. En esta crisis los jefes de los bancos centrales se han transformado en actores fundamentales. ¿Quienes son los mejores banqueros centrales del mundo? M. W. Ben Bernanke, el gobernador de la reserva federal de EE UU. P. ¿Nadie más? M. W. Nadie. Los demás están en otra categoría. Entre 2008 y 2009 Bernanke salvó al mundo. Creo que después no ha sido lo suficientemente agresivo en estimular la economía y tampoco anticipó la crisis. Pero tuvo la responsabilidad histórica en el momento más crítico y lo hizo excepcionalmente bien. P. Paul Krugman argumenta que una política monetaria y fiscal más expansiva reduciría el nivel de paro en EE UU. Raghuram Rajan piensa que muchos de los empleos que desaparecieron en la crisis son producto de cambios estructurales y tecnológicos y ya no volverán. ¿Quién tiene razón? M. W. Los dos. Krugman en sostener que EE UU puede y debe hacer más a través del gasto público y la política monetaria para aumentar el empleo. Y Rajan, en decir que muchos empleos de antes ya no existirán y que a largo plazo hay que crear puestos de trabajo en otros sectores. Uno tiene razón sobre el corto plazo y el otro sobre el largo plazo. P. Dentro de diez años ¿que país va a tener una economía con más crecimiento, España o Italia? M. W. España. P. ¿Y entre China e India? M. W. India. P. ¿Estados Unidos o Alemania? M. W. Estados Unidos. P. Y ya que estamos en Turquía, un país que ha tenido un de sempeño económico espectacular, ¿cómo ve la situación acá? M. W. Insostenible. Turquía sufre de desbalances económicos profundos. Su ahorro interno es demasiado bajo y su déficit en cuenta corriente demasiado grande. P. ¿Y Europa? M. W. Veo tres escenarios: Europa Federal; statu quo-plus y la ruptura. El statu quo va a fracasar, lo que puede llevar o al statu quo-plus o a la ruptura parcial. Lo que llamo statu quo-plus incluye reformas bancarias, un ajuste económico que no solo recaiga en los países más endeudados, un mayor estímulo por parte del Banco Central Europeo y abundante financiamiento a l os países que hacen las reformas necesarias. Este es el escenario que veo más probable. http://internacional.elpais.com/internacional/2012/06/30/actualidad/1341070206_76684 4.html

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Economía TRIBUNA La paja española y la viga europea (o viceversa) O renunciamos a la soberanía fiscal de los Estados miembros, o nos despedimos del euro Gabriel Tortella 30 JUN 2012 - 00:09 CET Vamos de chasco en chasco. Primero nos creímos que subiendo el IRPF descolocábamos a la izquierda; luego pensamos que posponiendo los presupuestos y mareando la perdiz sacábamos mayoría absoluta en Andalucía; luego nos pareció que quitando a Rato de Bankia se resolvía el problema de las cajas. Por último, decidimos que una “línea de crédito” (no un rescate, Dios nos libre) para la banca pondría fin a nuestros problemas, porque ya habíamos hecho los deberes y lo único necesario era dar una imagen de solvencia. Por último, estábamos convencidos de que una victoria de Samarás en Grecia tranquilizaría a l os mercados y, unida a l a “línea de crédito”, disiparía todas las dudas. Pero resultó que no: la prima de riesgo sigue por las nubes, los inversores siguen retirando fondos, y lo único que se nos ocurrió fue es pedir al Banco Central Europeo que nos financiara. Y este antipático de Draghi que no quiere aflojar y encima nos falta. También creíamos que el haber ganado por mayoría absoluta y tener casi cuatro años de gobierno por delante iba a d ar una imagen de estabilidad y resultar un argumento poderoso para calmar a los mercados. Pues ni por esas: casi resulta contraproducente. ¿Qué nos pasa? ¿Por qué nos sale todo mal? Es muy sencillo: porque después de las triquiñuelas y las evasivas del gobierno anterior, la imagen que damos es que seguimos con las evasivas y las triquiñuelas del actual, que nos pasamos de listos, que no tenemos un plan, y que vamos a rastras de los acontecimientos. Si el descolocar al contrario y ganar unas elecciones autonómicas son los argumentos que determinan nuestra política económica ¿quién va a confiar en nosotros? ¿A qué inversor le va a agradar la perspectiva de cuatro años más de gestos electoralistas y zancadillas al rival? No tenemos un plan, y vamos a rastras de los acontecimientos Todo el mundo sabe que los problemas de España son profundos y graves, y que no basta con hacer los deberes que pide la maestra para que esté contenta. El país necesita un replanteamiento del llamado “Estado de las Autonomías”, para resolver, entre otras cosas, el absurdo de que un ente recaude y otro gaste; se necesita no sólo apretar las clavijas fiscales a los ciudadanos, sino también reducir equitativamente el gasto público y recortar ejemplarmente las prebendas de los políticos y demás poderes; y probablemente se necesite profundizar en la reforma laboral y promulgar por fin la ley de huelga que la Constitución promete en su artículo 28. Todas éstas son medidas duras, difíciles, polémicas; pero la mayoría absoluta que tiene el gobierno le simplifica mucho las cosas. Una exposición razonada de la necesidad de medidas como éstas no s ólo podría convencer a la ciudadanía (de muchas de ellas está ya convencida, según dicen las encuestas) y a la oposición, sino que demostraría a nuestros socios europeos y a esos odiosos mercados que tan mal nos tratan que ahora sí vamos en serio y que estamos decididos a enderezar el rumbo del gobierno y del país. Ahora bien, como señalaba The Economist, esto es sólo la mitad del problema. Los inversores desconfían del Gobierno español, y con razón. Pero también desconfían del 68

gobierno europeo, y también llevan razón. Europa no sólo tiene un serio déficit democrático; es que, al igual que el Gobierno español (que no t iene ese déficit), ha cometido muchos errores y da la impresión de haber perdido el rumbo, de llegar tarde a los problemas y de evitar atacarlos de raíz. El optimismo ensoñador de los años finales del siglo XX y de los comienzos del XXI, con sus ampliaciones masivas y casi indiscriminadas de la UE (véase, si no, el caso de Grecia) y la entronización solemne de la moneda única sin hacer caso de los muchos que advirtieron que, sin una política fiscal común, sería muy probable que aparecieran burbujas especulativas y déficits por todas partes, ha dado como resultado la situación en que nos encontramos. Y todo ello sin que apareciera en la Unión una voluntad clara de salir de una vez de este atolladero planteando esta evidente disyuntiva: o renunciamos a la soberanía fiscal de los Estados miembros, o nos despedimos del euro. No vale la adopción de esta actitud censoria y pontifical que asumen los nórdicos señalando con dedo acusador a los meridionales por ser tan manirrotos, porque los primeros en romper el pacto de responsabilidad fiscal hace un d écada fueron ellos, acuciados por sus propios problemas, que a ellos les parecían muy serios, como si los nuestros no l o fueran. Y el acuerdo tomado ayer en Bruselas parece un zurcido de última hora, que ojalá haga algo más que tapar el roto. Con este triste espectáculo, nada tiene de extraño que los inversores internacionales malvendan euros y busquen refugio en el dólar o en el franco suizo. Y mis preguntas finales son: ¿quién tiene la paja en el ojo, y quién la viga? ¿O son dos vigas? Gabriel Tortella, profesor emérito de la Universidad de Alcalá, es autor, con Clara Eugenia Núñez, del libro Para comprender la crisis, entre otros. http://elpais.com/elpais/2012/06/20/opinion/1340214722_809934.html

Internacional OPINIÓN El declive de la ‘marca España’ En los últimos años la credibilidad de España en el extranjero ha sufrido un mazazo. Luis Garicano 29 JUN 2012 - 16:50 CET En los últimos dos años, la credibilidad de España en el extranjero ha sufrido un mazazo. Desde la Transición, ser español había dejado de ser algo negativo, digno de desconfianza. Creo que puedo decir esto con conocimiento de primera mano: llevo 20 años viviendo en EE UU, Reino Unido y en los tres países del Benelux, y nunca he tenido ninguna sensación de que la gente pensara que los españoles no éramos de fiar. España había construido, sobre la base de unos enormes logros políticos y económicos tras la Transición, un acervo de respeto y confianza que nos permitía a todos los españoles ir con la cabeza muy alta por el mundo. Después de miles de artículos positivos en prensa sobre el milagro político y económico, la marca España quería decir modernidad, alegría, calidad de vida, trabajo duro, transición. Desgraciadamente, esto no es ya así. Los miles de artículos son ahora sobre aeropuertos en el desierto, incomprensibles e i mprevistas pero enormes desviaciones presupuestarias, corrupción, desempleo, un s istema financiero aparentemente sólido 69

donde los números no eran de fiar. Las consecuencias de esta pérdida de credibilidad son gravísimas para nuestro sobreendeudado país, que está a merced de las ganas de los demás de seguirnos prestando dinero; a merced, en definitiva, de que crean nuestras promesas. Estas consecuencias afectan a nuestros socios y a los inversores extranjeros, pero también las sufrimos directamente como ciudadanos. Empezando por nuestros socios, la consecuencia más peligrosa e inmediata de la pérdida de credibilidad es la dificultad para nuestro país (y de Italia tras Silvio Berlusconi y Grecia tras Giorgos Papandreu) para hacer promesas creíbles en las negociaciones europeas con vistas al ajuste. El reciente acuerdo en la cumbre de la UE para recapitalizar a la banca es sin duda excelente para España, y un gran éxito. Pero la UE podría, si se fiara de nosotros, también flexibilizar el brutal ajuste presupuestario que debe hacer España en medio de la peor depresión en 50 años. Nosotros, a cam bio, nos comprometeríamos a h acer el ajuste más adelante, a h acer reformas estructurales más profundas (por ejemplo, en el muy ineficiente sector de servicios profesionales), a ser fiables en el futuro, a no estar permanentemente poniendo el cazo bajo amenaza de portarnos como Sansón y destruir el templo. Esto sería mucho mejor para España, que no tendría que hacer políticas durísimas en medio de una gran recesión, y mejor para ellos, que correrían menos riesgo de tener que rescatarnos. Pero en este juego ellos tienen que mover primero y confiar en nosotros, comprometerse ahora sin saber —no pueden saberlo— si les vamos a tomar el pelo luego, cuando nos toque hacer nuestra parte. De hecho, sienten (con razón) que ya les hemos engañado por las razones que elaborábamos antes. Europa se ha convencido de que “no somos de fiar” y de que “si no nos tienen contra la pared, dejamos inmediatamente de hacer cosas”. El sistema político debe pasar los ‘tests’ de limpieza habituales en los países más avanzados Los ejemplos son conocidos: ¿no reintrodujimos la deducción de vivienda al calor de la intervención del Banco Central Europeo en los mercados en el primer trimestre? Nuestras promesas no s on creíbles. No podemos decir: no s e preocupen, que ya cumpliremos cuando la crisis mejore, porque es imposible que nos comprometamos de forma creíble a ello, dado lo que ha pasado con el sector financiero, con las cuentas públicas, con las autonomías… He oído variantes de esta idea de múltiples funcionarios alemanes y europeos en general: “Ya no creemos en la condicionalidad, es el momento de los hechos y de las instituciones, no de las promesas”. La pérdida de credibilidad también afecta a los inversores extranjeros, de los que dependemos para continuar refinanciando la enorme deuda adquirida. En presentaciones o discusiones, siempre hablan del mismo problema de credibilidad: ¿cómo vamos a invertir en una empresa eléctrica (que parecen baratas) si no tenemos ni idea de cuál será el marco regulatorio a medio plazo? ¿Cómo vamos a invertir en un banco si no sabemos si nos podemos fiar de nada? Además, en una crisis, la política importa muchísimo, y nuestro sistema político no tiene credibilidad. En tiempos normales, al inversor no l e importa mucho el Gobierno de un país, porque sus inversiones estarán seguras independientemente de quién gobierne. Pero en un momento como el actual, el cómo naveguen los Gobiernos estas complicadas aguas determina la rentabilidad de cualquier inversión. Si no se sabe cuáles son los planes de los planes a medio plazo, si da la sensación de que van dando bandazos, los inversores no pueden comprometerse con el país. Es por eso por lo que los problemas de liderazgo son cruciales en estos momentos.

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Finalmente, esta pérdida de credibilidad también nos afecta individualmente a los ciudadanos. Les cuento algunas anécdotas casi triviales, pero clarificadoras, todas de las últimas semanas. En una reunión reciente sobre la crisis en la que participé, un exbanquero central español afirmó: “Yo he sido banquero central”, y recibió la respuesta con retranca: “Ya, pero banquero central español”. Un socio sénior de una consultora española me contaba que hizo recientemente una presentación en Washington y que cuando hablaba del sistema financiero español, todo eran risitas y codazos de “¡mira qué cosas nos cuenta este!”. Un alto cargo español de un banco de inversión global vino a mi oficina en la London School of Economics para que le ayudara a pensar en cómo reciclarse, porque ocuparse de España en el banco era “el beso de la muerte”. Hace unos días, The New York Times se preguntaba en un largo artículo por el “qué sabían” y “cuándo lo supieron” de los altos cargos españoles en organismos financieros internacionales, Jaime Caruana, José Viñals y Rodrigo Rato. ¿Qué hacer? Lo obvio. Lo más importante es que el sistema político tiene que hacer un esfuerzo enorme por reforzar las instituciones y las personas que las ocupan. Los nombramientos deben ser impecables, es crucial abandonar las prácticas de república bananera de nombrar cuñados, hermanas, primos, amigos, compañeros de promoción para todos los puestos. Hay que ser implacable con la corrupción, hacer comisiones de investigación. Hay que impulsar la cultura de las dimisiones para los que se equivoquen gravemente: si un altísimo cargo se ha inventado su currículo y su licenciatura, debe dimitir de inmediato. Además, las promesas deben ser creíbles. Los gobernantes deben hacer planes a largo plazo y cumplirlos. Los mensajes cruzados contradictorios y, aún peor, los mensajes transparentemente falsos, nos hacen un enorme daño. La credibilidad internacional de España determina en gran parte nuestra prima de riesgo y nuestra relación con nuestros socios europeos. Nos va todo nuestro futuro profesional y económico, no ya como país, sino también como individuos, en que el sistema político pase los tests de limpieza y profesionalismo que son corrientes en los países del entorno en el que aspiramos a estar. En el test que supondrán estos años de crisis, las decisiones que tomemos en estos temas determinarán que este país a caballo entre África y Europa se parezca más y más a su sur o a su norte. Luis Garicano es catedrático de Economía y Estrategia de la London School of Economics. http://economia.elpais.com/economia/2012/06/29/actualidad/1340981455_955765.ht ml

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06/29/2012 07:04 PM Yes, for Now Merkel Knows the Dealing Isn't Done By Carsten Volkery in Brussels To the delight of investors and relief of her euro-zone counterparts, German Chancellor Angela Merkel made some key concessions at Friday's EU summit. But the celebration is premature because she has still left herself plenty of room for maneuver. German Chancellor Angela Merkel rarely sees these kinds of negative headlines when returning from European Union summits. During her over six years as the head of Germany's government, she has usually been able to put a positive spin on e ven unpopular compromises. But at the most recent emergency gathering of European heads of state and government, which was held in Brussels and lasted until the wee hours of Friday morning, she had a hard time doing exactly that. Reactions back home were devastating, and there were even calls for pushing back key parliamentary votes on the permanent euro bailout fund, known as the European Stability Mechanism (ESM), as well as Merkel's fiscal pact scheduled for Friday evening. In fact, the vehemence of the attacks seems to have taken even Merkel's advisers by surprise. Merkel launched her counterattack on Friday afternoon. In a post-summit press conference, she said one first has to sort things out after such a long night, and she tried to counter the impression that she had been out-maneuvered by Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy. Merkel underscored that she had pressed to make sure that the rules of the ESM were adhered to. She said she had successfully defended the ESM's preferred creditor status and that only a single exception would be made, for Spain. Likewise, she noted that, if at all, the ESM would only provide direct assistance to private banks after a long process of setting up a banking supervision mechanism, and that Germany would have several opportunities to exercise its veto during this process. Yet Another Broken Taboo Though they were worth a shot, Merkel's efforts to reframe the debate came too late. The impression that she had stumbled in Brussels yet again had already had too much time to sink in. With her concessions to allow for a relaxation of the ESM's loans-only- for-oversight conditions and allowing the bailout fund to potentially provide direct aid to banks, Merkel has led the euro zone one more step along the path toward a pooling of debt, an IOU-nion. This is not the first time that Merkel has surrendered what had been repeatedly heralded as Germany's final line in the sand. Every step of the campaign to rescue the euro over the last two years has gone from being a taboo to a done-deal that triggers massive public outrage. Indeed, one could even go further and say that the entire history of European integration has been a series of broken taboos.

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What's more, in this game of high-stakes negotiations lasting until 4 o 'clock in the morning, Merkel was also holding what were simply bad cards. She urgently needed her counterparts to agree to the growth pact if she was to have any chance of having Germany's parliament, the Bundestag, approve her fiscal pact in a vote scheduled for Friday evening. Time was short, and she needed an agreement. Knowing this, Monti laid his dagger on her chest. Once known, the decisions ignited a pyrotechnic display on the financial markets. Investors were thrilled that the intractable Germans had finally yielded some ground. At least for now, Monti's calculation has paid off: The pressure on Italian and Spanish sovereign bonds has slackened. However, when it comes to whether the ESM will be able to provide direct assistance to private banks, at least on paper, Merkel has left one door open. Granted, the basic parameters have already been set. But the ESM will only be allowed to lend to private banks once a European banking supervision mechanism has been put into place -- and that could take a long time. There are still "difficult negotiations" ahead, Merkel said, adding that this "will not be resolved in 10 days." Given this situation, reports about how such measures could immediately help Spanish banks are incorrect. The Long Road Ahead First, the European Commission and the European Central Bank (ECB) have to work out a concrete proposal for such a supervisory mechanism. Among other things, they have to decide whether the new organization will be part of the ECB or independent. Then the heads of the 17 euro-zone countries will have to approve it, which is supposed to happen by the end of this year. If the German government believes that the new organization doesn't have sufficient powers of oversight, it can put the kibosh on t he plans. Germany will maintain an additional veto right even after the supervisory agency has been established. Each time direct aid for a bank is requested, the German government and the Bundestag can say no. Merkel pointed this out in Brussels in order to counter criticism that she gave in. She added that, under these conditions, the bank aid was not a short-term measure to push down the high interest rates on S panish sovereign bonds but, rather, a "medium-term measure." The only immediate help for Spain is the agreed to waiver of the ESM's preferred creditor status (solely for that country), which gives the euro-zone countries no advantages over Spain's other creditors. Since all creditors will bear an equal share in the losses if Spain defaults on its loans, this makes Spanish bonds less risky for private investors. On the whole, the summit was a victory for the southern European countries. The summit's decisions will reduce the IMF's influence in Europe and give the European Commission a leading role in supervising reform efforts. One thing is clear: IMF officials will not seize control in Rome or Madrid. Since the beginning of the euro crisis, this possibility has been a thorn in the side of Mediterranean countries. Merkel, on the other hand, always wanted IMF participation because she doesn't believe that EU monitors will be as ruthless. A frosty reception is awaiting her in Berlin, where the parliamentary vote is anxiously awaited. URL:http://www.spiegel.de/international/europe/merkel-has-plenty-of-room-to-maneuver-despite-euro- summit-concessions-a-841806.html 73

Internacional ANÁLISIS Tres en uno Los resultados de la cumbre se resumen en uno: la civilización del euro sigue viva y coleando Xavier Vidal-Folch 29 JUN 2012 - 14:51 CET18 Archivado en: Ha sido una cumbre tres en uno. O sea, ha arrojado tres resultados que cada uno, por sí solo, justificaría la celebración de un C onsejo Europeo monográfico: las medidas de urgencia para sortear las turbulencias hispano-italianas; las bases de la agenda de crecimiento formateada por la Francia socialista; una perspectiva de unión bancaria, económica y hasta política. MÁS INFORMACIÓN Claroscuros de un acuerdo positivo España e Italia condicionan el pacto de crecimiento a medidas de urgencia Esos tres resultados se resumen en uno: la civilización del euro sigue viva y coleando. Ha combinado las urgencias del corto plazo con los grandes designios del largo término. Ha vuelto a superar los enormes escollos concretos que supone construir una soberanía- multipaís sin necesidad de guerras, agrandados por la recesión, que siempre propicia el ensimismamiento nacionalista. Por más que les pese a gentes tan sagaces como el presidente de la patronal bancaria, Miguel Martín, que apostaba horas antes por la "probable" ruptura del euro. Tanta clarividencia y buen criterio merece que los banqueros también le rescaten en debida forma. Pero que haya sido una cumbre exitosa no s ignifica que los mercados, siempre insaciables a la espera del último detalle y manejando el reloj del nanosegundo en vez del día a d ía —o año a añ o— propio de las decisiones democráticas, le den inmediatamente la calificación triple A. Ya se han producido los primeros titubeos. Hay demasiados miguelesmartines con vocación de Casandra en los mercados. Convendrá explicarles también a ellos por qué cada uno de los tres resultados es clave. Las medidas de urgencia en forma de rescate directo a la banca (aunque dentro de unos meses), en principio española; y de compra directa de bonos de los países sometidos a la tortura de la prima de riesgo (como Italia y España) se insertan en un continuum de puesta en marcha de políticas e instituciones, inaugurado en mayo de 2.010, orientado a completar la unión monetaria. Junto a ellas, la barra de liquidez del BCE, la creación de los fondos de rescate, las operaciones de salvamento a Grecia, Irlanda y Portugal, vienen a certificar que el euro ha dejado de ser un huérfano. Mario Monti y Mariano Rajoy, reclamándolas, y Angela Merkel, asumiéndolas, han prestado un buen servicio a sus países; también a l a causa de la moneda única. Ojalá que esta vez se subraye la complicidad de todos los socios, en vez de las presuntas victorias propias, que siempre dejan heridas mal curadas, al presuponer la existencia de un derrotado ajeno. La agenda del crecimiento impulsada por Francois Hollande completará el "compacto fiscal" ya redondeado antes de su llegada: ahora caminaremos sobre dos piernas, austeridad y crecimiento y no iremos cojeando solo con la primera. Como, a diferencia del Tratado de Estabilidad, esta agenda no e xhibe un r ango jurídico vinculante de

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primera clase, contra lo que acariciaba su mentor, habrá que vigilarla más de cerca para que dé más nueces que ruido, más inversiones que retórica. No hay que esperar a que las otras propuestas del documento se enhebren al detalle para lanzar ya las bases de una unión política Y último, pero trascendental. La contrapartida a A lemania (por acceder al rescate directo de los bancos problemáticos) de que el BCE sea protagonista de primera en la nueva supervisión de las entidades de crédito no sólo arregla el entuerto de haber creado una debilucha Autoridad Bancaria Europea, con extemporánea sede en Londres. Da contenido mollar, y empuje institucional, al proyecto de unión bancaria. Esta no significa solo que los bancos "de" cada país son bancos europeos "en" cada país, o en varios. Sino también que los bancos centrales nacionales prácticamente dejan de existir. Eran meras terminales del BCE para la política monetaria; ahora lo serán también para la inspección de entidades. No hay que esperar a que las otras propuestas del documento previo redactado por el presidente Herman Van Rompuy, como los eurobonos o e l Tesoro único a p lazo, se enhebren al detalle, para lanzar ya las bases de una unión política sin la que todo el proceso supranacionalizador quedaría aquejado de una legitimidad democrática enana. http://internacional.elpais.com/tag/consejo_europeo/a/

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Eurointelligence Daily Briefing A deal and an initially positive market reaction 29.06.2012 This is a s horter briefing as usual – as there is no point in reporting pre-summit press coverage after leaders reach agreement. It came at around 4am CET this morning after a long night of tense negotiations, during which Italy and Spain blocked agreement on a growth pact- a PR exercise of no macroeconomic relevance but important to Merkel because it was part of her agreement with the opposition to win their support for the ratification of the fiscal pact. Monti and Rajoy made their assent to the growth pact dependend on a simultaneous deal on measures to reduce the spreads of Italy and Spain. So what is the agreement? We put as there bare minimum requirement for a short-term stabilisation of the eurozone the following three conditions: 1. a simpler ESM bond purchasing mechanism. 2. for the ESM to inject capital into banks. 3. a banking licence for the ESM. Of the three, EU leader agreed the first, made a conditional agreement on the second, but did not agree the third. The euro increased initially, and was $1.2567, about half a cent higher than yesterday morning. The best metric on bond i s the future markets. As Reuters reported this morning, September bund futures were lower, with yields up 12.5bp, while Italian BTP future rose sharply, with an implied fall in bond yields. This would imply a notable fall in spreads (which is not yet recorded in our table below.) The German media were still mourning the football result – several of the main news organisations had even recorded the result by 7am. Many of the news reports we saw this morning left as many questions open as they answered. In particular, it is not clear how exactly the ESM can “recapitalise” a b ank directly. Will it take equity stakes, preferred equity, and can it do this under the existing ESM treaty? It was our reading of this treaty, that such flexibility is not foreseen. And the lack of such of flexible was always an important political and legal argument in Germany. The FT quotes Thomas Wieser, head of the euro working group, as saying that Spain’s bailout would start under current rules, but “the loans could quickly be moved off Madrid’s sovereign books once the new bank supervisor was in place.” (This suggests to us that they are trying to do this without any changes to the ESM treaty. Otherwise it could not be done quickly.) Angela Merkel also said that what matter to her was that everything that was agreed remained with the existing instruments. No new instruments were created. From the various reports this mornings, we could ascertain the following components of the agreement: • EFSF/ESM can recapitalise banks directly, but only if agreement is reached on a joint eurozone bank supervisor. This is expected in October. The ECB will 76

assume that role. Banks subject to EFSF/ESM help will be subject to yet unspecified conditionality. • ESM will lose their role as preferred creditor in country programmes in certain circumstances. (this measure was widely expected.) • No increase in the size of the ESM; • No banking licence for the ESM; • Requirements relaxed for EFSF/ESM to engage in bond pur chases. ECB will conduct those purchases operationally; • there will be some conditionality but not a full-scale programme; • The Ecofin will implement these change at their next meeting July 9. El Pais reports that Mariano Rajoy looked visibly pleased but did not say anything. Monti declared a double-victory for Italy. The media headlines said Merkel had been pushed into a corner. The following are a list of questions that immediately sprung to our mind: 1. Will this require changes to the ESM treaty? If not, as we suspect, how do get around the obligation that the ESM lends to governments? Are there any catches not yet revealed? 2. Would this agreement be open to legal challenges, e.g. in the German constitutional court – given the concerns they are likely to express about the existing ESM? 3. How long will it take until this can be implemented? Is it realistic to expect a deal on banking supervision by October? The ESM itself was delayed. The EU has been consistently too optimistic about timing; 4. To which extent would this really improve Spain’s debt sustainability, given the recession? 5. Will the ESM have enough funds left to support the Italian bond m arket, the Spanish banking sector, and the Spanish state? (The reasons the Germans were originally opposed to a secondary market mandate was that it would quickly exhaust the ESM’s funds. That objection is still valid.) 6. Will there be an increase in the ESM’s ceiling or banking licence, once that limit is reached? 7. As the Spanish bank deal is conditional on a deal about supervision, is it clear that such a deal can be struck as early as October? It is far from clear that Germany is ready to subject its own banks to ECB supervision. 8. As Angela Merkel has ruled out a eurobond in her lifetime, how long will it take for Italy and Spain to adjust, if adjustment is achieved at all? There is, hopefully, more detail to come this morning. Our first assessment is that eurozone leaders probably did enough to ward off an immediate crisis next week, but the sustainability of the eurozone is no w ay improved. The agreement is subject to implementation risk, and the curse of the small print. And without an increase in the size of the ESM, or more likely without an ESM banking licence, the new activities might quickly exhaust the ESM’s capacities. http://www.eurointelligence.com/eurointelligence-news/home/singleview- restricted/article/a-deal-and-an-initially-positive-market-reaction.html

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Reggio’s Periodismo de opinión en Reggio’s Los desafíos del rescate, de Xavier Vives en El País Publicado por Reggio's 29 Junio, 2012 a las 7:20 am TRIBUNA El castigo a la deuda española será mayor si el crédito europeo tiene prioridad sobre otros acreedores El rescate de la parte de la banca con problemas mediante una línea de crédito a España pone sobre el tapete cómo la fragilidad del sistema financiero amenaza el proyecto del euro. En efecto, la ayuda contribuye a la estabilidad de la banca a costa de hacer más frágil al soberano puesto que el crédito aumentará de forma importante la deuda pública así como el déficit cuando haya que pagar intereses. El castigo a la deuda será mayor si el crédito europeo tiene prioridad sobre otros acreedores (así será con el nuevo Mecanismo de Estabilidad Europeo (MEDE) que se aprobará en julio). El problema es que el vínculo entre el riesgo soberano y el riesgo bancario se profundiza. De hecho, las operaciones extraordinarias de liquidez del Banco Central Europeo (BCE) han contribuido en el mismo sentido puesto que la banca ha destinado en parte los fondos conseguidos a aumentar sus posiciones de deuda pública al tiempo que los inversores extranjeros se desprendían de ellas. Por otra parte, el soberano es el que garantiza en última instancia la estabilidad del sistema bancario, y el círculo se cierra. La crisis financiera, y las actuaciones públicas para salvar los sistemas bancarios en Irlanda, Bélgica, Holanda o el Reino Unido, han empujado a su renacionalización. La evolución de la prima de riesgo de la deuda española después del anuncio del rescate ha reflejado el aumento de la fragilidad. Esta se ha contenido por el momento con una expectativa (o quizás mejor dicho esperanza) de compras por parte de los fondos de estabilidad europeos de deuda periférica así como el anuncio de que el BCE aceptaría garantías de peor calidad para los préstamos que hace a los bancos españoles. Sin embargo, estos diques de contención no s olucionan el problema de fondo sino que solamente se gana (un poco de) tiempo. Máxime cuando el anuncio la semana pasada de los resultados agregados de las pruebas de estrés a la banca por parte de los dos consultores externos no despeja totalmente las incertidumbres hasta la conclusión definitiva del ejercicio en el próximo septiembre. Una manera relativamente simple de romper el vínculo entre el riesgo soberano y el bancario es que el MEDE estableciera un vehículo de inversión para tomar posiciones directas en los bancos problemáticos. Sin embargo, Angela Merkel ha recordado en Roma la dificultad de esta inversión directa puesto que no puede haber ayuda sin control. A un gobierno se le pueden poner condiciones, pero ¿quién pone condiciones y controla a los bancos que han recibido inyecciones de capital? El problema es que no existe una autoridad europea de resolución bancaria.

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La integración financiera europea se ha basado en una falsa premisa. A saber, que las instituciones reguladoras europeas se formarían cuando el mercado estuviera más integrado. Recordemos que esta era la versión oficial de las autoridades comunitarias. El problema es que el freno a una mayor integración era precisamente la falta de instituciones adecuadas en la UE. El establecimiento de la moneda única ha destapado de forma violenta la falsedad de la premisa con la amenaza de una crisis sistémica que se lleve por delante el proyecto del euro. Se plantea ahora la necesidad de avanzar hacia una unión bancaria que cuente con cuatro pilares: un supervisor único, un fondo de seguro de depósitos, una autoridad de resolución de crisis, y unas normas prudenciales homogéneas en la zona euro. Se puede discutir si la supervisión, el fondo de seguro y la autoridad de resolución deben abarcar a todas las entidades o solo a las sistémicas y a l as que tienen operaciones transfronterizas importantes; si el supervisor centralizado debe ser el BCE o una entidad independiente; si la unión bancaria debe abarcar solo a los países de la eurozona o a la misma UE; y si el fondo de seguro de depósitos y la autoridad de resolución de crisis deben ser una misma institución como la FDIC en Estados Unidos o no. Lo que no se debería discutir es la necesidad de empezar con el proceso de unión bancaria ya. Hay elementos en los que se podría avanzar rápidamente: el supervisor europeo para entidades sistémicas y transfronterizas (con preferencia el BCE), unas reglas prudenciales unificadas (para evitar, por ejemplo, el espectáculo de sucesivas pruebas de estrés que son rápidamente negadas por la realidad), y el establecimiento de una autoridad de resolución bancaria con fondos de los mecanismos de estabilidad europeos. Hay otros elementos, como el fondo de seguro de depósito europeo que solamente se puede postular a futuro puesto que este mecanismo debe ser establecido antes de la crisis y no una vez la crisis ha estallado. Al mismo tiempo, hay que reconocer que la unión bancaria en su plenitud requiere un grado de integración fiscal importante puesto que el capital necesario para resolver una crisis puede ser elevado (superando con creces la disponibilidad en los fondos de seguro de depósito), y debe ser acordado también entre los países antes del episodio crítico. En resumen, el avance hacia la unión bancaria puede ser un paso importante pero no será inmediato e implica un alto grado de cesión de soberanía. Xavier Vives es director del Centro Sector Público-Sector Privado de IESE. Publicado por Reggio's 29 Junio, 2012 a las 7:20 am Colgado en: Derechos, Economía, Libertades// Autor: Xavier Vives

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Newsletter del 28 junio 2012

Economía ELLOS SALIERON DE LA CRISIS (3/3) Suecia: una cura de déficit no viene mal 28 junio 2012 DAGENS NYHETER ESTOCOLMO

Vlahovic Hace veinte años, el estallido de la burbuja inmobiliaria hizo que zozobraran las finanzas públicas. Pero en lugar de imponerse una cura de austeridad radical, los suecos se adaptaron a un pesado déficit presupuestario para saldar la deuda privada. Extractos. Peter Wolodarski En 1990, la economía sueca iba sobre ruedas: el excedente presupuestario representaba el 4 % del PIB. Y luego la situación cambió de un modo inesperado. En tres años, las finanzas públicas se hundieron. En 1993, el déficit era del 13 %. Ninguno de los países de la eurozona actualmente afectados por la crisis tiene un agujero tan grande en sus cajas. Comprender la crisis sueca nos puede ayudar a analizar las turbulencias que atraviesa actualmente Europa. Por aquel entonces, muchos especialistas concluyeron que el Estado del bienestar había precipitado al país al declive. Se equivocaban. Aunque sí era necesario que los regímenes públicos se renovaran y se abrieran a la competencia. Lo cierto es que Suecia, al igual que los países de la eurozona actualmente en medio de la tormenta, sufría una grave crisis financiera. A partir de mediados de los años ochenta, se habían concedido créditos sin ton ni son y se originó una burbuja en el mercado inmobiliario. Al cabo de unas semanas, la burbuja estalló y los bancos se enfrentaron a graves problemas. Un cambio de postura Antes de la crisis, el economista Hans Tson Söderström formaba parte de los que señalaban los fallos del Estado del bienestar y pensaba que era necesario someter a la economía a normas rigurosas, como el control de la inflación, el equilibrio 80

presupuestario y la fijación del tipo de cambio. Pero las turbulencias de los años noventa le obligaron a cambiar de opinión. Hans Tson Söderström se marchó a Finlandia, que se encontraba entonces en una situación financiera similar a la de Suecia, con el fin de realizar un estudio para el Banco Central de Finlandia. Cuanto más estudiaba Hans Tson Söderström la situación en Suecia y Finlandia, más caía en la cuenta de que ya no se podía aplicar el análisis tradicional. Gracias sobre todo a que volvió a l eer la obra de referencia de Irving Fisher, Teoría de la deuda deflacionaria de las grandes depresiones [1933], el economista comprendió que la catástrofe era resultado del crack inmobiliario y de la crisis bancaria que acarreó. Al principio, el Estado no era el que estaba endeudado en exceso, sino los hogares y las empresas. Cuando estalló la burbuja, se vieron obligados a poner orden en sus cuentas. Ahorraron de forma masiva durante varios años, lo que provocó la caída en la inversión y el consumo. La demanda se hundió. Precisamente este es el tipo de eliminación dolorosa de la deuda que les espera a varios países de la eurozona. Hans Tson Söderström comprendió que el déficit presupuestario sueco no era fruto de la irresponsabilidad de los dirigentes políticos, sino el resultado de la cura de austeridad a la que se había sometido al sector privado. De hecho, la deuda no ha bía aumentado: simplemente había pasado del sector privado al sector público, se había colectivizado, en cierto modo. Por lo tanto, la explosión del endeudamiento público no era la causa de la depresión, sino uno de sus síntomas. Y si el país no se adaptaba a un déficit importante durante un periodo de transición, la crisis habría sido aún más grave: el retroceso en el empleo y la producción habría sido más brutal. La austeridad acelera la caída Por lo demás, es exactamente lo que se produjo en Finlandia, cuyos dirigentes tenían más prisa que sus homólogos suecos en recuperar el equilibrio presupuestario y cuya acción recibía a menudo los elogios del FMI. El resultado es que el país se hundió en la depresión. En cambio, en Suecia esperaron hasta mediados de los años noventa para sanear las finanzas públicas. Así se solucionó la cuestión del endeudamiento del sector privado y la economía había iniciado su recuperación, gracias en gran parte a la fuerte devaluación de la corona, que benefició a las industrias exportadoras. ¡Las cuentas públicas de países como España e Irlanda estaban sanas antes de la crisis! Estos países, al igual que la Suecia de los años noventa, en realidad deberían dejar su déficit tal cual durante un periodo de transición, en lugar de imponer medidas de austeridad delirantes cuyo único efecto es acelerar el declive. Su situación es aún más complicada porque no t ienen la posibilidad de devaluar su moneda y les resulta muy difícil obtener préstamos en los mercados. Sólo con una solución europea o internacional podrían obtener dinero contante y sonante y restaurar la estabilidad del sistema bancario (garantías de los depósitos, recapitalización). Pero lo primero que hay que hacer es un diagnóstico correcto del mal que les afecta. http://www.presseurop.eu/es/content/article/2253471-suecia-una-cura-de-deficit-no- viene-mal

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Germany offers vision of federalism for the European Union By Anthony Faiola and Michael Birnbaum, Published: June 27 BRUSSELS — Political posters in Rome are comparing her to Hitler. A popular British magazine dubbed her “Europe’s most dangerous leader.” But could German Chancellor Angela Merkel — the frugal physicist foisting tough austerity on the region’s hard-hit economies — really be the most pro-European leader in Europe? Merkel arrives here Thursday for a European Union summit, with the stoic 57-year-old raised in East Germany again seen as the chief stumbling block to a shock-and-awe response to the region’s debt crisis. Jealously guarding the purse strings of Germany — an anchor of economic might and stability in a region adrift in financial trouble — the leader nicknamed “Frau Nein” by the European press is resisting calls to roll out a bevy of measures seen as possible quick fixes to the crisis. But especially in recent weeks, Merkel and her top ministers have been spelling out a far grander, German alternative to convince markets the euro is here to stay. What they envision would mark a radical step forward in European integration through a “political union” in which countries in the region would act more like American states, sharing an elected president and even a pan-European army. Such visions are hardly new, but the Germans are nevertheless building a fresh case that integration is the only way to shore up the foundations of the euro, albeit one that could take years, if not generations, to see through. Part of the summit here will be dedicated to debating the first steps of such a path, including the creation of a regional banking supervisor that, in about a year, would have the power to do something long considered taboo in the fiercely independent nations of the euro zone: override the authority of national governments. Plans also being discussed call for the establishment of a sort of European Treasury down the line, vesting central authorities with broad powers over national budgets. Yet for many in Europe, the holdout by Germany for a grander plan is being seen as suspicious and highly damaging. In a more deeply integrated Europe, Berlin could emerge as the most powerful single voice, particularly sending chills down the spines of the French. At the same time, critics charge that Merkel’s call for a bigger — and slower — solution is simply a cover for German unwillingness to take costly and critical stopgap measures. They warn that there could be no euro zone left to integrate if the region acts on Berlin’s timetable. The German leader’s tough talk has not helped her case. Merkel told the German Parliament on Wednesday that collective debt for Europe — seen by many economists as a vital weapon against the crisis — is “economically wrong and counterproductive.” “There are no quick or easy solutions,” she said. “There is no magic formula, no coup, by which the debt crisis can be overcome once and for all.” 82

Ratcheting up the pressure on Merkel to give in and back emergency measures to bring down the soaring borrowing costs for troubled euro-zone countries, the leaders of Spain and Italy have issued thinly veiled messages to the Germans suggesting that time is running out. “There are many institutions and financial entities that have no market access,” Spanish Prime Minister Mariano Rajoy warned Wednesday. He said Spain was losing the ability to refinance government operations on open markets and called for “urgent” action. “It is happening in Spain,” he said. “It is happening in Italy and in other countries. This is a crucial issue.” But the Germans are digging in their heels, dismissing the charges emanating from corners of Europe that Berlin is trying to orchestrate a new model for the continent in which it is the one largely calling the shots. “Maybe the fears of other nations in Europe are related to World War II and history,” said Sebastian Dullien, senior policy fellow at the European Council on Foreign Relations in Berlin. “But it could also be they are simply afraid of losing power.” The Germans have yet to fully spell out what they mean by a political union, but it largely involves the surrendering of more national authority to the region’s administrative capital in Brussels. Merkel’s influential finance minister, Wolfgang Schaeuble , last week reinforced calls for a directly elected president of the European Commission, as well as a new finance minister for Europe capable of overruling national governments. German Foreign Minister Guido Westerwelle called a forum of his peers together last week to float notions including the integration of European defense into a single, standing army. “Only a long-term perspective for Europe will restore the confidence that we also need to come out of the debt crisis now,” Westerwelle told the Financial Times. But to a large measure, countries such as France, the Netherlands, Italy and Spain see the surrendering of power to a central authority as living under a German diktat by a different name. If, for instance, the region ever embraces a parliament or president elected by proportional representation, Germany could, by nature of its size, have the biggest say. In the Netherlands, for instance, a poll this month by Maurice de Hond found that 64 percent of those asked were opposed to Merkel’s calls for a political union. In Paris, where Merkel was meeting Wednesday evening with France’s new president, Francois Hollande, there is still strong skepticism of ceding national powers. Hollande, a socialist, has warned Merkel that a quid pro quo would be required, balancing steps toward integration with more willingness from Germany to put cash on the table. “Integration as much as necessary, solidarity as much as possible,” Hollande said Wednesday night in Paris in a joint news conference with Merkel. Increasingly isolated and under pressure from other leaders, Merkel has held firm to her line on short-term fixes to the crisis: Countries that overspent and overborrowed must now endure lean times. The chancellor is set to agree this week to only a modest new growth plan pumping a relatively small amount of new cash into Europe’s moribund economy. 1 But that position is also based partly on a deep sense in Germany that the 2 / 2-year debt crisis is simply not as bad as the rest of Europe thinks it is. If the situation takes a 83

sharp turn for the worse — say, if Italy spirals into a deeper crisis — many think the Germans will feel boxed into a corner and will ultimately accede to more and quicker concessions on short-term measures. “I have some sympathy for the German position,” said Karel Lannoo, head of the Center for European Policy Studies in Brussels. “Angela Merkel is being forced to sell bailouts to her own population that has lived within its means. We have to be careful in Europe not to alienate the German public, because Europe really needs Germany now.” Birnbaum reported from Washington. Staff writer Edward Cody in Paris contributed to this report. http://www.washingtonpost.com/world/europe/germany-offers-vision-of-a-more- perfect-european-union/2012/06/27/gJQAILtk6V_print.html

ft.com Comment Opinion June 27, 2012 8:32 pm A manifesto for economic sense By Paul Krugman and Richard Layard More than four years after the financial crisis began, the world’s major advanced economies remain deeply depressed, in a scene all too reminiscent of the 1930s. The reason is simple: we are relying on t he same ideas that governed policy during that decade. These ideas, long since disproved, involve profound errors both about the causes of the crisis, its nature and the appropriate response. These ideas have taken root in the public consciousness, providing support for the excessive austerity of fiscal policies in many countries. So the time is ripe for a manifesto in which mainstream economists offer the public a more evidence-based analysis of our problems. More ON THIS STORY// Liaquat Ahamed The Depression’s lessons are forgotten// Samuel Brittan You don’t need to be a lefty to support Krugman// Lunch with the FT Paul Krugman// Time to end the Big Lie that’s crippling Europe// Gideon Rachman No alternative to austerity ON THIS TOPIC/ French government raises minimum wage// Austerity challenge looms for Hollande// Consumer chiefs gather to talk sales growth// Italians protest against austerity IN OPINION/ The ‘Berlin must pay’ argument is absurd// John Paul Rathbone Mexico can gain power// Too big to manage or regulate are what matter now// Peter Tasker Japan needs a radical The causes. Many policy makers insist that the crisis was caused by irresponsible public borrowing. With very few exceptions – such as Greece – this is false. Instead, the conditions for the crisis were created by excessive private sector borrowing and lending, including by over-leveraged banks. The bursting of this bubble led to large falls in

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output and thus in tax revenue. Today’s government deficits are a consequence of the crisis, not a cause. The nature of the crisis. When property bubbles burst on both sides of the Atlantic, many parts of the private sector slashed spending in an attempt to pay down past debts. This was a rational response on the part of individuals, but has proved to be collectively self-defeating, because one person’s spending is another person’s income. The result of the spending collapse has been an economic depression that has worsened the public debt. The appropriate response. At a time when the private sector is engaged in a collective effort to spend less, public policy should act as a stabilising force, attempting to sustain spending. At the very least, we should not be making things worse with big cuts in government spending or big increases in tax rates on ordinary people. The big mistake. After responding well in the first, acute phase of the crisis, policy took a wrong turn – focusing on government deficits and arguing that the public sector should attempt to reduce its debts in tandem with the private sector. Instead of playing a stabilising role, fiscal policy has ended up reinforcing the damping effects of private-sector spending cuts. In the face of a less severe shock, monetary policy could take up the slack. But with interest rates close to zero, monetary policy – while it should do all it can – cannot do the whole job. There must of course be a medium-term plan for reducing the government deficit. But if this is too front-loaded it can easily be self-defeating by aborting the recovery. A key priority is to reduce unemployment, before it becomes endemic, making recovery and future deficit reduction even more difficult. How do those who support the existing approach respond to ours? They typically use two arguments. The confidence argument. Their first argument is that government deficits will raise interest rates and thus prevent recovery. By contrast, austerity will increase confidence and encourage recovery. But there is no evidence in favour of this argument. Despite exceptionally high deficits, interest rates are unprecedentedly low in all major countries where there is a normally functioning central bank. Interest rates are only high in some eurozone countries, because the European Central Bank is not allowed to act as lender of last resort to the government. Elsewhere the central bank can always, if needed, fund the deficit, leaving the bond market unaffected. Experience includes no relevant case where budget cuts have actually generated increased economic activity. The International Monetary Fund has studied 173 cases of budget cuts in individual countries and found that the consistent result is economic contraction. That is what is happening: the countries with the biggest budget cuts have experienced the biggest falls in output. For the truth, as we can now see, is that budget cuts do not inspire business confidence. Companies will only invest when they can foresee enough customers with enough income to spend. Austerity discourages investment. The structural argument. A second argument against expanding demand is that output is in fact constrained on the supply side – by structural imbalances. If this theory were right, however, at least some parts of our economies ought to be at full stretch, and so 85

should some occupations. But in most countries that is not the case. So the problem must be a general lack of spending and demand. In the 1930s the same structural argument was used against proactive spending policies in the US. But as spending rose between 1940 and 1942, output rose by 20 per cent. So the problem in the 1930s, as now, was a shortage of demand, not of supply. As a result of their mistaken ideas, many western policy makers are inflicting massive suffering on their peoples. But the ideas they espouse about how to handle recessions were rejected by nearly all economists after the disasters of the 1930s. It is tragic that in recent years the old ideas have again taken root. The best policies will differ between countries and will require debate. But they must be based on a correct analysis of the problem. We therefore urge all economists and others who agree with the broad thrust of this manifesto for economic sense to register their agreement online and to publicly argue the case for a sounder approach. The whole world suffers when men and women are silent about what they know is wrong. The writers are professors at Princeton University and the London School of Economics http://www.ft.com/intl/cms/s/0/6c1d7960-bee6-11e1-8ccd- 00144feabdc0.html#axzz1zAY4p1HT

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Eurointelligence Daily Briefing Merkel and Hollande disagree politely 28.06.2012

Before sitting down for dinner last night at the Elysée palace Angela Merkel and Francois Hollande made short statements on today’s crucial EU summit with no further questions allowed, Spiegel Online reports. Both stressed there was agreement now to boost growth and the summit will announce €130bn of money mostly already available but newly repackaged will be used for that. But no agreement seems at the horizon on the crucial questions on t he French president’s request for further solidarity and the German chancellor’s insistence for further integration into a political union and transfer of competencies on the control of national budgets to the European level. Hollande said there would be “as much integration as necessary and as much solidarity as possible”, while Merkel insisted on “more Europe” and that “we will talk about the political future of Economic and monetary union”. Speaking in Bundestag earlier in the day the chancellor reiterated that she remained opposed to any form of mutualisation of debt saying and she severely criticized the report of the group of four (Van Rompuy, Barroso, Draghi, Juncker), Frankfurter Allgemeine Zeitung reports. “Instruments like Eurobonds, Eurobills, redemption funds and many more things are impossible because of constitutional law but I also think that they are wrong and counterproductive.” What today’s summit needs to achieve In his Spiegel Online column, Wolfgang Munchau writes about action the summits needs to take concretely. The minimum that is necessary is not an agreement on eurobonds or eurobills – which would take a long time to implement anyway – but an agreement to let the ESM recapitalise banks directly, for the ESM to have a banking licence so it can leverage itself, and for the ESM to purchase bonds in a more flexible way. This is essentially what Francois Hollande has proposed. This is not the minimum needed to save the euro, but the minimum needed to get through this year. Unless these measures are decided, the long-term plans for a fiscal or a political union will lack credibility. But a fiscal union and a banking union are necessary ingredients. Munchau says the importance now is not only to take the right measures, but to take in the right order. Bild shows a stone bust of Merkel and asks: “No Eurobonds – Why is the chancellor as hard as stone?”

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This is how your rhetoric can catch up you. The mass ciculation daily Bild refers to Angela Merkel’s categorical refusal of Eurobonds and other forms of mutualisation of debt “as long as I live” and explains the chancellor’s tough attitude. “She knows: The constitutional court would never accept Eurobonds because the German liability for those euro states would bring about incalculable risks”, the paper explains its 10m daily readers. “Merkel also knows: Only with a no to Eurobonds can she control the euro critics in her own coalition”. But the paper cautions that the chancellor will be challenged by almost every other summit participant. “They want Eurobonds because otherwise they are hardly able to raise money any longer.” Monti links agreement on spreads to his acceptance of a financial transactions tax Corriere della Sera has the story that Mario Monti says his acceptance of the transaction tax – which requires a procedures of enhanced co-operation – will be dependent on the summit agreeing a programme to reduce Italian spreads. He said a simple agreement on a t ransaction tax was too narrow. He said it was Italy’s “expectation and condition that there shall be closer cooperation in financial policies to remedy the failures of the sovereign debt markets.” The article said it w ould technically not constitute a veto, as the proposals requires a minimum threshold of nations wanting to go ahead. Oh, and for the record, the Monti administration got its almost pointless labour market reforms through the parliament yesterday – linked to a confidence vote. For more on this, see this article in Corriere. Germans feel more protected from the crisis than the French, Italians and Spaniards Germans feel more protected and less exposed to the crisis than the French, the Italians and the Spaniards a Ifop-Fudicial poll for Le Figaro shows. While there are only 41% of the Germans who say they strongly feel the effects of the crisis they are 75% in France, 87% in Spain and 90% in Italy. Asked whether they favoured further European integration the Germans and the French were equally sceptical with 50% and 51% in favour while there were clear majorities in favour in Spain (67%) and in Italy (70%). In an online poll Le Figaro also asked its readers in an online poll if they were in favour of a European treasury minister. Out of the somewhat 15.200 respondents this morning roughly 76.5% were in favour and 23.5% were opposed. Praet hints at rate cut... In an interview with Financial Times Deutschland Peter Praet hints there could be a rate cut at the ECB’s next rate setting meeting on July 5. “There is no doctrine that the main policy rate cannot be below 1.0%”, the central bank’s chief economist told the paper. But Praet also stressed the risks of sustained low interest rate periods. They reduced the incentive for banks to engage into balance sheet repair while they increased the banks’ incentives to engage in more risky activities in their search for yields. ...and insists on tough conditions for Spain The ECB executive board member said Spain should expect to undergo tough monitoring in exchange for the EU rescue loan in order to save the country’s banking sector. The country will get “a cooperation framework that will be monitored”, Praet insisted. Each bank would have to detail the bad loans it is sitting on. Also there would be an examination if private equity holders could be more substantially involved in the 88

bank’s rescue. “The Spaniards will get their money in tranches”, he said. “The pay- out will only happen if Spain fulfils its conditions”. Praet said that not only the banking sector would be supervised but also the country’s fiscal policy. “Because of the link between the banking sector and public finances we also have to keep an eye on the Spanish state budget.” Is Slovenia next to ask for bailout? Slovenia's government announced a recapitalization of the nation's largest bank, Nova Ljubljanska Banka, or NLB, this week as part of efforts to boost the firm's capital to meet European Banking Authority capital requirements, Dow Jones reports. NLB is burdened by non-performing loans and needs a €320m capital increase by the end of June. Asked if Slovenia could seek financial assistance to shore up its banks, the prime minister Janez Jansa said Wednesday that it is too early to say whether Slovenia could need assistance or not. Slovenia is pushing through austerity measures in a bid to push down its budget deficit from 6.4% of gross domestic product in 2011. On local radio Jansa said that Slovenia could face Greek scenario if the opposition does not support the legislative changes in July to stabilize public finances, Bloomberg reports. Finland wants collateral for EFSF loans to Cyprus Finland would demand collateral from Cyprus for its part of the loan if the bailout was taken from the EFSF, Finnish Prime Minister Jyrki Katainen said a parliamentary hearing. "As with previous rescue packages, Finland will request collateral from Cyprus if the funds are drawn from the European Financial Stability Facility”, spokesman Kare Halonen told AFP. Earlier this month, Finnish Finance Minister Jutta Urpilainen said that if a planned bailout of Spanish banks was drawn from the EFSF, Finland would seek guarantees and shares in Spanish banks in exchange for aid. Samaras appoints personal friend as chief of largest lender bank The chairman and chief executive of National Bank of Greece, the country’s largest commercial lender, were both sacked on Wednesday and Alexandros Tourkolias, NBG deputy chief executive and a personal friend of premier Antonis Samaras, was due to take over both posts, the FT reports. The two top jobs at NBG are traditionally nominated by the incoming prime minister, though the bank operates free of state control for a decade now. (Crony capitalism is back in Greece – and this from the party responsible for the Greek fiscal crisis in the first place. It is a very ominous sign.) Mark Schieritz advise eurozone to kick Germany out of the euro Writing in his blog Herdentrieb, Mark Schieritz says there are two interpretations of the German position. The first is that Germany genuinely wants a political union as a condition for debt mutualisation. The second is that Germany insists on conditions it knows can never be fulfilled – like the Bundesbank’s coronation theory many years ago. He says Merkel’s comment that there shall be no eurozone “for as long as I live” suggests that the second interpretation can no longer be excluded. And in that case, it would be rational for the eurozone member states to kick Germany out of the club. (We think this is an interesting dialectic argument, but it will next to impossible to get Germany out of the euro.) http://www.eurointelligence.com/eurointelligence-news/home/singleview- restricted/article/merkel-and-hollande-disagree-politely.html 89

Eurointelligence Daily Briefing Merkel: Not over my dead body; Monti throws down gauntlet 27.06.2012

She might as well have said “not over my dead body”. Speaking in a closed door meeting of the parliamentary group of her coalition partner FDP, Angela Merkel said there would be no mutualisation of debt as for example with Eurobonds “as long as I live”, Spiegel Online reports. Several FDP deputies reacted by telling the chancellor: “We hope you will have a long life”. Merkel’s remark is a sign of hardening positions just ahead of tomorrow’s summit. Up to now she had never categorically excluded Eurobonds but rather insisted that she did not think there were the right instrument “at the moment”. That left open the option to introduce them at a l ater stage once the German conditions on s trict budgetary discipline, transfer of fiscal sovereignty to the European level and European control and sanctions mechanisms were established. According to Spiegel Online the radicalization of the chancellor’s position is a reaction to the plan of the group of four (Van Rompuy, Barroso, Draghi, Juncker) which foresees progressive steps towards a mutualisation of debt while shying away from far reaching proposals on a political union as it is claimed by the Merkel government. Monti threatens his challenge to Merkel Mario Monti announced yesterday that he would challenge Angela Merkel’s position, and defend his proposal for ESM bond purchase to the limit - literally. As Il sole 24 ore reports, Mr Monti said if necessary he would hold up any agreement of the summit until the market opening on Monday morning. Speaking in the Italian parliament yesterday he said the EU cannot afford another summit with no concrete decisions. Berlusconi says he could become finance minister Even more interesting are the manoeuvring in the PDL, Silvio Berlusconi’s party, as reported in Corriere della Sera. Berlusconi met with Monti yesterday, and came out with the seemingly supportive statement that if Monti fell over the EU, it w ould be a catastophe. At the same time, he also said that 75% of his party’s supporters were against the Monti administration. And it s eems that Berlusconi is well prepared for Monti’s resignation. He said in this case PDL party secretary, and former justice 90

minister Angelino Alfano would become the prime minister, with Berlusconi himself happy to serve as finance minister. Berlusconi also repeated his suggested that it would be much better for Germany to leave the eurozone, and a large number of other countries. Everything is in place to corner Merkel Under the headline “Europe is in battle order to break Merkel’s resistance” Le Monde describes the plan of four and how the euro member states prepare to confront the German chancellor. Merkel will see her worst fears confirmed if she reads the interview in Le Monde with Bernard Cazeneuve, the French minister for European affairs. “The European integration cannot be a condition for emergency measures”, the Socialist who is among the eurosceptics in his party and who had voted against the EU constitution in 2005 claims. “Nobody in the European Union imagines that we can go further in the re-enforcement of the monetary and financial union without thinking about the integration that will be necessary if we create instruments of mutualisation. We don’t have any reason to refuse that debate”, the minister concedes. “But that is not at the heart of the topic. To summarize, we have to give answers to the crisis now.” More speculation on the van Rompuy plan Newspaper have more information on t he plan of the four presidents, with the FT reporting that the plan has been watered down, with all the concrete proposals on banking union taken out. The timetable, contained in earlier version, has also been eliminated, but the remit of the ECB as banking supervisor to include all banks has remained unaltered. The overall size of the document has been reduced from ten to seven pages – presumably to accommodate concerns expressed by member states. Discussions are under way to dump ESM preferred creditor status on a case by case basis One might remember the preferred creditor status of the ESM was also one of Germany’s red lines in crisis management. Reuters has the report that Merkel told MPs at the closed-door party meeting, that there are discussions under way to remove the status, but only on an ad hoc basis. Countries could request that the status be removed, and the decision would be taken by the other governments. But sources said that neither Merkel nor Wolfgang Schäuble had yet supported this proposal. And Germany is also hardening its position regarding any direct aid to the financial sector through the ESM. Euro banking supervisor could be located in Frankfurt According to Handelsblatt and Les Echos, the new euro area banking authority will probably be located in Frankfurt which is already home of the ECB, the European Systemic Risk Board (ESRB) and the EU insurance supervisor EIOPA. Both articles speculate that in exchange the future EU patent court will go the Paris. There has so far been a bitter fight between Paris, London and Munich, which already hosts the European patent office and is the home base of a large number of European patent lawyers, about the future court. Herman Van Rompuy had recently proposed to split the court among the three cities which in the opinion of all three governments would be absurd. http://www.eurointelligence.com/eurointelligence-news/home/singleview- restricted/article/merkel-not-over-my-dead-body-monti-throws-down-gauntlet.html 91

Editoriali e Commenti

Noi e Berlino Gli alibi (facili) che non aiutano Alberto Alesina 27 giugno 2012 | 7:54

I padri fondatori del progetto europeo negli anni Cinquanta avevano ben chiari i rischi dei conflitti intraeuropei di cui purtroppo la nostra storia è ricca. La loro visione era improntata dalla volontà assai nobile di evitarne altri. In questi giorni l'Europa sta rischiando di perdere qualcosa di ben più importante della moneta unica: la cooperazione economica, se non addirittura una cooperazione politica pacifica. Il livore antitedesco che si respira nel Sud Europa e in Francia è molto pericoloso, stucchevole e in gran parte infondato. Quali sarebbero le colpe dei tedeschi? Primo: non e ssere stati più generosi con la Grecia e altri Paesi in difficoltà. Sicuramente i leader europei (tutti, non solo i tedeschi) hanno fatto un gran pasticcio con la Grecia creando poi contagio, ma è troppo facile essere generosi con i soldi degli altri. Cosa direbbero gli italiani se il loro governo proponesse loro un r addoppio dell'Imu per aiutare Grecia, Portogallo e le banche spagnole e irlandesi? Secondo: i tedeschi si sono arricchiti con le esportazioni ai Paesi mediterranei. E allora? Se i tedeschi sono più produttivi e hanno costi del lavoro per unità di prodotto piu bassi cosa dovrebbero fare: lavorare meno e peggio per aiutarci? È una colpa produrre Audi e Bmw che tutti vogliono? I tedeschi erano i malati d'Europa negli anni Novanta. Hanno fatto riforme del mercato del lavoro difficili e hanno mantenuto un rigore salariale ferreo per dieci anni. Ora ne godono i benefici: ne hanno tutto il diritto. Terzo: i tedeschi si sono avvantaggiati da un euro «basso» rispetto al livello di un ipotetico marco. A parte il fatto che quasi la metà delle esportazioni tedesche sono all'interno dell'aera euro, i Paesi mediterranei hanno guadagnato anche loro dall'euro e più della Germania. Per esempio i tassi di interesse sui loro debiti non sarebbero stati così bassi perché si era eliminato il r ischio svalutazione di dracma, lira e pesetas. Se questi Paesi invece di seguire politiche prudenti si sono buttati a capofitto a prendere a prestito in modo insostenibile o come nel caso dell'Italia si sono «addormentati» e non hanno fatto nulla è unicamente colpa loro. Quarto: i tedeschi dovrebbero consumare di più sia a livello privato che pubblico. Un'altra chimera. La Germania ha un debito pubblico dell'80 per cento del Pil, non sono certo stati delle irragionevoli «formiche», né hanno fatto aggiustamenti fiscali draconiani. E comunque pensare che un p aio di punti di spesa pubblica tedesca risolvano i nostri problemi è pura illusione senza alcun fondamento macroeconomico. Quinto: le colpe delle banche tedesche. Certamente, ne hanno tante, soprattutto quelle che si sono buttate a testa bassa nel marasma del subprime americano. Ma tanti sbagli hanno fatto anche le banche spagnole, greche, irlandesi e francesi. La bolla edilizia finanziata dalle banche spagnole è stata un disastro colossale.

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È comprensibile quindi che la Signora Merkel rifiuti gli eurobond, e che sia sospettosa di altri schemi fiscali che finirebbero per far pagare il c onto ai tedeschi. Dovrebbe essere però più aperta nel breve periodo su garanzie europee alle banche, questo sì. L'unico modo per convincerla a essere più accondiscendente è di fare riforme strutturali decise, incisive e veloci, senza se e senza ma. In cambio dell'unione bancaria che riduca i tassi che le imprese pagano e di una qualche forma di «socializzazione» del debito, i Paesi come il nostro dovrebbero legarsi le mani con programmi di riforme accettate, condivise e, sì, controllate dall'Unione Europea. Se questo significa perdita di sovranità nei confronti della Germania, così sia. Dovevamo pensarci prima. Insomma, le promesse non bastano più e gli attacchi sguaiati contro la Germania di giornali, economisti e politici francesi e mediterranei sono controproducenti. I tedeschi si irrigidiranno ancora di più perdendo entusiasmo per il progetto europeo. E questo sarebbe un ve ro disastro. Se il progetto Euro dovese fallire non s arà certo una responsabilità dei tedeschi. © RIPRODUZIONE RISERVATA http://www.corriere.it/editoriali/12_giugno_27/alesina-gli-alibi-facili-che-non- aiutano_9bbd012a-c019-11e1-931f-9ffeafa6de3c.shtml

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REGARDS-CITOYENS Mardi 26 juin 2012

Pour Bernard Cazeneuve, le ministre délégué aux affaires européennes, "l'intégration politique ne peut être le préalable aux mesures d'urgence" Le ministre français aux Affaires européennes Bernard Cazeneuve a estimé que l'intégration politique de l'Europe ne peut pas être le préalable aux mesures urgentes de redressement, dans un entretien au Monde mardi 26 juin, à deux jours du sommet de l'Union européenne. L'intégration politique ne peut pas être le préalable aux mesures urgentes de redressement. Mais le renforcement d'outils monétaires et financiers existants et la mutualisation de moyens peuvent justifier un pilotage politique plus intégré, estime M. Cazeneuve. Personne au sein de l'Union européenne n'imagine que l'on puisse aller plus loin dans le renforcement de l'union financière et monétaire sans réfléchir à l'intégration qu'appellent ces outils mutualisés, souligne le ministre français. Mais ce n'est pas le coeur du sujet du sommet. Les réponses à la crise, c'est maintenant. Et en apportant maintenant ces réponses, nous rendons possibles les évolutions institutionnelles que ces réponses auront rendues nécessaires, selon lui. Au sommet de Bruxelles, il faut tout d'abord que les outils concrets pour la croissance et notamment la possibilité d'y consacrer 1% du Produit intérieur brut de l'Union européenne puissent être confirmés, souligne M. Cazeneuve. Il faut aussi que les fondements d'une union bancaire posés lors du sommet de Rome vendredi entre le chef du gouvernement italien Mario Monti, le président français François Hollande, la chancelière allemande Angela Merkel et le chef du gouvernement espagnol Mariano Rajoy soient approfondis. Enfin, il y a la question des eurobonds et des autres sujets qui renvoient à la stabilité financière européenne, énumère le ministre. Sur ce dernier point, la discussion se poursuit. Il peut y avoir des divergences mais il ne faut pas les dramatiser, relève-t-il. D'intenses tractations se poursuivaient mardi à deux jours du s ommet européen, jugé crucial pour l'avenir de la zone euro. Les ministres des Finances allemand, italien, français et espagnol doivent se retrouver mardi soir à Paris pour une rencontre destinée à préparer ce sommet. Le président de la Commission européenne, José Manuel Barroso, n'a pas exclu un changement du traité européen pour avancer vers une union budgétaire. Le président de l'Union européenne, Herman Van Rompuy, a proposé de son côté de renforcer l'intégration de la zone euro via un contrôle accru des budgets nationaux par Bruxelles et la mise en place d'une union bancaire, mais a renvoyé toute décision à la fin de l'année. Source : AFP http://www.regards-citoyens.com/article-pour-bernard-cazeneuve-le-ministre-delegue- aux-affaires-europeennes-l-integration-politique-ne-pe-107469891.html 94

ft.com comment Columnists June 26, 2012 8:14 pm Look beyond summits for euro salvation

By Martin Wolf

©David Humphries Yet again, the EU is about to hold a summit to deal with the crisis in the eurozone. Yet again, it is likely to fall far short of a convincing solution. A heavy weight rests on the shoulders of weary and disillusioned leaders. The question is whether there is hope for success. What is needed, as I have argued before, is a solution that is both politically feasible and economically workable. The former means an ability not only to achieve agreement among governments responsible to national electorates, but also to obtain at least toleration of that agreement among those voters, something that greatly worries Angela Merkel, the eurozone’s most significant politician. Economic workability means offering electorates enough hope for the future to persuade them to elect leaders prepared to stick with membership of the eurozone. More On this story/ Global Insight Monti’s need for speed underpins EU summit// EU plan to rewrite eurozone budgets// Van Rompuy scales back eurozone plan// Spain pays dearly for short-term money On this topic/ Global Market Overview Shares firm ahead of EU summit// Clegg warns on high stakes in EU// Monti lashes out at Germany ahead of summit// Nick Clegg Risks and rewards of a union Martin Wolf/ A bitter fallout from a hasty union// Best not to pin hopes on UK’s plan A-plus// Two cheers for Britain’s bank reform plans// A new form of European union

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Against those criteria, let us consider three possible solutions: federal Europe; the status quo; and limited reforms. The broad thrust of proposals for a banking and fiscal union, via eurozone bonds, along with greater fiscal discipline, is to solve the difficulties of today’s fragile eurozone. It is obvious that such measures attract supporters of the European ideal and those who want others to pay for the consequences of past mistakes. It is obvious, equally, that such proposals anger and frighten those who think they will then have to subsidise the improvidence of others. If one wanted to sell such proposals, one would need to argue that the whole would be stronger than the sum of the parts. One would need to state that it is not a matter of forcing Germany or the Netherlands to bail out their profligate partners. It is, instead, a matter of making everybody stronger by banding together. After all, it can be argued, the eurozone as a whole is in better fiscal shape than the US (see charts). Together, all might benefit from the low interest rates the US enjoys. Similarly, if insurance is offered to banks collectively, rather than from weak governments that are no longer fully sovereign, the eurozone banking system would be stronger because counterparties in the weaker countries would become more robust. Finally, it can be argued, the worst of the current fiscal crises would then fade, giving embattled members the freedom to manage their immediate crises. Even if one accepted the logic set out above, I no longer believe this could work, for three reasons. First, politics are national and, as the crisis unfolds, more so. Pretending this is not so could lead to a worse blow-up. Second, it is hard to argue that the costs would not fall on some more than on others. Yet much-needed solidarity is lacking. Finally, announced commitments might, for these reasons, fail to convince 96

people the union is irrevocable. Thus, the envisaged leap into “more Europe” is unlikely to be agreed and, if agreed, is likely ultimately to fail. Now consider a continuation of the status quo, w ith no f urther reform. This would probably mean a series of crises: an early bailout of Spain; new problems with Greece; possibly, an inability to achieve a rollover of Italian public debt; and, at any point, faster flight from weak banks. Given adjustment needs in the eurozone, such crises may endure for years. Would this misery at least be sustainable? On that one might dare to be optimistic. Leaving the euro would be very hard: it means an immense upheaval for uncertain economic and political gain. This should create much toleration of misery. But there are two (surely interrelated) threats to any such complacency. The first, already seen in Greece, is disintegration of the political system and the rise of extremism. The second is the possibility of a public sector default that brings with it a collapse in the banking system. It is unlikely that significant European countries would remain committed to the euro in the midst of such a crisis, which would put them in monstrous depressions. The solution would have to include the willingness of partners to recapitalise banks, thereby allowing the European Central Bank to continue its role as lender of last resort. That would, it seems to me, be the minimum needed to sustain the current path. But, it should be stressed, this would be a journey of misery, not just in the affected countries but even in their partners, as they struggle on. I regard the full federal option as too much and the current path as too little to meet my criteria. This leaves the question of whether it is possible to envisage something in between. That would seem to be in everybody’s interest, compared to a collapse of the euro. Here the crucial elements would seem to be: clear plans for resolution of banks largely at the expense of creditors, instead of relying on recapitalisation by fiscally stressed states – an approach that would automatically share more of the pain between creditors and debtors; a strong commitment to symmetrical economic adjustment across the eurozone, instead of today’s debtor-focused adjustment; recognition by the ECB of its obligation to sustain demand; and enough conditional financing to give governments committed to reform the ability to manage their economies without entering calamity. This could be described as “status quo plus”. It would be far from a desirable path. But it might be enough to be politically acceptable and economically workable. How do these three options line up against the positions of crucial states? Germany has a rhetorical commitment to federal solutions but, like Saint Augustine, “not yet”. This approach could be seen as imposing an initiation ritual on its partners. Whether or not this works, more help is needed now. Willingness to accept losses for those who lent badly abroad would be a start; moral hazard starts at home. So, too, would be more action on dom estic policies that, as policy makers have admitted, make sense for Germany, such as higher wages, stronger demand and even higher inflation. But deficit countries should accept that a federal rescue is unavailable. They must look not to summits but to themselves for hopes of salvation. [email protected] http://www.ft.com/intl/cms/s/0/98dc710e-beb9-11e1-8ccd- 00144feabdc0.html#axzz1yn6RFoFg

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The Tommaso Padoa-Schioppa Group report: What is now needed to solve the crisis By: Henrik Enderlein 27.06.2012

25 years ago, a Study Group on the “Integration Strategy of the European Community” chaired by Tommaso Padoa-Schioppa published a Report that later became the basis for Economic and Monetary Union in Europe. That Report referred to a long-term “social contract” between the Community and its Member States, based on competitive markets, monetary stability, an equitable distribution of the gains in economic welfare, and actual growth performance. Today, this European social contract is at risk. A break-up of the euro area can no longer be excluded. We are concerned that a p ossible process of monetary disintegration, once started, could prove impossible to stop and would therefore run the risk of leading to process of political and economic disintegration in the euro area and the European Union. To us, the root cause of the current crisis lies in the contradiction between a single, supra-national currency and the continuation of nation-state based economic policies. Surmounting that contradiction requires neither the creation of a “European Super-State” nor a return to individual nation-states and national currencies. What is needed is a sui-generis form of fiscal federalism, which derives from the functional deficiencies of the current common currency framework while respecting to the largest possible extent the budgetary autonomy of euro area member countries. We argue that the single currency needs as much fiscal federalism as necessary for its appropriate functioning, but as little as possible. We present proposals to achieve this objective, deriving them from the main challenges that the euro-area had to face during the first decade of its existence. The first challenge stems from the primacy of the real interest rate effect over the real exchange rate effect. During the first decade of the common currency price differentials in the euro-area were more persistent than initially foreseen. As a co nsequence, the interest rate set by the European Central Bank was “one size fits none”: it had adverse and even self-enforcing pro-cyclical effects on most member states. This led to excessive cyclical divergences and imbalances. The real exchange rate effect did not 98

trigger a sufficient degree of price convergence and thus failed to stop the imbalances. The second challenge lies in the area of fiscal policy coordination and fiscal surveillance. Internal imbalances only became a matter of euro-area concern when the mechanism of “self-fulfilling solvency crises” set in. As euro area members issue their debt in a currency over which they do not have full control, a liquidity crisis in these countries cannot be solved through devaluation but increases the likelihood of default. The third challenge derives from the paradoxical set-up of financial markets. Due to the interdependency of banking systems in the euro-area, contagion risks are high. At the same time, member states are individually responsible for banking supervision and potential bailouts. The nexus between national banks and national sovereigns has a self-enforcing effect with strong negative externalities on the rest of the currency union. To solve those three challenges, policy actions in four areas are required. The first element is the completion and fostering of the Single Market in order to allow the real exchange rate channel to work more effectively. The euro-area needs to become a truly integrated economic area. To achieve this goal, domestic institutional adjustments to increase the responsiveness of wages and prices are also required. The second element is a cyclical stabilization insurance fund to counter some of the effects of the “one size fits none” monetary policy. Such an insurance fund, which should be created outside the EU budget and remain under direct control of national parliaments, would work in a largely automatic fashion and, if rightly devised, not lead to long-term transfers in only one direction. The third element is a rebalancing of fiscal rights and fiscal duties in the common currency area. We argue that euro area countries should become subject to much stricter budgetary surveillance and be willing to give up s ome elements of their sovereignty when they are cut-off from the market. The core principle should be: sovereignty ends when solvency ends. But at the same time, the euro-area as a whole should ensure that adequately priced access to sovereign financing is generally possible, also in crisis times. To allow for the implementation of that third element, we suggest the creation of a European Debt Agency (EDA) that would allow a flexible refinancing possibility to countries in exchange for a stepwise transfer of sovereignty. The EDA would (i) be jointly and severally guaranteed by all euro-area countries, (ii) serve as a normal financing instrument for an amount of 10% of GDP to all countries, (iii) provide relatively easy access to additional funding in crisis times for relatively small amounts (up to an additional 10% of a country’s GDP), (iv) but then ask for much stricter conditionality in pre-defined steps of rising debt amounts with additional debt amounts implying a stepwise transfer of budgetary oversight to the EDA. Should a country require more than 60% of its GDP as EDA-backed financing, it would need a green light from EDA before being able to adopt its budget or exercise otherwise its budgetary sovereignty. Not respecting a red light would not be legally excluded, but would automatically entail the exclusion of any EDA financing and trigger a sovereign default. As an alternative, a full transfer of sovereignty to the EDA could also be envisaged for countries reaching a 60% debt to GDP ratio, but this would require far-reaching changes in national constitutional law.

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The fourth element is a euro-area banking union. To solve the paradoxical set-up of financial market integration and banking supervision, the creation of a euro-area banking supervision authority with micro-prudential supervision powers is required. This role could be conferred upon t he ECB. In parallel, the creation of an agency administrating a European deposit insurance would be required. To make the required changes possible, the euro-area will have to agree on a new institutional and legal structure. This goal can best be reached in a new Intergovernmental Treaty. While formally outside the current Treaty structure, it should be closely linked to it and preserve as much as possible the involvement of EU institutions and bodies. It could be transferred into the existing EU legal framework at a later stage. Most of the changes required for a b etter functioning of the single currency are of a long-term nature. But they are urgent. What is required today is a r oadmap leading ultimately but definitively to the desired changes. A short-term “big bang” is unlikely. At the same time, the biggest danger in the current context is excessive short-termism. What is needed is a credible path to necessary change. This would rebuild trust into single currency and the continuation of the project of European integration. Henrik Enderlein is The General Coordinator of The Padoa-Schioppa Group http://www.eurointelligence.com/eurointelligence-news/home/singleview/article/the- tommaso-padoa-schioppa-group-report-what-is-now-needed-to-solve-the-crisis.html

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ft.com World Europe Brussels Last updated: June 26, 2012 2:19 pm Van Rompuy scales back eurozone plan By Peter Spiegel in Brussels

Herman Van Rompuy, president of the European Council, on T uesday published a significantly scaled-back version of the highly anticipated plan for the future of the eurozone to be debated at a summit meeting this week. The seven-page plan, which calls for progress towards commonly issued eurozone bonds and the eventual establishment of central EU treasury, is less ambitious and less detailed than earlier drafts, including a 10-page version circulated as recently as Monday. That proposed giving EU institutions the power to rewrite national budgets and urged eurozone leaders to use their €500bn rescue fund to recapitalise European banks. More ON THIS STORY/ EU plan to rewrite eurozone budgets// Spain pays dearly for short-term money// Cyprus requests eurozone bailout// FT Alphaville Spanish bank buy-back riddle// Video Germany will have to pay ON THIS TOPIC/ Global Market Overview Markets calmer but eurozone stress lurks// Spanish banks are downgraded// Property deals plunge in eurozone periphery// Delors and Schmidt back eurozone debt agency IN BRUSSELS/ EU foreign ministers discuss integration// EU agrees energy efficiency compromise//Osborne risks the wrath of Merkel // EU voters give thumbs down to integration While earlier drafts of the report also contained detailed short-term measures that could be taken to address the current market upheaval, the draft published by Mr Van Rompuy on the website of the European Council contains far fewer details and suggests no timetable for implementation. Still, the proposal – which urges the eurozone to work simultaneously towards a banking union, fiscal union and political union – contains measures that move beyond what some member states have indicated they are willing to accept. In creating a banking union, for example, the report – co-authored with José Manuel Barroso, president of the European Commission; Mario Draghi, head of the European Central Bank; and Jean-Claude Juncker, head of the eurogroup of eurozone finance 101

ministers – calls for setting up a single EU-wide supervisor for European banks with the ability to oversee all 8,000 European banks. A German-backed plan would have only given the new central supervisor the ability to manage large, cross-border banks, which would have exempted Germany’s politically powerful regional savings banks. But under the Van Rompuy plan, the new EU supervisor “would be given supervisory authority and pre-emptive intervention powers applicable to all banks”. While several EU countries have pushed for the ECB to take over that supervisory role, the Van Rompuy report only says that such a move “would be fully explored”. Currently, EU-wide banking supervision is co-ordinated by the London-based European Banking Authority. In depth Eurozone in crisis

As the debt storm spreads Europe’s leaders battle to save the eurozone Although the banking union proposals include a suggestion that the eurozone rescue system, known as the European Stability Mechanism, could serve as a “backstop” to a common EU deposit guarantee and bank bailout fund, the final report stripped out suggestions that the ESM should directly recapitalise banks. Spain, in particular, has argued for such an approach. Under current rules, the €100bn bailout Madrid has requested to shore up its teetering banks must be routed through the government. That means its own public debt load will increase – a realisation that appears to have contributed to recent market’s jitters. Germany has opposed the idea of allowing the ESM to bypass the government and supply funds directly to banks for fear that it would not be able to attach the same conditions to encourage reform and ensure repayment of the loan. Although Mr Van Rompuy’s draft has been softened, it does still include some measures that could precipitate dramatic changes in the way that the eurozone governments function. Chief among them is a requirement that national governments collectively agree the “upper limits” for each member state’s annual debt and deficit levels. To exceed the agreed level, a national government would have to provide a justification and seek prior approval. The paper also sketches out a path to the creation of common eurobonds – although it makes clear that this would not be a near-term project. Such instruments could only be considered “as long as a robust framework for budgetary discipline and competitiveness is in place to avoid moral hazard and foster responsibility and compliance”, the paper states. Additional reporting by Joshua Chaffin in Brussels http://www.ft.com/intl/cms/s/0/101fb194-bf88-11e1-bb88-00144feabdc0.html#axzz1yn6RFoFg

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Eurointelligence Daily Briefing Merkel says Nein to deposit guarantee fund and euro bills 26.06.2012 Angela Merkel plans to block central elements of the Group of Four (Van Rompuy, Barroso, Juncker, Draghi) proposal. Handelsblatt reports that she is in favour of strengthening a common euro area banking supervision but ruled out any agreement for a banking union that would contain a common deposit guarantee fund. Also the chancellor resists the mentioning of Eurobonds and Eurobills. All three proposals are “economically wrong and counterproductive”, the chancellor said. At the same time Merkel criticized the lack of ambition in the proposals concerning the common control mechanisms and the transfer of competencies to a political union at the European level. (Please note that while this is not a good sign, this may well be her opening bargaining gambit. She wants a stronger commitment to political union, and if she gets that, she may accept some of the other proposals. The question is whether the ultimate package is sufficient coherent to solve the actual problem. In our view the real problem with Merkel’s vision of a political union is not a genuine democratic system, but the right by a central authority to override national policies, and impose vetos.) Jens Weidmann endorsed the chancellor’s point last night. There can be no p ooling of risk through euro bonds or other tools unless governments are prepared to give up some of their control over national finances, the Bundesbank president in Hamburg last night according to Reuters. “There’s a discussion about euro bonds, euro bills, pooling of risk, but not about giving up sovereignty,” he said. Spanish bond yields came under intense pressure yesterday, as hopes for the summit had faded. Italian and Spanish had previously rallied for four consecutive days, partly on hopes that Mario Monti’s proposal on ESM bond purchases would be accepted. That now does not seem to be the case. Number 4 and 5 in just a day – Spain and Cyprus are now in Cyprus turned to the EU for emergency funding for its banks and its budget, only hours after Spain submitted a formal request to bail out its banks, Reuters reports. It is the fifth euro-zone country to turn to the EU for emergency funding. Tiny Cyprus has just four days to raise at least €1.8bn - equivalent to about 10% of its GDP - to meet the deadline set by European regulators to recapitalise Cyprus Popular Bank, its second largest lender whose balance sheet was severely affected by the Greek debt restructuring. Finance Minister Vassos Shiarly said the country would also seek enough money to help with its budget deficit. The FT cites some Cypriot economists saying that Cyprus could need as much as €10bn to cover the banking sector’s exposure to Greek private sector debt as well as the capitalisation requirements. Cyprus suffered a further blow on Monday as Fitch cut it down its sovereign credit rating to junk BB+ grade, the FT reports. Fitch said Cyprus’s banks could still need up to €4bn in fresh capital on top of the amount needed for Popular Bank. That was a sum equivalent to about 23% of GDP, the agency said, and was likely to have to come from the government. The Fitch downgrade forces the ECB to stop accepting Cypriot government bonds as collateral. Cypriot banks will now have to find alternative assets to pledge or seek temporary aid – so-called “emergency liquidity assistance” – from the country’s own central bank. Cypriot banks are 103

already thought to be getting several billions euros of ELA. Once Cyprus formally negotiates a eurozone bailout it is likely the ECB’s governing council would agree to waive these collateral rules, as has already happened for Greece, Ireland and Portugal. Spanish government officially launches EFSF request Not much of a surprise here. The Spanish government official applied for an EFSF package for its banking system through a letter from Luis de Guindos to Jean-Claude Juncker. The latter says that a memorandum of understanding should be signed by July 9, and it should be based on the (in our view too optimistic) report by the report of the two independent consultants. The most noteworthy aspect of El Pais’ story is that sense of foreboding. The story starts with the comment that there was a feeling in Madrid that the euro would crumble, not just this or that country, but the whole edifice. Merkel aims at two-thirds-majority for ESM ratification Contrary to her policy up to now, Angela Merkel now aims at a two- thirds-majority in Bundestag for the ratification of the ESM treaty this Friday, Süddeutsche Zeitung reports. So far the chancellor argued that while there where clear transfers of competences in the fiscal pact which required a two-thirds-majority the same was not the case with the ESM. But the chancellor changed her mind in order to be prepared should there be any attempts to challenge the constitutionality of the ESM at the constitutional court in Karlsruhe. According to the paper there will be no difficulty in getting the two-thirds-majority because the coalition had previously reached a global agreement with the opposition SPD and Greens on the fiscal pact as well as the ESM. There are already attempts to attack the constitutionality of the pact at the Karlsruhe court by a former SPD justice minister and others on the grounds that it impinges on the budgetary competences of Bundestag and Germany’s sovereignty. Merkel distances herself from Schäuble’s ideas for an EU referendum in Germany Angela Merkel was cool yesterday on Wolfgang Schäuble’s idea that a referendum on transferring more sovereignty to the EU level may came much sooner than many expected, Financial Times Deutschland reports. “Clearly we are not there yet”, the chancellor’s spokesman said yesterday. A referendum about further transfers of competencies was perhaps something for “the day after tomorrow”, he said. Merkel agrees in principle with Schäuble that further competencies will have to be transferred to the EU level in order to make EMU work. But she does not think that for the foreseeable future those transfers will reach an extent that would require a referendum. Referenda are foreseen according to the constitution in case the federal nature of Germany is reorganized or in case of really far reaching transfers of sovereignty. In its ruling on the Lisbon treaty the constitutional court had said that Germany reached the limits of transfers of sovereignty that were possible without a referendum. The Bundesbank is likely to fail in its attempt to impose its “coronation theory” on banking union, Wolfgang Proissl argues In his column for Financial Times Deutschland Wolfgang Proissl explains that the Bundesbank has resuscitated its “coronation theory” – that monetary union should follow political union. In a speech two weeks ago Jens Weidmann offered an updated version of this theory by demanding that a banking union with common supervision, deposit guarantee and a resolution authority was possible only after an agreement among the euro members on a fully fledged fiscal union with transfers of budgetary sovereignty, strict fiscal rules and quasi-automatic sanction. However, the new version of the coronation theory is likely to fail again as time constraints and market expectation will force Germany and the other euro members into agreeing on a much less ambitious banking union much quicker than Weidmann’s approach would allow for. http://www.eurointelligence.com/eurointelligence-news/home/singleview- restricted/article/merkel-says-nein-to-deposit-guarantee-fund-and-euro-bills.html 104

ft.com/global economy EU Economy June 25, 2012 8:29 pm EU plan to rewrite eurozone budgets By Peter Spiegel in Brussels

©Getty The EU would gain far-reaching powers to rewrite national budgets for eurozone countries that breach debt and deficit rules under proposals likely to be discussed at a summit this week, according to a draft report seen by the Financial Times. The proposals are part of an ambitious plan to turn the eurozone into a closer fiscal union, giving Brussels more powers to serve like a finance ministry for all 17 members of the currency union. They are contained in a report to be presented at the summit, which will also outline plans for a banking union and political union. More On this story/ Spain pays dearly for short-term money// Cyprus requests eurozone bailout/ FT Alphaville Spanish bank buy-back riddle// Video Germany will have to pay// Cameron warned on risks of EU exit On this topic/ Global Market Overview Markets calmer but eurozone stress lurks// Van Rompuy scales back eurozone plan// Spanish banks are downgraded// Property deals plunge in eurozone periphery IN EU Economy/ Cyprus adds to mounting investor fears// Spain to ask for aid as EU fights debt crisis// Euro blueprint maps way to banking union// Greek lenders postpone mission to Athens Thursday’s summit comes amid investor fears that the eurozone is re-entering a danger zone. Bond and equity markets were hit on Monday as Cyprus became the fifth country to apply for an international bailout, citing its banking sector’s large exposure to the Greek economy. In Greece, the five-day-old coalition government suffered a setback as its finance minister resigned. Berlin has demanded tough controls over national budgets as a prerequisite for mutualising sovereign debt within the eurozone and the proposals appear to be an effort to get the German government to support a move towards commonly issued eurozone bonds.

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Under the plans for closer fiscal union, the European Commission would present detailed adjustments for a country in breach of its commitments. The changes would be put to a vote of all other EU countries. Although the budget amendments would be described as a “proposal”, the EU has strong new tools to punish countries that do not adopt such proposals, including levying big fines. The measures move well beyond plans presented by the commission last year, which give Brussels the power to review budgets before they are submitted to national parliaments, but not the authority to dictate changes. Officials cautioned the report is still a work in progress. The four co-authors – Herman Van Rompuy, European Council president; José Manuel Barroso, European Commission president; Mario Draghi, European Central Bank chief; and Jean-Claude Juncker, chair of the eurogroup of eurozone finance ministers – met on M onday afternoon to revise the draft, which was expected to be sent to national capitals later on Monday night. In addition to the new powers for Brussels, the draft includes a proposal requiring eurozone governments to collectively agree their debt levels and the “upper limits” of their national budgets annually. If a country needs to increase its borrowing, it would be forced to go to other eurozone governments to get prior approval. Although the draft does not call for immediate moves towards full-scale eurozone bonds, it does suggest interim steps, including studying limited mutualisation of short-term debt, known as “eurobills”. A redemption fund – first proposed by a panel of German economic experts that would only mutualise current debts of eurozone countries in excess of 60 per cent of their economic output – is also presented as a possible interim step. The banking proposals include ideas that have already been aired, such as urging eurozone leaders to give their €500bn bailout fund the power to directly inject capital into struggling banks. But the draft proposes creating a common EU bank supervisor with powers to reach into far more banks than originally thought. A German-backed plan only covers large, cross-border banks, but the draft proposes giving the new supervisor the power to intervene in smaller banks if it sees a risk. Germany has resisted giving EU authorities powers over its politically powerful regional savings banks. http://www.ft.com/intl/cms/s/0/0da7179e-bee4-11e1-bebe- 00144feabdc0.html?wpisrc=nl_wonk#axzz1yrWPovlD

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ft.com Comment Opinion June 25, 2012 12:21 am How to shift Germany out of ‘can’t do’ mode By George Soros At a meeting in Rome last Thursday, the heads of state of Germany, France, Spain and Italy agreed on s teps towards a banking union and a modest stimulus package to complement the fiscal compact. But Angela Merkel resisted all proposals to provide relief to Spain and Italy from the excessive risk premiums prevailing in the market. This threatens to turn the EU summit this week into a fiasco that may well prove fatal because it will leave the rest of the eurozone without a strong enough firewall to protect it against the possibility of a Greek exit. Even if a fatal accident can be avoided, the division between creditor and debtor countries will be reinforced and the “periphery” countries will have no chance to regain competitiveness because the playing field is tilted against them. This may serve Germany’s narrow self-interest but it will create a very different Europe from the open society that fired people’s imaginations. It will make Germany the centre of an empire and put the “periphery” into a permanently subordinated position. That is not what Ms Merkel or the majority of Germans stand for. Ms Merkel argued that it is against the rules to use the European Central Bank to solve the fiscal problems of member countries – and she is right. ECB president Mario Draghi has said as much. There is a missing element in the current plans for the summit: a European Fiscal Authority that, in partnership with the ECB, could do what the ECB cannot do on its own. It could establish a debt reduction fund – a modified form of the European debt redemption fund that was proposed by Ms Merkel’s council of economic advisers. In return for Italy and Spain undertaking specified structural reforms, the fund would acquire and hold a significant portion of their outstanding stock of debt. It would finance the purchases by issuing European Treasury bills and pass on the benefit of cheap financing to the countries concerned. The bills would be assigned a zero-risk rating by the authorities and would be treated as the highest quality collateral for repo operations at the ECB. The banking system has an urgent need for risk-free liquid assets. Banks hold more than €700bn of surplus liquidity at the ECB earning only 0.25 per cent interest. This assures a large and ready market for the bills at 1 per cent or less. Should a participating country subsequently fail to live up to its commitments, the EFA could impose a fine or other form of penalty that would be proportionate to the violation so that it would not turn into a nuclear option that cannot be exercised. This would provide strong protection against moral hazard. For instance, it would make it practically impossible for a successor government in Italy to break any commitments undertaken by the Monti government. Having practically half the Italian debt financed by European Treasury bills would have an effect similar to a reduction in the average maturity of its debt. That would make a successor government all the more responsive to any punishment imposed by the EFA.

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After a suitable period the participating countries would enter into debt reduction programmes that would be tailored not to jeopardise their growth. That would be the prelude to the establishment of a full political union and the introduction of eurobonds. The issuance of European Treasury bills would of course require the approval of the Bundestag but it would be in conformity with the requirement by the German constitutional court that any commitment approved by the Bundestag should be limited in time and size. It is not too late to turn in a political declaration that outlines not only the long- term goal of a political union but also a road map towards a fiscal and banking union. Guided by this declaration, the European Financial Stability Facility could immediately take over the ECB holdings of Greek bonds, the ECB could start accumulating Spanish and Italian bonds, and Italy and Spain could implement the structural reforms that would qualify them for the debt redemption fund. This would have the same effect on markets as the finance ministers’ declaration in November 2009 t hat saved the financial system. It would also change the political dynamics. The main obstacle is in German politics, which is mired in a “can’t do” mode. Ms Merkel insists that a political union should precede a fully fledged fiscal and banking union. That is both unrealistic and unreasonable. The three have to be developed together, step by step. There can be no treaty or constitutional clause preventing the establishment of the EFA if the German electorate as represented by the Bundestag approves it – otherwise there could have been no E uropean Stability Mechanism. If the rest of Europe is united behind this proposal and the Bundestag rejects it, Germany must take full responsibility for the financial and political consequences. The writer is the founder and chairman of Soros Fund Management http://www.ft.com/intl/cms/s/0/e0a2799c-be51-11e1-83ad- 00144feabdc0.html#axzz1yn6RFoFg

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ft.com Comment blogs Martin Wolf's Exchange What was Spain supposed to have done? June 25, 2012 9:30 am In January 2004, I attended a property conference in Switzerland, to give a talk on the European economy. I talked about the end of European catch-up on U S productivity levels. But the most interesting part of the conference was a workshop in which I argued that a number of European countries, the UK being one, had dangerous property booms. The most dangerous of all, I suggested, was Spain’s, because it is a large European country which was experiencing a huge rise in property prices and, as a result, a huge boom in property development and a correspondingly overheated construction sector. The results could be extremely painful. This remark led to a heated altercation with a Spanish property developer. I understood why he was so angry. But he was wrong, of course. The Spanish property sector created a huge boom and a huge crash. The big question is what the Spanish authorities should (or could) have done about it.

One answer is that they should have tightened fiscal policy, since they could do nothing about the monetary policy of the eurozone, which was wildly unsuitable for their economy, prior to the crisis (far too loose then and far too tight now). Maybe so, but Spain’s fiscal performance looked pretty good, as data from the International Monetary Fund’s World Economic Outlook Database show. Prior to the crisis, Spain had a reasonable primary fiscal surplus (before interest payments) and an actual budget surplus in 2005, 2006 and 2007. Then, as we can see, the fiscal position collapsed as a direct consequence of the financial crisis and the collapse of the property boom. I had expected the fiscal position to worsen, but not by more than 13 per cent of GDP in just two years. As a result, what had seemed a robust public debt position began to deteriorate rapidly.

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To sharpen the point, I compare below Spain’s net public debt with that of Germany. By 2007, it had fallen to half of Germany’s levels. Spain seemed to be in an excellent fiscal position.

One can argue that Spain’s structural or cyclically-adjusted deficit was much higher than its actual deficit. So these apparently excellent figures disguised the truth. But, as my colleague Chris Giles has recently noted, nobody knows what the structural position is. This was certainly true for Spain. Below I show what the IMF thought in April 2008 and what it thinks now. In 2008, the IMF, among the world’s most independent and respected official institutions, thought that Spain had run a substantial structural – or cyclically-adjusted – fiscal surplus in 2004, 2005, 2006 a nd 2007. Now it thinks this had in fact been a substantial structural deficit. That change in view would seem to support the point made by Chris Giles. But it also means that there was no obvious reason why Spain should have run a tighter fiscal position before the crisis. It had an official seal of approval for what it was doing. In a boom, just about everybody misunderstands what is happening.Those who do not are Cassandras and so tend to be ignored. In retrospect, the only way the Spanish authorities could have prepared themselves for the shock would have been to run fiscal surpluses of 10 per cent of GDP over the five or six years before the crisis, so generating a positive net asset position of at least 20 per cent of GDP. That might have been enough (though even that is uncertain). There is no chance whatsoever that a democracy would run such surpluses. Incidentally, Angela Merkel’s beloved fiscal compact would have unambiguously failed, since Spain was in fact thought to be running structural surpluses before the crisis, just as the compact demands. What else could the Spanish authorities have done? Well, they could have tried to curb bank lending directly, via rapidly falling loan-to- value ratios or direct curbs on lending. There are two reasons for wondering whether this would have worked. First, it would have been desperately unpopular in Spain. People like the property developer I met, not to mention the construction workers and many other interests, would have been ferociously angry if the authorities had tried to curb lending. It takes a very tough set of regulators do so. Often, too, the latter cannot imagine how badly things will turn out. Second, the lending might then have come directly from foreigners rather than via Spanish institutions. Would the Spanish 110

authorities have been able to prevent such inflows under European Union rules? I believe not.

Alternatively, they could have tried to make their banks more robust. But they did in fact try to do so, with their famous policy of dynamic provisioning. It was controversial at the time, though a good idea. The problem, as we can now see, is that it was nothing like enough. Banks needed far more capital than they had to survive a crisis of this magnitude. Spain did not run irresponsible fiscal policies, as Germans believe, and the fiscal compact would not have saved it from crisis. It did have a huge property boom associated with financial excesses and illusionary prosperity. But that boom was, in sizeable measure, also financed from abroad, via capital inflows, as the history of current account deficit shows (see below).

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Do those who financed these wasteful investments not deserve to lose money, too? Yet some of them must be among the creditors of Spanish banks who are now to be rescued by the €100bn loan that the Spanish government is planning to take, thereby risking its solvency: this is surely unconscionable. Above all, how could Spain have prevented this crisis, which was unambiguously generated in the domestic private sector and fuelled by private sector capital inflows? If it could not have prevented the crisis, how can it bear some deep moral fault? Surely, a far more sensible – indeed moral – approach would be to recognise that this is more misfortune than misdeed and offer Spain the help it needs to adjust its economy to the post-crisis reality, without letting it either be pushed into sovereign bankruptcy or humiliated. Yet that is what is now threatened. In my view, Spain made only one big mistake: joining the euro. Without that, it would probably now look more like the UK: yes, the economy would be in serious trouble, but its exchange rate and its long-term interest rates would both be far lower. After all, its fiscal position is even now no worse than the UK’s, as I note in my blog post here:

But reconsidering that choice is no longer possible. Now it needs help to survive the crisis. Will Spain get enough of what it needs? I doubt it. http://blogs.ft.com/martin-wolf-exchange/2012/06/25/what-was-spain-supposed-to- have-done/#axzz1ynZBjFbT

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June 25, 2012

The Power of the Particular By DAVID BROOKS They say you’ve never really seen a Bruce Springsteen concert until you’ve seen one in Europe, so some friends and I threw financial sanity to the winds and went to follow him around Spain and France. In Madrid, for example, we were rewarded with a show that lasted 3 hours and 48 minutes, possibly the longest Springsteen concert on record and one of the best. But what really fascinated me were the crowds. Springsteen crowds in the U.S. are hitting their AARP years, or deep into them. In Europe, the fans are much younger. The passion among the American devotees is frenzied, bordering on cultish. The intensity of the European audiences is two standard deviations higher. The Europeans produce an outpouring of noise and movement that sometimes overshadows what’s happening onstage. Here were audiences in the middle of the Iberian Peninsula singing word for word about Highway 9 or Greasy Lake or some other exotic locale on the Jersey Shore. They held up signs requesting songs from the deepest and most distinctly American recesses of Springsteen’s repertoire. The oddest moment came midconcert when I looked across the football stadium and saw 56,000 enraptured Spaniards, pumping their fists in the air in fervent unison and bellowing at the top of their lungs, “I was born in the U.S.A.! I was born in the U.S.A.!” Did it occur to them at that moment that, in fact, they were not born in the U.S.A.? How was it that so many people in such a faraway place can be so personally committed to the deindustrializing landscape from New Jersey to Nebraska, the world Springsteen sings about? How is it they can be so enraptured at the mere mention of the Meadowlands or the Stone Pony, an Asbury Park, N.J., nightclub? My best theory is this: When we are children, we invent these detailed imaginary worlds that the child psychologists call “paracosms.” These landscapes, sometimes complete with imaginary beasts, heroes and laws, help us orient ourselves in reality. They are structured mental communities that help us understand the wider world. We carry this need for paracosms into adulthood. It’s a paradox that the artists who have the widest global purchase are also the ones who have created the most local and distinctive story landscapes. Millions of people around the world are ferociously attached to Tupac Shakur’s version of Compton or J.K. Rowling’s version of a British boarding school or Downton Abbey’s or Brideshead Revisited’s version of an Edwardian estate. Millions of people know the contours of these remote landscapes, their typical characters, story lines, corruptions and challenges. If you build a passionate and highly localized moral landscape, people will come. Over the years, Springsteen built his own paracosm, with its own collection of tramps, factory closings, tortured Catholic overtones and moments of rapturous escape. This construction project took an act of commitment. The most interesting moment of Springsteen’s career came after the success of “Born to Run.” It would have been natural to build on that album’s success, to repeat its lush, wall-of-sound style, to build outward from his New Jersey base and broaden his appeal. Instead, Springsteen went

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deeper into his roots and created “Darkness on the Edge of Town,” which is more localized, more lonely and more spare. That must have seemed like a co mmercially insane decision at the time. But a m ore easily accessible Springsteen, removed from his soul roots, his childhood obsessions and the oft- repeated idiom of cars and highways, would have been diluted. Instead, he processed new issues in the language of his old tradition, and now you’ve got young adults filling stadiums, knowing every word to songs written 20 years before they were born, about places they’ll never see. It makes you appreciate the tremendous power of particularity. If your identity is formed by hard boundaries, if you come from a specific place, if you embody a distinct musical tradition, if your concerns are expressed through a specific paracosm, you are going to have more depth and definition than you are if you grew up in the far-flung networks of pluralism and eclecticism, surfing from one spot to the next, sampling one style then the next, your identity formed by soft boundaries, or none at all. (Maybe this is why younger rock bands can’t fill stadiums year after year, while the more geographically defined older bands like U2, Springsteen and the Beach Boys can.) The whole experience makes me want to pull aside politicians and business leaders and maybe everyone else and offer some pious advice: Don’t try to be everyman. Don’t pretend you’re a member of every community you visit. Don’t try to be citizens of some artificial globalized community. Go deeper into your own tradition. Call more upon the geography of your own past. Be distinct and credible. People will come. http://www.nytimes.com/2012/06/26/opinion/brooks-the-power-of-the- particular.html?_r=1&nl=todaysheadlines&emc=edit_th_20120626 Lo que no se dijo en España sobre Springsteen, de Vicenç Navarro en Público No me tendría que haber sorprendido, pero me sorprendió ver la manera como la mayoría de los medios de información de mayor difusión españoles cubrieron la visita de Bruce Springsteen (BS a p artir de ahora) a España en su ciclo de conciertos. Salvo contadísimas excepciones, la figura y la música de tal cantautor se presentó analizando su calidad musical sin referirse al significado de su música y de su narrativa, imposible de entender sin referirse al contexto político que lo configura. Esta manera de cubrir la música es semejante, en la esfera pictórica, a analizar el Guernica de Picasso sin hacer referencia al bombardeo nazi de la ciudad vasca Guernica. Es imposible entender la música de BS (o de cualquier otro cantante) sin conocer el contexto que la ha ido configurando durante su vida artística. Veamos. Bruce Springsteen nació en uno de los Estados más industriales de EEUU, Nueva Jersey, en un pueblo llamado Long Branch, de un padre de clase trabajadora que hizo muchos tipos de trabajo durante su vida (desde trabajador textil a co nductor de camiones) y de una madre, secretaria, que le influenció enormemente. En su pueblo había una estratificación clara del territorio según clase social y raza. Esta estratificación territorial jugaba un papel clave en dividir a l a clase trabajadora según su raza. En su juventud y adolescencia BS fue un rebelde sin conocer, sin embargo, de dónde venía ni a dónde quería ir. Le gustaba la música rock y sus primeros pasos eran de crítica a la música del movimiento estudiantil (de procedencia burguesa, pequeño burguesa y clase media profesional de renta alta) que había hecho de los conciertos y música de Woodstock un símbolo. Su rechazo a la cultura de la droga y del hedonismo que representaba aquella cultura, así como el concepto de libertad que tenía, interpretándola como la satisfacción del individuo (“hacer lo que te dé la gana”) sin frenos y responsabilidades colectivas, marcó sus canciones iniciales como Take LSD and Off the Pigs, que eran una protesta frente a los flower children (los niños flores) de Berkeley y de toda California. Era, sin definirlo así, una lucha de clases dentro del movimiento de protesta. Aunque Bruce Springsteen no había desarrollado todavía su conciencia de clase, su discurso, lírica y narrativa eran de protesta de clase frente a una cultura también anti establishment, pero marcada por el privilegio de clase. Su lírica y narrativa se separaba de la de Joan Baez o Bob Dylan, que representaban el movimiento pacifista, basado en un mundo estudiantil de base universitaria. En Born to Run era una voz alternativa que hablaba directamente a y desde la clase trabajadora, olvidada en las canciones del movimiento pacifista. 114

Su voz de protesta fue recuperando la tradición fundada por el gran punto de referencia en la música popular de EEUU, Woody Guthrie, y más tarde Pete Seeger, ambos marginados durante muchos años por su pertenencia al Partido Comunista de EEUU. Esta evolución le llevó a escribir Born in the US, inspirado en el libro de Ron Kovic Born in the Fourth of July que analiza críticamente la experiencia de un trabajador durante la Guerra del Vietnam. Como civil y como soldado (se olvida en Europa que los que luchan en las guerras del Imperio son hijos de la clase trabajadora estadounidense). Esta voz de protesta intenta denunciar el falso patriotismo del establishment americano, pero lo hizo con cierta ambigüedad que explica que incluso el presidente Reagan, que es el prototipo de este falso patriotismo, intentara utilizar tal canción en su campaña, creando una protesta por parte de él frente a la manipulación política por parte del Partido Republicano. El intento de identificar el país, EEUU, con la clase trabajadora, auténtica constructora del país, con su diversidad étnica y de razas, aparece más claramente en sus discos posteriores. Su Ghost of Tom Joad es, como han documentado Eric Alterman y otros analistas de la poesía y música de BS, el equivalente de The Grapes of Wrath de John Steinbeck. En este disco ya desaparecen todas las ambigüedades y llama a las cosas por su nombre, enriqueciendo una larga lista de aportaciones a l a lírica y a l a música estadounidense, de clara tradición popular, cuyo mayor componente es la clase trabajadora (por cierto, es importante clarificar que cuando en EEUU se le pregunta a la ciudadanía “usted, ¿qué es? ¿clase alta? ¿clase media? ¿clase baja?”, la mayoría se autodefine de clase media. Cuando se le pregunta, sin embargo, “usted es ¿clase corporativa (Corporate Class, equivalente a l a burguesía)? ¿clase media?, o ¿clase trabajadora?” la mayoría contesta clase trabajadora. Un tanto parecido ocurre en España). En 2008 apoyó al candidato Obama, siendo el momento álgido de la campaña presidencial el festival frente al monumento a Lincoln el día antes de su nombramiento como presidente de EEUU, en que frente a Obama había una multitud de casi medio millón de personas. Springsteen terminó su concierto cantando con Peter Seeger el himno de la izquierda estadounidense This Land is your Land, cantándolo por primera vez en EEUU con los versos completos de la canción (escrita por Woody Guthrie) que habían sido vetados durante todos los años de la Guerra Fría que todavía no habían terminado. Los que estábamos allí nunca lo olvidaremos. Vicenç Navarro. Catedrático de Ciencias Políticas y Sociales. Universidad Pompeu Fabra, y Profesor de Public Policy en The Johns Hopkins University THIS LAND IS YOUR LAND words and music by Woody Guthrie

Chorus: This land is your land, this land is my land// From California, to the New York Island// From the redwood forest, to the gulf stream waters// This land was made for you and me

As I was walking a ribbon of highway I saw above me an endless skyway I saw below me a golden valley This land was made for you and me Chorus I've roamed and rambled and I've followed my footsteps To the sparkling sands of her diamond deserts And all around me a voice was sounding This land was made for you and me Chorus The sun comes shining as I was strolling The wheat fields waving and the dust clouds rolling The fog was lifting a voice come chanting This land was made for you and me Chorus As I was walkin' - I saw a sign there And that sign said - no tress passin' But on the other side .... it didn't say nothin! Now that side was made for you and me! Chorus In the squares of the city - In the shadow of the steeple Near the relief office - I see my people And some are grumblin' and some are wonderin' If this land's still made for you and me. Chorus (2x) ©1956 (renewed 1984),

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Germany to Confront United Euro Bloc at Summit By Patrick Donahue - Jun 25, 2012 1:01 AM GMT+0200 Germany will confront an increasingly united bloc of euro-area nations demanding more ambitious policies to save the currency union this week, as European leaders prepare for a summit setting the course for the currency’s preservation or ultimate demise. As concern mounts over their banking systems and finances, Spanish and Italian leaders have added their voices to those calling for more decisive action, a counterpoint to Germany’s more incremental approach to solving the 2 1/ 2-year-old crisis. European Union leaders will attend pre-summit meetings as they work to to narrow differences before the June 28-29 gathering in Brussels. Left to right, Francois Hollande, France's president, Mario Monti, Italy's prime minister, Angela Merkel, Germany's chancellor, and Mariano Rajoy, Spain's prime minister, speak during their meeting at Villa Madama in Rome, Italy Left to right, Francois Hollande, France's president, Mario Monti, Italy's prime minister, Angela Merkel, Germany's chancellor, and Mariano Rajoy, Spain's prime minister, speak during their meeting at Villa Madama in Rome, Italy Photographer: Cristiano Laruffa/Italian Government Office/Pool via Bloomberg “We are too close to the edge of the cliff for comfort, and the time to make big changes is awfully short,” Erik Nielsen, chief economist at UniCredit SpA (UCG) in London, wrote in a note to clients yesterday. Chancellor Angela Merkel last week resisted attempts by the leaders of France, Italy and Spain to persuade Germany to accept faster action to ease sovereign-debt worries in the financial markets, delineating divisions on greater euro-area integration. The friction between Germany and the rest of Europe was illustrated on J une 22 b y the Bundesbank’s opposition to European Central Bank plans to help ailing banks. Yields Recede Spanish and Italian borrowing costs retreated last week, aided by speculation that euro- area leaders will take more action. Spain’s 10-year bond yield receded to 6.38 percent on June 22 after climbing above 7 percent earlier in the week. Comparable Italian yields slid to 5.8 percent after climbing as high as 6.17 percent on June 18. At a June 22 four-way summit meeting in Rome, Merkel faced a united front among her three interlocutors -- Italian Prime Minister Mario Monti, French President Francois Hollande and Spanish Prime Minister Mariano Rajoy -- on making the euro region’s rescue funds more flexible. She dismissed a Monti plan last week to use the funds -- the temporary European Financial Stability Facility or the permanent European Stability Mechanism -- to buy bonds, and spelled out her opposition to directly recapitalizing banks. German taxpayers couldn’t back channeling funds directly to banks in other countries because they have no oversight of how the money would be used, Merkel told reporters 116

in Rome. As chancellor, she only had such powers over German banks. “You would have a h uge problem here,” she said. Merkel travels to Paris on June 27 for a pre- summit meeting with Hollande. `Wrong Direction' Merkel is worsening Europe's crisis because countries need growth, not austerity, to pay down their debt, billionaire investor George Soros said in a Bloomberg Television interview yesterday. ``Merkel has emerged as a strong leader,'' Soros, 81, s aid in an interview with Bloomberg Television's Francine Lacqua at his London home. ``Unfortunately, she has been leading Europe in the wrong direction.'' While the German leader has said repeatedly that counterparts in the euro area need to take a “step-by-step” approach and that there was no “big bang” solution to the crisis, Italy’s Monti said this week may prove critical to the euro’s survival. Should leaders fail to produce a blueprint for a tighter fiscal and financial union, there will be “progressively greater speculative attacks” on the currency bloc’s more indebted nations, Monti told a group of European newspapers including Le Monde and El Pais on June 21. Euro-Area Debt France’s Hollande reiterated his support for jointly issued euro-area debt at the meeting, calling the so-called euro bonds “a useful instrument for Europe.” Merkel has consistently rejected the idea as premature. “At the start of the crisis, we really had clear joint actions that worked,” ECB Governing Council member Ewald Nowotny said when asked about euro-area dissonance in a June 23 i nterview with Austrian state broadcaster ORF. “Now in the second phase, where we have much more differentiated problems, this no longer is the case.” With the European Commission expecting the economies of the 17-nation euro area to shrink 0.3 percent overall this year and six of the member states to contract, the leaders of the four biggest economies unveiled a fleshed-out growth package to underscore their shift from austerity. As much as 130 billion euros ($163 billion) will be deployed, equivalent to 1 percent of the euro area’s economic output. 'Not Trivial' That amount “is not trivial,” UniCredit’s Nielsen said, though the stimulus’s punch would depend on t he details. The funding will likely derive from unused EU funds, increased capital to the bloc’s regional-funding vehicle -- the European Investment Bank -- and project bonds, he said. Possible steps toward a common banking system and the degree to which euro members surrender autonomy to Brussels may form the centerpiece of the summit agreement. While often reiterating that the bloc needs “more Europe,” Merkel, for example, rejects calls for a euro deposit-guarantee fund, saying such a measure would be inconceivable without more robust political union.

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Proposals for common bank rules and supervision within the euro area are ambitious and would take time, Bank for International Settlements General Manager Jaime Caruana said in a speech in Basel yesterday. 'Common Vision' “But setting out a common vision, an agreed objective and a clear mandate could help to break some of the adverse links that are making the euro-area crisis so severe,” he said. “Institutional development has not kept up with the needs of the monetary union.” Underscoring Germany’s position outside the main European consensus was last week’s suggestion by the Bundesbank, the country’s central bank, that the ECB was wrong to relax some rules on the collateral that banks can offer in exchange for loans. “We’re critical of this,” Bundesbank spokesman Michael Best said June 22. In terms of collateral, “we won’t accept what we don’t have to accept,” he said. More Germans would favor leaving the euro area than those in France, Italy and Spain, according to a poll published in four European newspapers yesterday. Some 39 percent of Germans would back such a move, compared with 28 percent of Italians, 26 percent of French voters and 24 percent of Spaniards, according to the Ifop-Fiducial survey. Lesser Evil This week’s cover of the German magazine Der Spiegel featured a defaced 1 euro coin with the title “If the Euro Breaks Up -- a Scenario.” Germany’s economy could shrink by as much as 10 percent in the year after a euro collapse, the magazine cited an unpublished study from the German Finance Ministry as saying. The statistics suggest that the cost of rescuing the euro would be a lesser evil compared with returning to national currencies, Spiegel cited a ministry official as saying. Joblessness would soar to more than 5 m illion from less then 3 m illion today, the magazine reported. The ministry “won’t take part in speculation about alleged secret papers,” spokeswoman Silke Bruns said yesterday in Berlin. She said she isn’t aware that such a study exists. Meanwhile, German Finance Minister Wolfgang Schaeuble is considering the idea of a national referendum on further European integration, telling Spiegel that EU members need to move more power to Brussels “without every national state being able to block the decisions.” Schaeuble didn’t say when a G erman referendum may be needed to approve the changes. “A few months ago I would have said: in five years? Not in my lifetime! Now I’m not so sure,” he told Spiegel. http://www.bloomberg.com/news/2012-06-24/germany-to-confront-united-euro-bloc- as-leaders-head-to-summit.html

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Central Banks Commit to Ease as Threat of Lost Decades Rises By Simon Kennedy and Rich Miller - Jun 25, 2012 Central bankers are finding it easier to support their economies than to spur expansion as the prospect of Japanese-like lost decades looms across the developed world. Another round of loosely correlated global stimulus has begun after the Federal Reserve extended its Operation Twist program and counterparts from Japan to Europe consider more monetary easing of their own. The rub is that even as they renew their rescue efforts, policy makers are postponing forecasts for fuller recoveries and run the risk that their latest actions pack a s maller punch. This raises the prospect of longer-term anemic expansion akin to the doldrums Japan has suffered since the early 1990s. “Japan’s experience shows central banks can mitigate the worst effects of the current environment, but it’s going to be very hard for them to stimulate demand,” said Peter Dixon, global equities economist at Commerzbank AG in London. He predicts a lengthy period of “sluggish growth and high unemployment” in the debt-ridden industrial nations. The combination of economic weakness and policy indecisiveness leaves Jan Loeys, chief market strategist in New York at JPMorgan Chase & Co., recommending gold and U.S. assets, on the hope of greater quantitative easing, and shying away from peripheral Europe’s bonds and stocks that traditionally benefit from output growth. Ready for More Investors should “position for further monetary action, even if it doesn’t do enough,” said Loeys, whose colleagues anticipate worldwide expansion of 1.4 percent this quarter --the weakest since the end of the 2009 recession. One drawback is that the central banks with the most ammunition, such as the European Central Bank and some in emerging markets, are hesitant to act, he said. India unexpectedly chose not to reduce its 8 pe rcent benchmark repurchase rate last week, while Loeys notes other developing nations aren’t cutting because their currencies have weakened and they fear creating asset bubbles. “From a global point of view, those willing to do something probably don’t have a lot of impact, and the rest who can do something are reluctant,” he said. Five Years In Almost five years after central banks first sprang into action to buoy the world economy, they are being forced to react to a third successive annual fading of recovery hopes as Europe’s debt crisis threatens to engulf Spain and Italy, hiring in the U.S. stalls and China slows. A June 1-5 poll of economists by Bloomberg News found the median estimate for growth worldwide this year falling to 3.2 percent from the May forecast of 3.4 percent.

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Developed economies are running into the limits of monetary policy, the Bank for International Settlements said in its annual report yesterday. Central bank balance sheets now contain $18 trillion of assets, about 30 percent of global gross domestic product, double the ratio of a decade ago, and interest rates are as “low as they can go,” the BIS said. Governments have “cornered” central banks into prolonging stimulus, and have dragged their feed on restoring fiscal order, said the Basel, Switzerland-based BIS, which holds currency reserves on behalf of global central banks. Monetary policy only “buys time” in the short run for leaders to act, and leaving an easy stance for a prolonged period poses economic risks, it said. Lower Profit Memphis, Tennessee-based FedEx Corp. (FDX), operator of the world’s largest cargo airline, said last week that first-quarter profit will be lower than analyst forecasts amid slowing global expansion. Profit excluding some items for the three months through August will be $1.45 to $1.60 a share, compared with an average estimate of $1.70 from 16 analysts surveyed by Bloomberg. The slow growth has helped blunt any inflationary threat. Oil tumbled last week below $80 a barrel for the first time in eight months, and commodities entered a bear market as the Standard & Poor’s GSCI Index of 24 raw materials fell to its lowest level since October 2010. Fed Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner have argued that the world’s largest economy won’t suffer a fate similar to Japan, partly because U.S. policy makers have been quicker to act to promote expansion and bolster the banking system. Reduced Forecasts Even so, both the Fed and White House repeatedly have scaled back growth forecasts since the recession ended in June 2009. The latest cut came last week, when the central bank lowered its projections for this year and next. Fed officials cut their central- tendency estimate for 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April. Estimates for 2013 are for 2.2 percent to 2.8 percent, compared with 2.7 percent to 3.1 percent. “Like many other forecasters, the Federal Reserve was too optimistic early in the recovery,” Bernanke said at a June 20 pr ess conference, citing, among other things, headwinds from the turmoil in Europe, still-tight credit for many borrowers and budget cuts by state and local governments. The U.S. has grown about 0.2 pe rcent on a n annual basis since 2008. In inflation- adjusted terms, GDP per capita in 2011 w as 2.4 percent below 2007, according to International Monetary Fund data. The recession began in December that year. The Fed responded last week by extending its Operation Twist program through year- end, pledging to swap $267 billion in short-term securities with longer-term debt. Bernanke also signaled that the central bank is inclined to do more to spur growth should the recovery falter further or unemployment start to rise. The jobless rate has been above 8 percent since February 2009.

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‘Serious’ Risks The ECB also is downgrading its outlook before meeting on J uly 5. P resident Mario Draghi said June 15 the 17-nation economy faces “serious downside risks” and conditions have worsened since the ECB estimated June 6 that the euro zone would contract about 0.1 percent this year. The central bank ended last year projecting growth of about 0.3 percent, a percentage point lower than it forecast in September 2011. A contraction of about 0.5 percent is more likely, according to new forecasts from BNP Paribas SA. Manufacturing output shrank at the fastest pace in three years in June, data showed last week. That backdrop is enough for policy makers to cut their key interest rate by 25 b asis points next week to a record low of 0.75 pe rcent, said Ken Wattret, chief euro-zone market economist at BNP Paribas in London. He isn’t ruling out a deeper reduction -- or the ECB cutting its 0.25 percent deposit rate to prompt lenders to loan more -- if European leaders meeting in Brussels June 28-29 devise a stronger response to the debt crisis. Helping at Margin “Is it going to turn the economy around? Clearly not, but every little thing helps,” Wattret said. Attendees at the summit will discuss ways to better integrate their currency bloc by pursuing closer fiscal ties, adopting initiatives to bolster growth, providing stronger supervision and reinforcement for banks and perhaps issuing joint debt at some point. Bank of England Governor Mervyn King will push at the July 5 meeting for more stimulus after being defeated 5-4 in a vote this month against greater so-called quantitative easing. King backed increasing asset purchases by 50 billion pounds ($78 billion) and said June 14 that the central bank will activate a sterling-liquidity facility to aid banks and start a credit- easing operation that may boost lending by 80 bi llion pounds. Recession Relapse HSBC Holdings Plc and Societe Generale SA now predict the BOE will announce an increase in purchases next week, having previously said the bank would wait. The U.K. flopped back into recession in the first quarter, and King describes the euro crisis as a “black cloud” hanging over the world economy. Bank of Japan policy makers also will review their projections when they convene July 11-12, three months since they forecast GDP would expand 2.3 percent and inflation excluding fresh food would accelerate 0.3 percent in the fiscal year that ends next March. Analysts from UBS AG to Jefferies Japan Ltd. predict the BOJ will boost its asset- purchase program from the current 40 trillion yen ($498 billion). Board members may add more risk securities such as exchange-traded funds and corporate debt, along with government bonds, according to JPMorgan Chase. The worry for international policy makers is that Japan’s recent past reflects their future. Its economy stagnated in the early 1990s after the BOJ boosted borrowing costs to rein in a surge in inflation, real-estate and equity prices. With banks hobbled by bad debt

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from the bursting of the asset bubble, the BOJ lowered its main rate to near zero in 1999. Japan’s Woes After flooding the banking system with cash from 2001 to 2006, the central bank now has deployed its second round of quantitative easing. The moves haven’t ignited growth, with GDP rising at an average rate of 0.75 pe rcent in the past 20 years, according to International Monetary Fund data. Consumer prices fell in eight of the past 13 years, and inflation hasn’t exceeded 1 pe rcent since 1997. Unadjusted for price changes, the size of the economy last year was the smallest since 1990 and had contracted 10 percent from its peak in 1997. ECB economists say the U.S. and euro-area are “rather unlikely to tread the same path of Japan” because they had different pre-crisis debt imbalances, according to their May monthly bulletin. Japan’s experience nevertheless demonstrates the importance of repairing financial sectors before trying to generate a sustainable recovery and shows that delaying reforms may mean fragile economic growth, they wrote. Packing Punch Central bankers say they still pack a punch. “I wouldn’t accept the proposition” that the Fed “has no more ammunition,” Bernanke told reporters June 20. “I do think that our tools, while they are nonstandard, still can create more accommodative financial conditions, can still provide support for the economy.” At London-based hedge fund SLJ Macro Partners LLP, managing partner Stephen Jen said he fears “we may be four years into a decade-long global crisis,” adding that rather than a lost decade, Japan now has suffered a lost generation. Jen, a former IMF economist, questions the power of easier monetary policy and says officials must take a longer-term view and ensure their economies live within their means rather than continue dispensing short-run aid. While quantitative easing can boost equities and cap interest rates, costs include fanning medium-term inflation, sparking financial volatility and encouraging complacency among governments on structural and fiscal reforms, he said. “After four years of policies centered around demand rather than supply, I suspect the world could be further away from a lasting solution to the crisis,” he said. “A series of short-term solutions could lead to the wrong long-term solution.” http://www.bloomberg.com/news/2012-06-25/central-banks-commit-to-ease-as-threat- of-lost-decades-rises-1-.html

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ft.com World Europe June 24, 2012 8:18 pm Euro blueprint maps way to banking union By Alex Barker in Brussels and Gerrit Wiesmann in Berlin An EU blueprint for the future of the euro is to call for member states to surrender powers to run their banks, give up s ome control over national budgets and explore pooling the risk of underwriting deposits and raising debt, according to the latest draft of the proposal. The report, setting out a long-term vision for the single currency, is in the final stages of being negotiated. Drawn up by four senior EU leaders, it will be circulated to member states tonight before being presented to a crunch summit of EU leaders on Thursday. More ON THIS STORY/ Wolfgang Munchau Monti needs to speak out// Eurozone rift deepens over debt crisis// Push for EU-wide ‘Robin Hood tax’ ends// German angst grows over future of eurozone// Editorial Clock ticking for the euro’s leaders ON THIS TOPIC/ Global Market Overview Stocks soft as eurozone stress persists// Economic Outlook aid for growth sought// Global Market Overview Growth fears suppress risk appetite// Liaquat Ahamed the Depression’s lessons are forgotten IN EU ECONOMY/ Spain asks for aid to recapitalise banks// Greek lenders postpone mission to Athens// IMF in challenge to Berlin//ECB to relax loan rules for Spanish banks While the 10-page draft lays out a detailed path to banking union, options for “eurobonds”, and the possibility of the EU’s permanent bailout fund directly buying stakes in banks, disagreements remain over elements such as the single bank supervisor’s remit and central controls over national budgets. These issues were to be discussed for the first time at the weekend among the four principal authors of this euro master plan: EU council president Herman Van Rompuy, European Commission president José Manuel Barroso, European Central Bank president Mario Draghi, and Jean-Claude Juncker, chair of the eurogroup of eurozone finance ministers. The biggest changes would take years to legislate and enact. But EU leaders could make detailed political pledges at the summit, particularly over establishing a European bank supervisor. The terms of the final report will also frame a critical meeting between François Hollande, French president, and Angela Merkel, German chancellor, in Paris on Wednesday night. According to those involved in drafting the paper, one key factor in discussions has been a German demand that tough central controls on national spending and taxation are included as a condition to discussing options to pool debt, such as eurobonds, eurobills, or a eurozone redemption fund. The draft makes clear that this “qualitative move to fiscal union” is likely to require EU treaty changes.

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More rapid progress is envisaged in the first section of draft, setting out an “integrated financial framework”, or financial union open to all 27 m ember states. It includes a common EU rulebook for banks, the creation of a single supervisor and common deposit insurance and bank resolution fund. Britain and others outside the euro area could opt out of sharing more risk or sovereignty. Disputes remain over which institution should become top supervisor. Speaking to German newspaper Welt Am Sonntag, Mr Van Rompuy said “much quicker progress” could be made by “giving supervision to the ECB” – a step foreseen in existing EU treaties. But the Commission is pressing for the creation of a separate agency. There is also disagreement over its remit. The draft refers to the single supervisor holding ultimate authority over “all banks”, but its day-to-day supervision role is unclear. Germany is resisting the supervisor winning power over its regional savings banks, a demand that is making France think again about surrendering control of all its big banks. In light of these proposed pan-European controls on banks, the draft paper calls for EU leaders to “actively explore” handing more intervention tools to the European Stability Mechanism, the EU’s €500bn ba ilout fund due to come into force next month, and examine the role of eurozone central banks in providing emergency liquidity support to banks. The reference to the ESM relates to the ongoing debate over giving the fund the means to inject capital directly into banks, rather than via loans to states. Ms Merkel has rejected the idea because no EU controls are in place. The final two sections of the report are more long term and cover strengthening economic policy integration and democratic accountability. Proposals include working on co-ordinating the base for corporate taxation, a f inancial transaction tax and establishing a conference of elected representatives, from both the European parliament and member states. http://www.ft.com/intl/cms/s/0/b6c9b3b8-be21-11e1-9abf- 00144feabdc0.html#axzz1yn6RFoFg

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ft.com comment Columnists June 24, 2012 6:41 pm Why Mario Monti needs to speak truth to power By Wolfgang Münchau Just imagine it is this Thursday evening in the European Council’s gathering of Europe’s heads of state, and the Italian prime minister stands up a nd says this: “Mr President, dear colleagues. We are confronted with a simple choice: we can today either save the euro and build the foundation for a future political union, or we could flunk it and achieve neither. We all know what we need to do to save the euro. We require a banking union for Spain, a fiscal union for Italy and a political union for Germany. “We can, of course, disagree on details. But we have to settle some of these differences this weekend, and take a decision on t he steps that are needed right now. Our crisis resolution policies have failed time and again. We now need something that works fast. If we fail, I can assure you that I can no longer be part of this group, and my country can no longer be part of this project.” More WOLFGANG MUNCHAU/ What happens if Angela Merkel gets her way// Wolfgang Münchau Saving Spain’s banks – and eurozone// Banking union can save the eurozone// Building a fiscal union Let me say first of all that I do not really expect Mario Monti to say such a thing, not even a more cryptic version. He is the leader of a technical government. His job is to fix things. Standing up t o the German chancellor – grandstanding as some people might call it – let alone wagering Italy’s future is not part of his remit. Italy’s political parties appointed him because they needed a plumber to succeed the playboy, not a gambler. The last thing they wanted was a leader. I believe there is a case for a calculated gamble. But its risks and pay-offs must be fully understood. The point is not so much to call Angela Merkel’s bluff, as some of my Italian and Spanish friends have been urging. She is not bluffing, despite the fact that a break-up of the eurozone would clearly be disastrous for Germany. Joschka Fischer, the former foreign minister, said recently that by allowing the eurozone to break up, Germany would for the third time in a century have inflicted utter devastation on Europe and on itself. Those who advocate the strategy of calling Germany’s bluff often assume a degree of rationality that is plainly absent. The Germans have developed a strange narrative of the crisis. Following the debate there, as I do regularly, has a parallel universe feel about it. There is, for example, a denial that the current account surpluses are even remotely a factor. In the German narrative, the economy is like a football game, which Germany is winning. And the chancellor’s job is to support the team against another team – as she did in Gdansk last Friday when Germany beat Greece. Germany, like Ms Merkel, looks unstoppable.

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The small number of intelligent officials and the economic elite understand what is at stake, but are willing to take the risk of an accident. The preservation of the euro is not their primary objective. When Otmar Issing, the former chief economist of the European Central Bank, categorically rejects any form of debt mutualisation, as he did in a r ecent newspaper article, he omits to mention what would happen if the government were to follow his advice. The eurozone would break up. When the pressure for a break-up comes, it will come from Italy. Silvio Berlusconi said ominously last week that a departure from the euro would be no blasphemy. He gave a simple set of choices: either Italy gets bailed out, Germany leaves, or Italy leaves. It looks to me as though Mr Berlusconi is preparing his party to run on a eurosceptic ticket in the next elections to see off the challenge by the anti-euro Five Star Movement and its leader, Beppe Grillo. Mr Berlusconi is said to have studied his speeches and writings in detail. What we are seeing here is the process of how an anti-euro stance can turn mainstream. And when that happens, it may already be too late to save the euro. Eurozone leaders had more than three years to act. They wasted them. They may be intelligent people individually, but as a group they displayed an extraordinary degree of economic and financial illiteracy. Remember the notion of the expansionary fiscal contraction? Or the silly idea of leveraging the rescue fund? Or bailing in private investors on a voluntary basis? Do we really believe that these are the people who will do all the right things in a single day when they did all the wrong things in three years? The only hope would be for someone from the inside to challenge Ms Merkel. The challenger should veto the fudge that is likely to be proposed on Thursday. How credible is a political union in the future if we cannot save the eurozone today? This is our high noon. No one is better placed to stand up to Ms Merkel than the Italian prime minister. He is the ultimate European insider. He is intelligent and eloquent. His country is next in line to be attacked by the markets. The European Union has no plan B. A resignation threat would be credible, and would scare a lot of people. What has he got to lose anyway? His poll ratings have fallen, and he is also losing support within his coalition. Only by speaking truth to power can Mr Monti save his country, and the euro. http://www.ft.com/intl/cms/s/0/6b58d55c-bbbb-11e1-9436- 00144feabdc0.html#axzz1yn6RFoFg

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June 24, 2012 The Great Abdication By PAUL KRUGMAN Among economists who know their history, the mere mention of certain years evokes shivers. For example, three years ago Christina Romer, then the head of President Obama’s Council of Economic Advisers, warned politicians not to re-enact 1937 — the year F.D.R. shifted, far too soon, from fiscal stimulus to austerity, plunging the recovering economy back into recession. Unfortunately, this advice was ignored. But now I’m hearing more and more about an even more fateful year. Suddenly normally calm economists are talking about 1931, the year everything fell apart. It started with a banking crisis in a small European country (Austria). Austria tried to step in with a bank rescue — but the spiraling cost of the rescue put the government’s own solvency in doubt. Austria’s troubles shouldn’t have been big enough to have large effects on the world economy, but in practice they created a panic that spread around the world. Sound familiar? The really crucial lesson of 1931, however, was about the dangers of policy abdication. Stronger European governments could have helped Austria manage its problems. Central banks, notably the Bank of France and the Federal Reserve, could have done much more to limit the damage. But nobody with the power to contain the crisis stepped up to the plate; everyone who could and should have acted declared that it was someone else’s responsibility. And it’s happening again, both in Europe and in America. Consider first how European leaders have been handling the banking crisis in Spain. (Forget about Greece, which is pretty much a l ost cause; Spain is where the fate of Europe will be decided.) Like Austria in 1931, S pain has troubled banks that desperately need more capital, but the Spanish government now, like Austria’s government then, faces questions about its own solvency. So what should European leaders — who have an overwhelming interest in containing the Spanish crisis — do? It seems obvious that European creditor nations need, one way or another, to assume some of the financial risks facing Spanish banks. No, Germany won’t like it — but with the very survival of the euro at stake, a bit of financial risk should be a small consideration. But no. Europe’s “solution” was to lend money to the Spanish government, and tell that government to bail out its own banks. It took financial markets no time at all to figure out that this solved nothing, that it just put Spain’s government more deeply in debt. And the European crisis is now deeper than ever. Yet let’s not ridicule the Europeans, since many of our own policy makers are acting just as irresponsibly. And I’m not just talking about Congressional Republicans, who often seem as if they are deliberately trying to sabotage the economy.

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Let’s talk instead about the Federal Reserve. The Fed has a so-called dual mandate: it’s supposed to seek both price stability and full employment. And last week the Fed released its latest set of economic projections, showing that it expects to fail on both parts of its mandate, with inflation below target and unemployment far above target for years to come. This is a terrible prospect, and the Fed knows it. Ben Bernanke, the Fed’s chairman, has warned in particular about the damage being done to America by the unprecedented level of long-term unemployment. So what does the Fed propose doing about the situation? Almost nothing. True, last week the Fed announced some actions that would supposedly boost the economy. But I think it’s fair to say that everyone at all familiar with the situation regards these actions as pathetically inadequate — the bare minimum the Fed could do to deflect accusations that it is doing nothing at all. Why won’t the Fed act? My guess is that it’s intimidated by those Congressional Republicans, that it’s afraid to do anything that might be seen as providing political aid to President Obama, that is, anything that might help the economy. Maybe there’s some other explanation, but the fact is that the Fed, like the European Central Bank, like the U.S. Congress, like the government of Germany, has decided that avoiding economic disaster is somebody else’s responsibility. None of this should be happening. As in 1931, Western nations have the resources they need to avoid catastrophe, and indeed to restore prosperity — and we have the added advantage of knowing much more than our great-grandparents did about how depressions happen and how to end them. But knowledge and resources do no good if those who possess them refuse to use them. And that’s what seems to be happening. The fundamentals of the world economy aren’t, in themselves, all that scary; it’s the almost universal abdication of responsibility that fills me, and many other economists, with a growing sense of dread. http://www.nytimes.com/2012/06/25/opinion/krugman-the-great- abdication.html?nl=todaysheadlines&emc=edit_th_20120625

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U.S. Banks Aren’t Nearly Ready for Coming European Crisis By Simon Johnson - Jun 24, 2012 The euro area faces a m ajor economic crisis, most likely a s eries of rolling, country- specific problems involving some combination of failing banks and sovereigns that can’t pay their debts in full. This will culminate in systemwide stress, emergency liquidity loans from the European Central Bank and politicians from all the countries involved increasingly at one another’s throats. Even the optimists now say openly that Europe will only solve its problems when the alternatives look sufficiently bleak and time has run out. Less optimistic people increasingly think that the euro area will break up because all the proposed solutions are pie-in-the-sky. If the latter view is right -- or even if concern about dissolution grows in coming months -- markets, investors, regulators and governments need to worry not just about interest-rate risk and credit risk, but also dissolution risk. What’s more, they also need to worry a great deal about what the repricing of risk will do to the world’s thinly capitalized and highly leveraged megabanks. Officials, unfortunately, appear not to have thought about this at all; the Group of 20 meeting and communique last week exuded complacency and neglect. Very few people seem to have gotten their heads around dissolution risk. Here’s what it means: If you have a contract that requires you to be paid in euros and the euro no longer exists, what you will receive is unclear. No Euro As a warm-up, consider first a simple contract. Let’s say you have lent 1 million euros to a German bank, payable three months from now. If the euro suddenly ceases to exist and all countries revert to their original currencies, then you would probably receive payment in deutsche marks. You might be fine with this -- and congratulate yourself on not lending to an Italian bank, which is now paying off in lira. But what would the exchange rate be between new deutsche marks and euros? How would this affect the purchasing power of the loan repayment? More worrisome, what if Germany has gone back on the deutsche mark but the euro still exists -- issued by more inflation-inclined countries? Presumably you would be offered payment in the rapidly depreciating euro. If you contested such a repayment, the litigation could drag on for years. What if you lent to that German bank not in Frankfurt but in London? Would it matter if you lent to a branch (part of the parent) or a subsidiary (more clearly a British legal entity)? How would the British courts assess your claim to be repaid in relatively appreciated deutsche marks, rather than ever-less- appealing euros? With the euro

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depreciating further, should you wait to see what the courts decide? Or should you settle quickly in hope of recovering half of what you originally expected? What if you lent to the German bank in New York, but the transaction was run through an offshore subsidiary, for example in the Cayman Islands? Global banks are extremely complex in terms of the legal entities that overlap with business units. Do you really know which legal jurisdiction would cover all aspects of your transaction in the currency formerly known as the euro? Moving from relatively simple contracts to the complex world of derivatives, what would happen to the huge euro- denominated interest-rate swap market if euro dissolution is a real possibility? I’ve talked to various experts and heard a variety of fascinating opinions, but no one really knows. Dissolution Risk There is a lot of risk that isn’t being priced, including in so-called safe haven assets. Anything denominated in euros is subject to complex, hard-to-value dissolution risk. The credit risk of German sovereign debt may be unchanged, but what is a German government bond worth if the euro is seriously on the rocks? Personally, I’m most worried about the balance sheets of the really big banks. For example, in recently released highlights from its so-called living will, JPMorgan Chase & Co. revealed that $50 billion in losses could hypothetically bring down the bank. (All big banks must provide their regulators with a living will to show how they could be shut down in an orderly fashion if near default.) JPMorgan’s total balance sheet is valued, under U.S. accounting standards, at about $2.3 trillion. But U.S. rules allow a more generous netting of derivatives -- offsetting long with short positions between the same counterparties -- than European banks are allowed. The problem is that the netting effect can be overstated because derivatives contracts often don’t offset each other precisely. Worse, when traders smell trouble at a bank that has taken on too much risk, they tend to close out their derivatives positions quickly, leaving supposedly netted contracts exposed. People with experience regulating or analyzing financially distressed institutions greatly prefer to measure potential losses with the European approach, in which netting is allowed only when contracts expressly incorporate settlement on a net basis under all circumstances. When one bank defaults and its derivatives counterpart does not, the failing bank must pay many contracts at once. The counterpart, however, wouldn’t provide a matching acceleration in its payments, which would be owed under the originally agreed schedule. This discrepancy could cause a “run” on a highly leveraged bank as counterparties attempt to close out positions with suspect banks while they can. The point is that the netting shown on a bank balance sheet can paper over this dynamic. And that means the JPMorgan living will vastly understates the potential danger. Largest Bank According to my calculations with John Parsons, a senior lecturer at MIT and a derivatives expert, JPMorgan’s balance sheet using the European method isn’t $2.3 trillion but closer to $4 trillion. That would make it the largest bank in the world.

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What are the odds that JPMorgan would lose no more than $50 billion on assets of $4 trillion, much of which is complex derivatives, in a euro-area breakup, an event that would easily be the biggest financial crisis in world history? A few officials see the storm coming. The Swiss National Bank should be commended for putting renewed pressure on Credit Suisse to increase its capital levels by suspending dividends. The Bank of England has set up emergency liquidity facilities, and continues to press for more bank capital, although it could do more. The Federal Reserve should apply the same approach to big U.S. banks, with an emergency and across-the-board suspension of dividend payments, but it won’t. The Fed is convinced that its recent stress tests show U.S. banks have enough capital even though these tests didn’t model serious euro dissolution risk and the effect on global derivatives markets. The striking thing about JPMorgan’s recent London-based proprietary trading losses is not the amount per se. If the world’s largest bank can lose $2 billion to $3 billion in a relatively calm quarter through incompetence and neglect on t he fringes of its operations, how much does it stand to lose when markets really turn nasty across a much broader range of its activities? And how might that harm the U.S. economic recovery? (Simon Johnson, a professor at the MIT Sloan School of Management as well as a senior fellow at the Peterson Institute for International Economics, is a co-author of “White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You.” The opinions expressed are his own.) http://www.bloomberg.com/news/2012-06-24/u-s-banks-aren-t-nearly-ready-for- coming-european-crisis.html

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How policy has contributed to the great economic divide By Joseph E. Stiglitz, Published: June 23 The United States is in the midst of a vicious cycle of inequality and recession: Inequality prolongs the downturn, and the downturn exacerbates inequality. Unfortunately, the austerity agenda advocated by conservatives will make matters worse on both counts. The seriousness of America’s growing problem of inequality was highlighted by Federal Reserve data released this month showing the recession’s devastating effect on the wealth and income of those at the bottom and in the middle. The decline in median wealth, down almost 40 percent in just three years, wiped out two decades of wealth accumulation for most Americans. If the average American had actually shared in the country’s seeming prosperity the past two decades, his wealth, instead of stagnating, would have increased by some three-fourths. In some ways the data confirmed what was already known, but the numbers still shocked. We knew that house prices — the principal source of saving for most Americans — had declined precipitously and that trillions of dollars in home equity had been wiped out. But unless we understand the link between inequality and economic performance, we risk pursuing policies that will worsen both. America has “excelled” in inequality since at least the beginning of the millennium. Inequality is greater here than in any other advanced country. The data remind us how a combination of monetary, fiscal and regulatory policies have contributed to these outcomes. Market forces play a role, but they are at play in other countries, too. Politics has much to do with the difference in outcomes. The Great Recession has made this inequality worse, which is likely to prolong the downturn. Those at the top spend a smaller fraction of their income than do those in the bottom and middle — who have to spend everything today just to get by. Redistribution from the bottom to the top of the kind that has been going on in the United States lowers total demand. And the weakness in the U.S. economy arises out of deficient aggregate demand. The tax cuts passed under President George W. Bush in 2001 and 2003, aimed especially at the rich, were a particularly ineffective way of filling the gap; they put the burden of attaining full employment on the Fed, which filled the gap by creating a bubble, through lax regulations and loose monetary policy. And the bubble induced the bottom 80 percent of Americans to consume beyond their means. The policy worked, but it was a temporary and unsustainable palliative. The Fed has consistently failed to understand the links between inequality and macroeconomic performance. Before the crisis, the Fed paid too little attention to inequality, focusing more on inflation than on employment. Many of the fashionable models in macroeconomics said that the distribution of income didn’t matter. Fed officials’ belief in unfettered markets restrained them from doing anything about 132

the abuses of the banks. Even a former Fed governor, Ed Gramlich, argued in a forceful 2007 book that something should be done, but nothing was. The Fed refused to use the authority to regulate the mortgage market that Congress gave it in 1994. After the crisis, as the Fed lowered interest rates — in a predictably futile attempt to stimulate investment — it ignored the devastating effect that these rates would have on those Americans who had behaved prudently and invested in short-term government bonds, as well as the macroeconomic effects from their reduced consumption. Fed officials hoped that low interest rates would lead to high stock prices, which would in turn induce rich stock owners to consume more. Today, persistent low interest rates encourage firms that do invest to use capital-intensive technologies, such as replacing low-skilled checkout clerks with machines. In this way, the Fed may still be contributing to a jobless recovery, when we finally do recover. Matters may get worse. The austerity advocated by some Republicans will lead to higher unemployment, which will lead to lower wages as workers compete for jobs. Less growth will mean lower state and local tax revenue, leading to cutbacks in services important to most Americans (including the jobs of teachers, police officers and firefighters). It will force further increases in tuition — data published this month show that the average tuition for a four-year public university climbed 15 pe rcent between 2008 and 2010, while most Americans’ incomes and wealth were falling. This will lead to more student debt, more profits for bankers — but more pain at the bottom and middle. Some, seeing the consequences of their parents’ debts, won’t be willing to take on the levels of debt necessary to get a college education, condemning them to a life of lower wages. Even in the middle, incomes have been doing miserably; for male workers, inflation-adjusted median incomes are lower today than they were in 1968. Opportunity in America — already the country with the least equality of opportunity among the world’s advanced nations, where a child’s prospects depend more on t he income and education of his parents then even in ossified Europe — will decline still further. If we want recovery, there is no choice but to rely on fiscal policy. Fortunately, well-designed spending can lead simultaneously to more employment, growth and equality. Further investments in education, especially aimed at the poor and middle, from preschool to Pell Grants, would stimulate the economy, improve opportunity and increase growth. Spending a fraction of the money the federal government gave to the banks to help underwater homeowners — or extending unemployment benefits for those who have long searched but failed to find a job — would simultaneously ease the burden of those suffering from the recession and help bring the recession to an end. This higher growth would, in turn, lead to higher tax revenue, improving our fiscal position. Plenty of investments would pay for themselves. By contrast, if we go down the path of austerity, we risk entering a double-dip recession, especially if the European crisis worsens. At the very least, our downturn would be likely to last years longer than it otherwise would. Our growth in the future will be weaker. But perhaps most important, our country will increasingly become divided, and we will pay a high economic price for our growing inequality and declining opportunity. The consequences will be even harder on our democracy, our identity as a nation of opportunity and fair play, and our society. http://www.washingtonpost.com/opinions/how-policy-has-contributed-to-the-great-economic- divide/2012/06/22/gJQAXTX2vV_print.html 133

ft.com Comment Opinion June 22, 2012 7:28 pm Europe’s bankers have forgotten the lessons of the Depression By Liaquat Ahamed June 22, 2012 7:28 pm Eighty years ago central bankers were responsible for sending the global economy into the Great Depression. They failed to ease monetary policy fast enough. Indeed, because of the dictates of the gold standard, at various points they moved in the opposite direction and were forced to raise interest rates despite mass unemployment. And instead of acting as lender of last resort to the financial system, they stood by as across the world one bank after another failed. When Lehman Brothers collapsed in 2008, i t seemed as if the world’s major central bankers had taken on board the lessons of the 1930s and would do e verything they could to avoid replicating their mistakes. But during the past few months, as the crisis in Europe has spiralled out of control and the global economy has started to weaken, I have begun to fear that the world might in fact be repeating some of those same errors. More ON THIS STORY/ Eurozone rift deepens over debt crisis// IMF in challenge to Berlin// Martin Wolf’s exchange// Gavyn Davies// Push for EU-wide ‘Robin Hood tax’ ends ON THIS TOPIC/ Spain wins restructuring deal for banks// Global Market Overview Risk assets surge on EU summit deal// Eurozone officials in all-night aid fight// Eurozone live EU summit IN OPINION/ The ‘Berlin must pay’ argument is absurd// John Paul Rathbone Mexico can gain power// Too big to manage or regulate are what matter now// Paul Krugman and Richard Layard Economic manifesto Much has changed in the world of central banking since the 1930s. At that time most central banks were privately held institutions, jealously guarding their autonomy from government. They had quirky ways of conducting their affairs. The Bank of England, for example, was run by a board of 26 directors – known as the “Court” – drawn from a closed, almost hereditary circle of City of London bankers and merchants. The result was that the men at the helm of central banks came from insular oligarchies. Few of them thought it necessary to know anything about economics. Montagu Norman, governor of the BoE from 1920 to 1944, is reputed to have once told his chief economist: “Your job is not to tell me what to do, but to tell me why I did it.” When asked before a parliamentary committee what his reasons were for a particular policy, he simply tapped the side of his nose three times and said: “Reasons, Mr Chairman? I don’t have reasons. I have instincts.” The contrast with the men in charge of central banks today is stark. US Federal Reserve chairman Ben Bernanke, European Central Bank president Mario Draghi and BoE governor Mervyn King all have doctorates in economics. But as they experiment with unconventional monetary tools to get the global economy moving, ironically they may find their years of training less useful than their instincts. Nevertheless, what really keeps this generation of central bankers up a t night is not whether the unconventional monetary tools that they are contemplating will work. It is 134

that some of the same intractable factors that their predecessors of the 1930s had to contend with will overwhelm them once again. The first has to do with the international dimension of the crisis. The situation in Europe today bears an eerie similarity to that of Europe in the 1930s. Ironically, Germany was then in the position of the peripheral European countries today. It was weighed down with government debt because of reparations imposed at Versailles; its banking system was severely undercapitalised, the result of the hyperinflation of the early 1920s; and it had become dependent on foreign borrowing. It was locked into a rigid fixed exchange rate system, the gold standard, which it dared not tamper with for fear of provoking a gigantic crisis of confidence. And so when the Depression hit and international capital markets essentially closed down, Germany had no choice but to impose brutal austerity. Eventually, unemployment rose to 35 per cent. Like today, in the 1930s there was one major economy in Europe doing well. It was France. While the rest of Europe was suffering, unemployment in France, as in Germany today, was in the low single figures. And France, again like Germany today, had large current-account surpluses and was in a financial position to act as the locomotive for the rest of Europe. But the French authorities of the 1930s, refusing to accept responsibility for what was happening elsewhere in Europe, would not adopt expansionary policies. Nor would they lend directly to Germany, fearing that they would be throwing good money after bad. The effect of French policy eventually brought down the whole financial system of western Europe. European officials say the big difference is that in the 1930s there was no E CB to provide assistance to banks, no European Financial Stability Facility to help roll over government debts, no International Monetary Fund to step in with supplementary assistance. While these mechanisms have undoubtedly helped to cushion the impact of the crisis so far in Europe, they all fall short of a true lender of last resort. So the second major factor that central bankers are having to contend with is the lack of an institution within Europe with a clear mandate to act as lender of last resort to the financial system. Between 1930 and 1933, the US was hit by four consecutive runs on its banking system and each time the Fed reacted far too cautiously in providing emergency funds to banks in distress. Having been founded only in 1913, it was, like the ECB today, still finding its feet. It was often paralysed by the tug of power between the regional Fed banks and the Federal Reserve board. It refused to lend to the half of US banks that were not members of its system, failing to recognise that a f ull-blown panic does not respect artificial regulatory boundaries. By contrast, in the weeks after the Lehman collapse, the Fed and the US Treasury, having learnt the lessons of the 1930s all too well, did not wait upon bureaucratic niceties but moved hard and fast in unprecedented ways to prevent a financial meltdown: they guaranteed money market funds, lent against commercial paper and allowed investment banks to avail themselves of deposit guarantees. All told, they provided implicit and explicit guarantees of several trillions of dollars. If, over the next few months, a f inancial accident takes place in Europe, as is likely, is there any European institution willing and able to act as fast and with such vigour to prevent a disaster? The writer is author of ‘Lords of Finance: The Bankers Who Broke the World’ http://www.ft.com/intl/cms/s/0/35096e3a-bb02-11e1-81e0-00144feabdc0.html#axzz1zAY4p1HT

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INCOME INEQUALITY, TAX BASE AND SOVEREIGN SPREADS By Joshua Aizenman and Yothin Jinjarak NBER, Working Paper 18176 http://www.nber.org/papers/w18176 June 2012 ABSTRACT

This paper investigates the association between greater income inequality, de-facto fiscal space, and sovereign spreads. Using data from 50 countries in 2007, 2009 and 2011, w e find that higher income inequality is associated with a lower tax base, lower de-facto fiscal space, and higher sovereign spreads. The economic magnitude of these effects is large: at the margin, a o ne point of the Gini coefficient of inequality (in a scale of 0-100), is associated in 2011 with a lower tax base of 2 percent of the GDP, and with a higher sovereign spread of 45 basis points.

3. Concluding remarks This note identified the large negative association of income inequality with the tax base, and with the de-facto fiscal space. The de-facto fiscal space plays a key role in accounting for severing spreads [Aizenman, Hutchison and Jinjarak (2011)], and explains the patterns of fiscal stimuli in the aftermath of the crisis [Aizenman and Jinjark (2011)]. The results suggest that more polarized societies would find it harder to adjust to crises by raising taxes at times of peril, as parties tend to be locked in a war of attrition, attempting to minimize their adjustment burden.

Thus, the de facto tax base is hard to change overnight, as it reflects a social contract. This contract depends on the tax enforcement capacities of a country, which are anchored in the public’s perception of tax fairness and the gains from public sector expenditure, factors that are hard to change at times of peril. This view is consistent with recent empirical literature finding that tax compliance and the individual’s willingness to pay taxes are affected by perceptions about the fairness of the tax structure. An individual taxpayer is influenced strongly by his perception of the behavior of other taxpayers [see Alm and Torgler (2006), and the references therein]. If taxpayers perceive that their preferences are adequately represented and they are supplied with public goods, their identification with the state increases, and thus the willingness to pay taxes rises [Frey and Torgler (2007)]. Thereby, greater income inequality limits the ability to conduct a counter fiscal policy, and increases the downside risk of a given debt/GDP.

The discussion on t he Euro crisis focused on t he inequality between rich and poor member states, and whether it has contributed to the crisis. Our analysis suggests that another income inequality -- within countries -- could account for the resistance to conduct tax reforms.

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Broadening the tax base and steps reducing income inequality will increase the likelihood of greater fairness perception of the tax structure, lower polarization, higher adjustment capacity at times of peril, and lower the sovereign risk associated with a given public debt/GDP.

Accomplishing these tasks is challenging, yet the history of Brazil during the last two decades illustrates the feasibility of these reforms6.

6 The tax revenue in Brazil as a percent of the GDP rose from 25 percent to 37 percent between 1993 and 2005. Brazil’s GINI coefficient in 2001, 60, has decreased to 54 in 2009 [see Melo et al. (2010)]. The record of the Euro Periphery has been mixed: the GINI coefficients of Greece was overall stable, 33 in 1999 and 32.9 in 2009, while its tax/GDP dropped from 35.4% in 1999 to 32.8% in 2009; for Portugal, the GINI declined from 36 in 1999 to 33.7 in 2009, while its tax/GDP increased from 33.4% in 1999 to 34.4% in 2009; for Spain, the GINI went from 32 in 1999 to 33.9 in 2009, while its tax/GDP dropped from 34.8% in 1999 to 31.6% in 2009; for Italy, the GINI went from 29 in 1999 to 31.2 in 2009, while its tax/GDP increased from 42.4% in 1999 to 43.1% in 2009; for Ireland, the GINI went from 30 in 1999 to 33.2 in 2009, while its tax/GDP dropped from 32.8% in 1999 to 29.8% in 2009.

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Chart Focus Newsletter June 2012 Global deleveraging scorecard—US takes the lead

Americans steadily increased their debt levels for a good six decades, but it wasn’t until the turn of the millennium that the ratio of household debt to income really soared. Yet by the second quarter of 2011, three years after the start of the global economic crisis, the US ratio had fallen 11 percent from its peak. At the current rate of deleveraging, it would return to trend as of mid- 2013—a conclusion buttressed by a comparison between US households today and those of Sweden and Finland during the 1990s, when the two Scandinavian countries endured similar banking crises, recessions, and deleveraging episodes. In both, the ratio of household debt to income fell by roughly 30 percent from its peak. As the exhibit below shows, the United States has been closely tracking the Swedish experience, while households in Spain and the United Kingdom have only just begun to deleverage. To learn more, read “Working out of debt” (January 2012).

http://www.mckinseyquarterly.com/newsletters/chartfocus/2012_06.html

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ft.com/markets

MARKETS INSIGHT June 21, 2012 4:04 pm Race to save euro will follow ‘Grexit’ By Willem Buiter Following the re-run of the Greek parliamentary elections, we have a New Democracy- led coalition government. This removes the risk of an early “Grexit” as it is likely the minimum demands for relaxation of fiscal austerity by the new government will not exceed the maximum fiscal austerity concessions Germany and other core euro area member states are willing to make. Some relaxation on the timing of austerity, some limited early disbursement of funds to pay for essential public goods and services, and some token pro-growth gestures courtesy of the European Investment Bank and EU structural and cohesion funds will most likely keep Greece in the euro for the time being. More ON THIS STORY/ Endgame brings pressure for fiscal union// Eurozone live From Athens to Los Cabos// Video After Greece: all eyes on Spain// Merkel under pressure at home on fiscal pact// FT Alphaville Post-election questions ON THIS TOPIC/ Greek finance job goes to civil servant// New Greek coalition government agreed// Greece’s ailing economy grinds to a halt// Germany urges no shift on Greece bailout MARKETS INSIGHT/ Europe needs its own US fiscal union moment// EU policies lead to chaotic resolution// Eurobills may drive past German roadblock// Stocks may be the best of a bad bunch However, we consider it highly unlikely that Greece will comply sufficiently with even “lite” fiscal austerity conditionality, let alone with structural reform conditionality, including privatisation targets, which are unlikely to be relaxed. Political opposition to both austerity and reform is now stronger in Greece than ever before. So is resistance to bailouts in the core. The troika – the European Commission, European Central Bank and the International Monetary Fund – may forgive a Greek failure in the September progress assessment, but is unlikely to tolerate another failure to comply on all fronts by the December assessment. Grexit may well be triggered by a t roika review declaring Greece wilfully non- compliant with the conditionality of its programme, stopping the disbursements to the Greek sovereign. Greece defaults and the eurosystem and the Greek ELA (emergency liquidity assistance provided by the Greek central bank) stop funding the Greek banks. At that point Greece exits the euro area, following the imposition of capital controls, foreign exchange controls, restrictions on de posit withdrawals and a temporary suspension of the Schengen agreement. It is highly unlikely the core eurozone would be willing to take on significant exposures to Spain and Italy unless it can be established unambiguously that a wilfully and persistently non-compliant programme beneficiary will be denied further funding. Therefore Grexit would become even more probable should Spain and Italy require a 141

broader troika programme and external help, respectively, which appears likely. The greatest fear of the core nations is not the collapse of the euro area but the creation of an open-ended, uncapped transfer union without a surrender of national sovereignty to the supranational European level. Grexit is likely to create extreme deprivation in Greece, and lead to social and political instability . We are likely to see evidence of this even before it takes place. The damage can be limited by ensuring that Greece stays an EU member even after it exits the euro. This is the most likely outcome. The direct impact of a Greek exit on the rest of the eurozone, the EU and the rest of the world through trade and financial links is minor. The only risk is through exit fear contagion. This will lead to a sudden funding stop for all sectors in any economy perceived as being at material risk of exit after Greece. The European Central Bank, supported by the troika, has the resources and may have the will to keep at-risk sovereigns and banking sectors funded until the markets are convinced no country that is adequately compliant with programme conditionality and which does not want to leave the euro will be allowed to be forced out by a sudden stop on market funding. There is now a material risk, if procrastination and policy paralysis prevail, that the endgame for the euro could be an onion-like unpeeling and unravelling. Survival to fight another crisis will require at least the following: an enhanced sovereign liquidity facility, banking union and sovereign debt and bank debt restructuring, with only limited sovereign debt mutualisation. The endgame for the euro area, if the political will to keep it alive is strong enough, is likely to be a 16-member area, with banking union and the minimal fiscal Europe necessary to operate a monetary union when there is no full fiscal union. Minimal fiscal Europe will consist of a larger European Stability Mechanism, the permanent liquidity fund, and a sovereign debt restructuring mechanism (SDRM). The ESM will be given eligible counterparty status for repurchase agreements with the eurosystem, subject to joint and several guarantees by the euro area member states. There will be some ex-post mutualisation of sovereign debt. Sovereign debt restructuring through the SDRM will recur. Banking union aims to sever the poisonous umbilical cord between sovereigns and the banks in their jurisdictions. A road map to banking union will likely be announced at the EU summit on June 28-29. It had better be a credible path. In any case, implementation is the hard part, and time is of the essence. Willem Buiter is chief economist at Citigroup http://www.ft.com/intl/cms/s/0/b584547c-bb01-11e1-b445- 00144feabdc0.html#axzz1yJz58r8q

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vox Research-based policy analysis and commentary from leading economists Bring the Eurozone back from the precipice: An agenda for the European Council Stefano Micossi 21 June 2012 While all the talk of crisis in the Eurozone is nothing new, this column argues that the situation this summer is far more precarious than it was in 2011. It outlines a plan to bring the single currency back from the precipice. Figure 1. Eurozone bonds back to pre-euro levels (10-year government bonds interest rate, %)

Note: Monthly data. Source: ECB Once again EU leaders are meeting in an emergency session to stave off impending disaster. • The Eurozone economy is in recession overall with the economies on the southern periphery plummeting. • Doubts are growing about sovereign debts sustainability – driven by the vicious spiral of deteriorating bank balance sheets, ballooning potential liabilities from banking rescues, and widening spreads on government borrowings. The sovereign debt crisis in the periphery has now turned into a fully fledged banking crisis (Padoan 2012). While all this sounds familiar, the situation this summer is much more precarious than it was in the summer of 2011, and Figure 1 shows; the constellation 10-year government bond yields (spreads over German bonds) is wider now than it was before monetary union.

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• It is as if financial markets have already anticipated and discounted Eurozone breakup. • Temporary respites, as notably in the early part of 2012, have not interrupted a trend of increasing divergence. These facts are already undermining the credibility of adjustment efforts under way. Surely there must be a way to get Europe away from the precipice. In a recent CEPS Policy Brief (Micossi 2012), I discuss the main elements of a realistic and yet incisive policy package, capable of reassuring financial markets and a bewildered public. A renewed growth initiative Hope for the future must be restored; a stern and credible announcement that stronger economic growth is a shared goal is paramount. The European Council and member states must tell their citizens that they are ready to take measures to stem the fall in activity and raise aggregate demand. Exclusive emphasis on the supply side, as in the European Council March statement, simply will not suffice. • Activity is falling more rapidly than expected in countries undertaking tough adjustment programmes; • This is also dragging down previously healthy ‘core’ economies and pushing the entire Eurozone into recession. This downward spiral is coming from unexpectedly large austerity-linked recessionary effects stemming from the collective application of policies that might individually be harmless as well as the investment-dampening impact of the spreading banking crisis. Moreover, one should not forget that a substantial deterioration in competitive positions with respect to Germany was also experienced by all other members of the Eurozone, which remains as a source of deflationary pressures throughout the Eurozone. Adjustment, moreover, has not been facilitated by the strength of the euro, in turn a result of a monetary policy stance by the ECB that is systematically more cautious than that of the US Federal Reserve. My recommendations include the following: • To step up implementation of the internal market in energy, transport, and communications (notably broadband);1 • To mobilise all available funds at Community level in support of infrastructure investment for the internal market.2 • To clarify and announce that budgetary deficits due to larger-than-expected drops in economic activity needn’t be offset by further restrictions, as permitted by the revised Stability and Growth Pact. • In the case of Greece and Spain, in view of the dismal output and employment performance, the Council should ease budgetary targets, which under current economic circumstances are simply unfeasible. In this context, a greater share of the adjustment burden must fall on Germany through ‘internal revaluation’ and stronger stimulus to domestic demand, lest the correction of imbalances adds further to the deflationary forces already present in the Eurozone.3 Recent fairly generous wage agreements in Germany will help but are not enough; there 144

is also a need to step up support of domestic demand. More aggressive liberalisation of the bloated banking system, network services, especially in energy and transport, and public procurement may provide over time a significant contribution to raising domestic investment and incomes. All this should not be seen as a concession but must be recognised as part of the obligations undertaken by Eurozone governments with the new procedure for excessive imbalances, although so far the Commission has somewhat shirked its responsibility to apply it even-handedly (European Commission 2012). Support from the ECB The growth initiative badly needs the ECB’s support. • A weakening of the euro-dollar rate into the 1.10 r egion would be welcome news for Eurozone exporters and economic activity. Meanwhile, inflation in the Eurozone is receding to the 2% target and is widely expected to fall below it around year end. Thus, strong reasons support the view that: • The ECB should lower their policy rates to zero and start quantitative easing through purchases of long-term sovereigns. This action should aim explicitly at capping interest rate spreads as a bridge to calmer financial-market conditions. Monetary policy matters are not for the European Council to decide; they could, however, be discussed with the ECB President Mario Draghi. The ECB would no doubt feel freer to act, were it less subject to political pressure to exercise restraint from its German and Northern European members. Bank restructuring and banking union The immediate cause, as cross-border interbank flows between creditor and debtor countries have shrunk to a trickle, has been the growing concentration of sovereign debt with national banks in crisis countries – facilitated by carry trade operations that banks undertook in a large-scale with ECB LTRO funds to repair their damaged balance sheets. The vicious spiral between sovereign debt and banking crisis has been compounded by the decision, first taken in Europe by Ireland, and later followed in Spain’s Bankia crisis, to make good all banks’ private creditors and shift the burden of rescues onto the public budget. A better alternative would have been to use the European Financial Stability Facility (EFSF) residual funds – which are in excess of €200 billion directly to inject capital into Bankia and, if need be, into other Spanish banks running into trouble. This would have effectively severed the pernicious spiral between the government and banking solvency crises, with immediate beneficial effects on confidence. A non- negligible benefit of using the EFSF would be to avoid creating a new class of super- senior claims on the Spanish Treasury, which would inevitably accelerate the flight to safety of junior creditors. This approach requires two further conditions. • Conditionality imposed on banks requiring help should be negotiated directly by

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the EFSF, with the assistance of the ECB. The ECB should be given full supervisory powers to ascertain their true conditions, verify compliance with agreed restructuring measures and, in case of non-compliance, resolve the bank. • The shareholders and creditors of banks seeking assistance should take their share of emerging losses. Managing the debt overhang The Eurozone’s average debt-to-GDP ratio is no higher than that in other advanced countries, and consolidation efforts have started earlier resulting in a much lower deficit-to-GDP ratio. Despite this, the Eurozone is mired in a unique crisis of confidence. As demonstrated by Paul De Grauwe, this points to a systemic dimension of the crisis that cannot be reduced to profligate behaviour by budgetary sinners but also has roots in flawed institutions of the monetary union itself (De Grauwe 2011). In synthesis, three main flaws have been made evident by developments since the Greek financial crisis started: • The system lacked effective safeguards against divergent budgetary policies. • The single monetary policy has entailed low real interest rates in high-inflation countries and high real interest rates in low-inflation countries, encouraging excessive government deficits and credit growth to the private sector in the former countries and depressing investment in the latter, and financing economic divergences. • Once the crisis hit, leading to a re-pricing of risks in financial markets, the disconnection between monetary (centralised) and fiscal (decentralised) powers has created a vacuum de facto impeding full use of monetary instruments to meet monetary and financial shocks, and leaving individual members of the Eurozone exposed to brutal pressure by financial markets. By now it is clear that there will be no lasting remedy to the crisis of confidence, unless all three problems are dealt with simultaneously. History indicates that a fully functioning monetary union requires a mutualisation of government debts and centralised taxation powers to back up the central bank in case of large financial shocks; an effective balance budget obligation and no-bail-out rule constraining ‘sub-federal’ levels of government; and a cen tral bank free to act as required to confront liquidity and confidence shocks (Bordo et al. 2011). Not all of this is on the cards today; it can only be achieved within the context of a full federal union, as German Chancellor Merkel is right to point out (and Mr. Hollande would be wise to heed, with full understanding of the implied surrender of sovereignty). What to do while waiting for political integration The question determining whether the Eurozone will survive is whether, while setting explicitly for itself the ultimate goal of federal union – which so far has not happened – the European Council can put together intermediate arrangements capable of halting the crisis and restoring trust among its members, as a bridge towards the ultimate goal. Ultimately, the ECB will act. When push comes to shove, it will have little choice but to intervene as required to stop contagion and the melting down of sovereign and banking

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markets. However, its task will be haphazard and exposed to enormous risks if it is not able to count on solid agreement between the member states on how to deal with the excessive build-up of sovereign debts. Thus another keystone in an effective transitional arrangement should be made up by the new economic governance arrangements and the Fiscal Compact. Ratification and full bona-fide implementation of the Compact is an essential component for rebuilding mutual trust within the Eurozone, and therefore should be pursued as a matter of the highest priority and urgency. The final keystone is some kind of mutualisation of sovereign debts. This is necessary for two reasons: there is an urgent need to narrow Eurozone yield spreads as these are leading to a dynamic of instability, and political support for painful and protracted adjustment programmes cannot survive without stronger signs that sacrifices will bear fruits. A cursory look at Figure 2 c onfirms that the issue of economic and political sustainability is a serious one. According to IMF estimates, under current growth and interest rate scenarios, by 2016 the debt-to-GDP ratios of most Eurozone countries will basically not diminish or only do so marginally. The exception is Germany, but even its debt will remain above the 60% ratio inscribed in Eurozone rules. For the others, the average debt-to-GDP ratio for the Eurozone will actually increase. (Greece’s decline is due to its debt restructuring.) Figure 2. Public debt in selected countries, 2011 and 2016 (% of GDP)

Source: IMF WEO, April 2012. Limited debt mutualisation: The German Council of Economic Experts’ proposal This is the most difficult issue since German taxpayers must be convinced that they are not asked to make good the debts incurred by others. The good news is that a proposal that meets this requirement exists, namely the proposal for a debt redemption fund put

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forth by the German Council of Economic Experts (2011).4 The idea is straightforward. The Eurozone finds itself in an unusual situation due to unusual shocks and unexpected consequences of conventional policy measures. This suggests that the key is to get the Eurozone back to the usual range of debt-to-GDP ratios. We do not need debt mutualisation now and forever; a one-off arrangement could put governments back in control of their fates. Specifically, the proposal is for all sovereign debt in excess of the 60% to be placed in a redemption fund (the debt of nations in bailout programmes would be left out). This ‘mutual fund’ of Eurozone bonds would be bought with 25-year debentures that were jointly guaranteed by all Eurozone members. As the Eurozone’s debt is not, on a verage, a problem, removing default uncertainty with the joint guarantee would provide an immediate and substantial interest rate relief for the most indebted countries.5 It would also surely be much appreciated by Europe’s prudential savers who are now suffering from seemingly external uncertainty and a risk of large capital losses. Each country participating in the scheme would continue to service its own debt, pro- quota, until full redemption. To this end, it would have to segregate a specific revenue source from its national budget, under appropriate irrevocable arrangements. After 25 years, all the debt would be paid out and all countries would have a debt-to-GDP ratio at or below the 60% target. Under this scheme, Germany would shoulder some of the risks of sovereign debt in the periphery – and pay an interest premium for this – but would be fairly secure that it will not have to repay debt incurred by others. The redemption fund would be a temporary device. Capital markets would in all likelihood very much like the debentures issued by the fund, leading to the creation of a liquid and deep market for Eurozone paper. Over time, with progress towards federal union, these securities could be substituted by jointly issued Union bonds of the federation – without any need for debt substitution whereby some countries would be asked to take over the accumulated obligations of others. Conclusion Once again the European Council is meeting next week in a make-or-break situation. Playing for time will never provide a solution – things have gone too far for the usual economic self-balancing forces to work. This crisis will not go away until the heads of state and government show a solid consensus on a policy framework capable of: • Reconciling austerity with growth; • Dealing with the debt overhang; and • Ensuring the ECB can provide adequate liquidity support without endangering its balance sheet and independence. This is not impossible. The package of proposal I have suggested have a good chance of restoring confidence and normal conditions in financial markets. References Bofinger, P, LP Feld, W Franz, CM Schmidt, and B Weder di Mauro (2011), “A European Redemption Pact”, VoxEU.org, 9 November. Bordo, MD, A Markiewicz, and L Jonung (2011), “A fiscal union for the euro: Some lessons

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from history”, NBER Working Paper No. 17380. De Grauwe, Paul (2011), “The Governance of a Fragile Eurozone”, CEPS Working Document No. 346, May. De Grauwe, Paul (2012), “In search of symmetry in the Eurozone”, CEPS Policy Brief No. 268, May. Doluca, H, A Hϋbner, D Rumpf, and B Weigert (2012), “The European redemption Pact: An Illustrative Guide”, German Council of Economic Experts, Working Paper 02/2012, February. European Commission (2012), Report from the Commission, “Alert Mechanism Report. Report prepared in accordance with Articles 3 and 4 of the Regulation on the prevention and correction of macro-economic imbalances”, COM(2012) 68 final of 14.2.2012. German Council of Economic Experts (2011), Euro Area in crisis”, Annual Report 2011/12, Third Chapter, Wiesbaden, November. Micossi, Stefano (2012), “An Agenda for the European Council. Feasible Steps to Bring the Eurozone Back from the Precipice”, CEPS Policy Brief No. 274, Brussels. Padoan, Pier Carlo, Urban Sila, Paul van den Noord (2011), “The euro’s future begins now: Escaping debt traps and moving towards sustainable growth”, VoxEU.org, 19 June.

1An influential strand of thought maintains that infrastructure investment does not improve productivity, mainly based on the US experience of strong growth with poor road and rail networks and dismal public utility services. The European variant has it that Europe already has all the infrastructure that it needs and that further investment would be wasted. This view seems unconvincing. For instance, recent research on a large sample of countries reported in VoxEU (“Fiscal spending and growth: More patterns” by C. Carrière and J. de Melo, 17 May 2012) finds that a shift in discretionary expenditures towards transport and communications “was only observed for fiscal events followed by growth events” (p .2). In many an EU country, including Italy and Germany, over the past decade public investment has been low, sometimes below what was needed solely for depreciation and maintenance. Moreover, the creation of a functioning market for gas and electricity and for digital services requires large, and surely profitable, investment to establish the connections between segmented national markets – investment that was held back by national monopolists and that is a source not only of higher prices and lost productivity gains, but in the case of gas also of a dangerous concentration of supply with a politically unreliable partner such as Russia. I would add that the European Council should make the member states’ obligations in this area part of the broad economic policy guidelines procedure of Art. 121 of TFEU, with attendant sanctions for failed implementation. 2This should include the immediate start the project bond pilot phase, and raising substantially – by at least €20 billion, which is double the Commission proposal – the paid-in capital of the EIB, thus greatly enhancing its lending capacity for worthy Community priorities. 3In 1999-2007, Germany engineered a significant ‘internal’ devaluation that contributed to its economic recovery and the build-up of its external surplus; subsequently, there has been little change in relative competitive positions within the Eurozone, with the sole exception of Greece and Ireland, as was recalled (see. De Grauwe 2012). 4See also Bofinger et al. 2011 and Doluca et al. 2012. 5The swap of bundled bonds for jointly guaranteed debentures would take place over a transitional, ‘roll in’ period of 3-4 years. http://www.voxeu.org/index.php?q=node/8124

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Eurointelligence Daily Briefing

Berlusconi says Italy should quit eurozone unless Merkel changes course 21.06.2012

Ok, he is no longer Italy’s prime minister, but he is still the leader of one of Italy’s most important political parties. He said the eurozone crisis can have one of three outcomes. Either Germany allows the ECB to backstop everything. Second, Germany leaves. Third Italy leaves. Number is two is not going to happen, so we are left with the bifurcation we have forecasting for a l ong time. Either they agree a full backstop – which can logically only come from the ECB, and which in turn requires a political union – or the eurozone collapses. It all started with an entry on his Facebook page, (see also the report by Corriere della Sera) in which he said that if Germany does not agree a new role of the ECB, then it should consider leaving the eurozone, an option he had apparently discussed with a number of German experts. Alternatively, Italy and Spain should consider leaving the eurozone. He said it was not a blasphemy to discuss this option. He said his preferred option would be for the ECB should issue the guarantee of the banks, and issue bonds. Corriere also has a reference to an interview of Berlusconi in the Wall Street Journal in which he clarified his position further. He said the departure of the a country from the eurozone, or even the collapse of the eurozone, were not subject to polite conversation in Europe until recently, but they are now possible. Here is a section from the excerpt of the interview: “I see three possible outcomes. The first is that Germany is persuaded and therefore the ECB becomes a backstop for the euro. The second possibility is that Germany leaves the euro…The third solution is that Italy leaves the euro and we reintroduce our own currency, which would bring many advantages.” And then he went on the attack against Angela Merkel: “If we continue on w ith the policies of Signora [Angela] Merkel [the German chancellor], who before had the backing of Sarkozy, demanding that countries reduce their public debt, we'll end up i n a worsening recessionary spiral. This is really the wrong policy.”

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(Discussing a euro exit is still considered blasphemy by centrist European parties, especially in Italy. So this is an important statement, as he is still an influential political leader. It is also a sign that the anti-euro campaign by Beppe Grillo is having an effect.) FT says Monti’s government at risk if summit fails to come up with a good result The FT writes from Rome that this Friday’s summit is crucial not only for the eurozone, but also for himself. If he does not secure major concessions, he will come under intense pressures to resign. Berlin remains cool on the idea of ESM bond purchases (and in any case it would not solve Italy’s problem in the absence of an ESM banking licence.) The articles a reference by an Italian academic who criticised Monti for failing to do enough for growth – the country was now on the same trajectory as Greece was a couple of years ago. Germany opposes Monti’s plan for the euro rescue fund to buy crisis countries’ bonds Germany opposes Mario Monti’s plans launched at the G20 to let the EFSF and the ESM buy the government bonds of countries under market stress such as Italy without any conditionality attached, Frankfurter Allgemeine Zeitung writes. German government sources quoted by the paper stress at the Los Cabos summit there had only been talk about the already existing possibility of the euro rescue funds to buy bonds, but under the existing rules this can only be done if the country that would benefit from the purchases signs an MoU and agrees to negotiated conditions. “There will be no purchases without conditions”, deputy government spokesperson Georg Streiter said according to FAZ. The Spokesperson of Olli Rehn said that the high interest rates in Italy could only be lowered by credible structural reforms and further consolidation efforts. Anatole Kaletsky says Germany is once again the enemy The attacks on Germany have been getting stronger. This is about as strong as we have yet read, and it comes from Anatole Kaletsky, one of the most influential Anglo-Saxon commentators, who has moved his column from the Times to Reuters. He says the European nations should stand up to German political hegemony: “Merkel doubtless believes that she is helping Europe when she maternally instructs the Greeks, Italians and Spaniards to ‘do their homework’ and so become good little Germans. But like its less benign predecessors, this effort to impose German hegemony is guaranteed to fail. Europe’s leaders must therefore start considering a previously unmentionable question, perhaps as soon as next week’s summit, if the euro crisis intensifies. This question is not whether Europe will agree to live under German leadership, but whether Germany will agree to live under EU leadership – or whether the other nations must form a united front against Germany to prevent the destruction of Europe, as they have repeatedly in the past...” “To be specific, the euro’s only chance of survival now depends on a decisive move toward political and fiscal union. Angela Merkel plays lip service to such political union, even claiming that democratic accountability is her main condition for financial rescues; but what she means is accountability to German voters, German newspapers and German constitutional judges. She promises to ‘do whatever it takes to save the euro’

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but vetoes anything that might actually work, claiming deference to German public opinion or national interests.” Wolfgang Munchau on how Germany is once again subject to a mass hysteria similar 1933 Wolfgang Munchau starts his column with the question of how the SPD could have possibly come to support the policy of Heinrich Brüning in the 1930s. His answer is the development of a dominant social narrative at the time, which turned in a mass hysteria, which nobody could escape from. This is something one does not understand unless one actually lives through it, and it is now happening again – where a conservative narrative of the crisis remains unchallenged by the left, which is now repeating its biggest historic mistake. He says a solution of the crisis is not consistent with this narrative, whose pursuit is not in Germany’s self-interest as it would lead to ultimate bankruptcy – either a through a break-up or through the pursuit of Merkel’s non-committal policies. He warns his readers to be careful what they wish for when a majority advocates an end with a shock than a shock with no end. He says that would depend very much on the nature of the shock, and he called that Germany’s “shock therapy” to end the depression brought the end of democracy. Nowotny warns of excessive austerity by drawing parallels with the rise of Nazism Ewald Nowotny used historic parallels to the rise of Naszism in Germany to warn of the potential consequences of excessive austerity in the euro crisis countries, Süddeutsche Zeitung reports. According to the paper, the Austrian central bank governor said at a conference on M onday night that the tough consolidation measures of the late 1920s produced mass unemployment in Germany which in turn led to the collapse of democracy and the takeover of power by the Nazis. While Niall Ferguson and Nouriel Roubini had made the same argument in an oped recently, this is the first time that a member of the ECB governing council makes this case. The paper says this is particularly awkward since the ECB is part of the troika that negotiates and controls the austerity measures and their implementation in the program countries. Ayrault admits that Eurobonds first require further political integration Talking to Die Zeit Jean-Marc Ayrault admitted that the introduction of Eurobonds first required much stronger political integration. “I hope that we will talk about Eurobonds in Brussels”, the prime minister said in reference to next week’s summit. “But it is true a mutualisation of debt necessarily requires a stronger political integration and that will certainly take several years.” Samaras sworn in as prime minister, cabinet will be presented today Antonis Samaras was sworn in as prime minister on Wednesday and his coalition cabinet is due to be named today. Both PASOK and Democratic Left have refused to place senior politicians in the cabinet and nominate technocrats instead, a move which potentially weakens their commitment to the new government according to Reuters. The three leaders decided that the new government would comprise 15 ministers and about 20 deputy ministers, Kathimerini reports. This represents a substantial reduction from the 49 ministers and deputies that served under Lucas Papademos. PASOK will propose candidates for four ministers and as many deputy ministers. Democratic Left will put forward candidates for two ministerial posts and two deputy ministers. National Bank President Vassilis Rapanos, currently chairman of National bank, is being lined up to take over the post as finance minister. The FT describes him as a career public servant 152

with close knowledge of Greek public finance and strong views on tax collection and how to combat tax evasion. Kathimerini writes that caretaker Finance Minister Giorgos Zannias will represent Greece at Thursday’s Eurogroup meeting and that all three leaders would travel together to next week’s European Union leaders’ summit in Brussels. Greece will be aiming to convince the troika to give it two more years, until 2016, to reduce its public deficit below 3% of GDP. This would require an extra €16bn-€20bn in loans. Wieser: Greek bailout deal totally off track, need for renegotiation As a new Greek government takes office, the country's second bailout programme is "totally off track, months behind schedule," Thomas Wieser told AFP. Either you "stick to the fiscal targets and then you need additional measures" from Greece, or you change deadlines, in which case "you need extra money." Wieser, who chairs preparations for politically-charged meetings of the Eurogroup, said the €130bn d eal in new loans agreed in March was no longer workable. A political union out of emergency, without citizens being asked The Irish Independent has an interesting article comparing the Eurozone crisis with the Scottish Darien scheme (1699-1701), when Scotland lost significant money in a gigantic property speculation scheme in Panama and was bailed out by England in return for political unification. Here are some troubling questions, the article raises: “The Euroland house is being built without a plan; just bricks stuck in when what is already there threatens to collapse...The troubling thing about such a union is that, if it happens in that way, eurozone citizens will never have been asked if they actually want it...Could a ramshackle financial union created in an emergency evolve into something more rational, with an acceptable degree of democratic representation and accountability. Would centralisation be matched by greater freedom for the member states to conduct their own economic affairs within the parameters laid down by the union?...Does Ireland still hold to its 50-year strategy of being an outlying, English-speaking but unambiguously European state?” The article argues that withdrawal from core Europe would leave [Ireland] an impotent spectator of whichever way events unfold but it is a question the Irish need to consider now. 10-Y Spreads, Forex, ZC Swaps and Euribor-Ois Some marginal relief. 10-year spreads Previous day Yesterday This Morning France 1.126 1.072 1.077 Italy 4.389 4.301 4.285 Spain 5.510 5.158 5.226 Portugal 9.042 8.902 8.890 Greece 24.617 25.105 #VALUE! Ireland 5.851 5.630 5.715 Belgium 1.783 1.711 1.777 Bund Yield 1.533 1.609 1.625 http://www.eurointelligence.com/eurointelligence-news/home/singleview- restricted/article/berlusconi-says-italy-should-quit-eurozone-unless-merkel-changes-course.html

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vox Research-based policy analysis and commentary from leading economists The roots of shadow banking Enrico Perotti 21 June 2012

The ‘shadow banking’ sector is a loose title given to the financial sector that exists outside the regulatory perimeter. This column argues that despite its unpleasant sounding name, and its crucial role in the credit boom that preceded the global crisis, it does have its benefits – something that the regulators should be aware of. The ‘shadow banking’ sector is an ill-defined financial segment that expands and contracts credit outside the regulatory perimeter. • It was critical in the build up and demise of the credit boom. While much reduced since 2008, in the US its size still exceeded bank assets in 2011. • What have we learned since the crisis on shadow banking? Defining shadow banking by function By definition, shadow banking is not a precise category. In this column, I focus on financial intermediaries that take credit risk. Banks acquire illiquid risky assets, funding them with inexpensive, demandable debt. • Most investors prefer safe, short term and liquid assets, so banks can use cheap funding, by promising liquidity on demand. • This is made credible by deposit insurance and access to central bank refinancing. Confidence on immediacy ensures that demandable debt is routinely rolled over, thus supporting long-term lending and high leverage.1 As bank credit volume is constrained by capital ratios and deposit base, financial markets have thought of new ways to carry risky assets on i nexpensive funding. Shadow banking requires creating a variant of demandable debt, credibly backed by a direct claim on liquidity. But the dominant funding channel is issuing collateralised financial credit, such as repos or derivative-based claims.2 This is the source of shadow banks’ very short-term, inexpensive funding source. How can these liabilities deliver investors credible liquidity upon demand? Jump the running queue: Superior bankruptcy rights Security-pledging (the collateral part of collateralised financial credit) grants access to easy and cheap funding thanks to the steady expansion in the EU and US of “safe harbour status” – the so-called bankruptcy privileges for lenders secured on financial collateral. Critically, lenders in this collateralised financial credit transaction can immediately repossess and resell pledged collateral. They also escape most other bankruptcy 154

restrictions such as cross default, netting, eve-of-bankruptcy and preference rules (see Perotti 2010). • These privileges ensure immediacy for their holders. • Unfortunately, they do so by undermining orderly liquidation, the foundation of bankruptcy law. The consequences became visible upon Lehmann’s default, when its massive stock of repo and derivative collateral was taken and resold within hours. This produced a shock wave of fire sales of ABS holdings by safe harbour lenders. While these lenders broke even,3 their rapid sales spread losses to all others, forcing public intervention. When the safe harbour provisions were massively expanded in a coordinated legislative push in the US and EU (Perotti 2011),4 they supported an extraordinary expansion of shadow banking credit and mortgage risk taking. The guaranteed ease of escape fed the final burst in maturity and liquidity mismatch in the 2004-2007 subprime boom, where credit standards fell through the floor. Borrowing securities to generate collateralised financial credit While shadow banks expanded with securitisation, they can also rely on the liquidity of assets they do not own. They do this by borrowing securities from insurers, pension and mutual funds, custodians, and collateral reinvestment programmes.5 In exchange, the beneficial (i.e. real) owners of such securities receive fees for lending the assets and they book t hese as yield enhancement. Borrowed securities are then pledged to ‘repo lenders’ (the short name for credit grantors in a collateralised financial credit transaction) or posted as margins on derivative transactions. Experienced asset managers who lend securities in this way protect themselves via collateral swaps, i.e. a related transaction where the security borrower pledges collateral of lower liquidity. This so-called ‘liquidity risk transformation chain’ (which transforms illiquid assets into short term credit) may have more links. The financial logic behind the liquidity risk transformation chain is clear. Security pledging activates the liquidity value of assets from long-term holders who do not need it. Such extraction of unused liquidity value may be seen as enhancing “financial productivity”. It certainly increase asset liquidity, and boosts securitisation. Yet this can be an illusory gain, flattering market depth in normal times, at the cost of greater illiquidity at times of distress. The repo lenders and security lenders typically require a more than one-to-one exchange to protect themselves against the possibility of the collateral losing value. These ratios are called ‘haircuts’ since each $1 of collateral generates less than $1 of credit. Shadow banking runs: Rising haircuts A jump in market haircuts, and ultimately a refusal to roll over security loans or repos, is the classic shadow bank run. • As a security borrower cannot raise as much funding from its own illiquid assets, it is forced to deleverage fast or goes bust. In both cases this triggers fire sales. • Once repo lenders seize collateral, they have all reasons to wish to sell fast.

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First, they are not natural holders. Second, they do not suffer from a fire sale as long as the price drop is less than their haircut. Third, they are aware that others are repossessing similar collateral at the same time, so they have an incentive to front sell. • In addition, real money investors that lost their original holdings are likely to sell the repossessed, less liquid collateral. First, they may wish to re-establish their portfolio profile. More critically, they legally need to sell within days to be able to claim any shortfall in bankruptcy court. • This leads to a dramatic acceleration of sales for assets originally committed to a long holding period. While central banks are not in charge of shadow banks, they do come under pressure to stop fire sales and create outside liquidity. This completes the banking analogy. The safe harbour debate It is now evident that shadow banks need the safe harbour privileges to replicate banking. No financial innovation to secure escape from distress can match the proprietary rights granted by the safe harbour status, which ensure immediate access to sellable assets. Traditional unsecured lenders have taken notice, and now request more collateral, squeezing bank funding capacity and limiting future flexibility. Many attentive observers find such an unconditional assignment of superpriority to repo and derivative claimants excessive.6 Duffie and Skeel (2012) discuss in an excellent summary the merit of safe harbour. In their words: “Safe harbours could potentially raise social costs through five channels: (1) lowering the incentives of counterparties to monitor the firm; (2) increasing the ability of, or incentive for, the firm to become too big to fail; (3) inefficient substitution away from more traditional forms of financing; (4) increasing the market impact of collateral fire sales; and (5) lowering the incentives of a distressed firm to file for bankruptcy in a timely manner.” All these arguments demand attention. Repo lenders and derivative counterparties enjoy not just immediacy in default, but also reset margins daily. By construction, this produces a unique safe claim. Just as insured depositors, these claimants can afford to neglect credit risk, and perform no monitoring role. Collateral lending, by splitting up liquidity transformation, lengthens credit chains and expands the number of connections among intermediaries, contributing to systemic risk (Gai et al. 2011). What should happen to the safe harbour privileges? The main proposals aim at restricting eligibility. Tuckman (2010) suggested only cleared derivatives should enjoy the status. Duffie and Skeel argue it may be limited to appropriately liquid collateral (thus not ABS!) and only transparent uses (derivatives listed on proper clearing exchanges). In recent research (Perotti 2011), I suggest that claims be publicly registered (just as secured real credit is) as a precondition for safe harbour status. This will ensure proper disclosure, essential to macro prudential regulators, and avoids unauthorised or misunderstood (re)hypothecation. Investors who wish to claim superpriority in distress seek a scarce resource. They 156

should be paying for the privilege, and for any risk externality it creates. In normal times, a low charge should be levied on registered claims. Charges should be adjusted countercyclically, lowered in difficult times, and raised when aggregate liquidity risk builds up, to brake an otherwise uncontrollable expansion. Other approaches involve limiting the stock of safe harbour claims directly (Stein 2012) by a cap and trade model, which a registry receiving fees could support. A critical issue is the treatment of collateral posted for central bank refinancing. For central banks to operate as ultimate liquidity providers, their claims should not be undermined. A specific privilege for eligible collateral is justified, as central banks are by definition not likely to create fire sales. Conclusions Thanks to the safe harbour rules, a shadow bank can hold risky illiquid assets and earn full risk premia with funding at the overnight repo rate. In what is essentially a synthetic bank, repo and collateral swap haircuts act as market-defined capital ratios. Liquidity transformation across states and entities has procyclical effects. It enhances credit and asset liquidity in normal or boom times, at the cost of accelerating fire sales in distress. While any reform to the shadow banking funding model should take into account its favourable effects on asset liquidity and credit in normal times, the associated contingent liquidity risk is not at present controllable (nor is it well measured!). There is an academic consensus that a balance has to be struck (Acharya et al. 2011; Brunnermeier et al. 2011; Gorton and Metrick 2010; Shin 2010). Appropriate tools are also necessary to align capital and risk incentives in banks and shadow banks (Haldane 2010). Security lending may also undermine Basel III liquidity (LCR) rules. At a time when all lenders seek security, questioning the logic of safe harbour provisions may seem unwise. Yet at the system level, it is simply impossible to promise security and liquidity to all. Uncertainty on t he stock of pledged assets may create a self-reinforcing effect, feeding a frenzy among lenders to all seek ever-higher priority. This is already taking place, and is ultimately unsustainable at the individual and aggregate level. Finally, it is questionable whether the highest level of protection should be granted to collateralised lenders, and to shadow bank funding, over all other investors. For all these reasons, regulators and the wider society need to make an informed decision. References Acharya, Viral, Arvind Krishnamurthy, and Enrico Perotti (2011), “A consensus view on liquidity risk”, VoxEU.org, 14 September. Acharya, Viral and Sabri Öncü (2012), “A proposal for the resolution of systemically important assets and liabilities: the case of the repo market”, CEPR DP 8927, April. Brunnermeier, Markus, Gary Gorton, and Arvind Krishnamurthy (2011), “Risk Topography”, NBER Macroannual 2011. Duffie, Darrell and David Skeel (2012), A Dialogue on the Costs and Benefits of Automatic Stays for Derivatives and Repurchase Agreements, Stanford University,

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March. Haldane, Andrew (2010), “The $100 Billion Question”, Bank of England, March. Gai, Prasanna, Andrew Haldane, and Sujit Kapadia (2011), “Complexity, Concentration and Contagion”, Bank of England discussion paper. Gorton, Gary, and Andrew Metrick (2010), “Regulating the Shadow Banking System”, Brookings Papers on Economic Activity, (2):261-297. Perotti, Enrico (2010), “Systemic liquidity risk and bankruptcy exceptions”, VoxEU.org, 13 October. Perotti, Enrico (2011), “Targeting the Systemic Effect of Bankruptcy Exceptions”, CEPR Policy Insight No. 52 and Journal of International Banking and Financial Law (2011) Shin, Hyun Song (2010), “Macroprudential Policies Beyond Basel III”, Policy memo. Stein, Jeremy (2010), “Monetary Policy as Financial-Stability Regulation”, Quarterly Journal of Economics, 127(1):57-95. Tucker, Paul (2012), “Shadow Banking: Thoughts for a Reform Agenda”, Speech at the European Commission High Level Conference, 27 April, Brussels. Tuckman, Bruce (2010), Amending Safe Harbors to Reduce Systemic Risk in OTC Derivatives Markets, Centre for Financial Stability, New York.

1 Historically, confidence was supported by high capital, reputation and limited competition. As competition increased and capital fell, central banks’ emergency liquidity transformation and deposit insurance allowed steadily higher credit and bank leverage. 2 Trivially, shadow banks may also access bank credit lines (as SIVs did). 3 The rest of the creditors had to wait years to get less than 20 cents on the dollar. 4 Limited safe harbour status was granted as exceptions in the 1978 U S Bankruptcy code, limited to Treasury repos and margins on futures exchanges for qualifying intermediaries. They were broadened progressively to include margins on OTC swaps. The massive changes took place in 2004, when any financial collateral pledged under repo or derivative contracts, whether OTC or listed, by any financial counterparty, came to enjoy the bankruptcy privileges (Perotti 2011). 5 According to Poszar and Singh (2011): “At the end of 2010.. about $5.8 trillion in off- balance sheet items of banks related to the mining and re-use of source collateral… down from about $10 trillion at year end-2007”. 6 Creation of new proprietary rights is exceedingly rare. Limited liability is the last main case. http://www.voxeu.org/index.php?q=node/8118

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News Germany may face bankruptcy unless it accepts ECB debt monetisation By: Charles Wyplosz 21.06.2012

Whichever way things go, Germany will have to pay for a substantial amount of Euro Area public debts. The more we wait, the higher the bill. This does not mean that the Euro Area is a transfer or a fiscal union. It means that managing a common currency requires careful actions. The current mess is the direct consequence of the mistaken policies followed since the beginning of the sovereign debt crisis, at Germany’s behest. German public opinion is highly concerned that German taxpayers could have to cover a portion of the public debts accumulated by spendthrift southern European countries. They are right, they should not, because we have a monetary, not a fiscal union. This is why the treaty includes a no-bailout clause. This clause, however, was transgressed in May 2010 with the first Greek bailout, and again with the creation of the EFSF to deal with the Irish crisis, and now with the ESM. Germany has championed all these missteps. The consequences are unavoidable. Consider the emblematic case of Greece. Back then, it would have been easy to invoke the no-bailout clause and let Greece go to the IMF. The Fund would have provided temporary support and let Greece partially default. Back then, the public debt stood at 120% of GDP (€ 239 billion). A 50% default would have been enough. The costs would have been borne largely by investors, including German banks. Instead, Germany and the other Euro Area countries imposed unrealistic fiscal austerity policies, which deepened and lengthened the recession, against loans. The debt to GDP ratio has massively increased. After having resisted for nearly two years, Germany arranged for a partial Greek default that has brought the Greek debt down to 150% of GDP, higher than before the crisis. Meanwhile, private bondholders have passed much of the debt to official institutions – the IMF and the ECB. The German government now holds its share of this debt, via the ECB and the collective loans. But the debt is still far too large.

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If Greece leaves the Euro Area, its new currency will promptly depreciate, deeply, say by 50%. It will be stuck with a debt in euro. As a proportion of its GDP, the debt would be double its current level. There will be no other solution than a default on all of this debt, maybe excluding the IMF’s share because (almost) no one defaults on the IMF. At any rate, Germany and the other Euro Area countries will lose everything. For Greece to stay in the euro, the austerity policies must end. Greece must be given much more time to bring its deficit into balance, and that will not happen until growth is back. Growth, on the other hand, will not be durably back with the current debt level. The Greek government, therefore, must be given a deep debt reduction. Either way, Germany and the other Euro Area countries face heavy losses. Trying to keep the same approach going, means more loans, more austerity, no improvement, and a default on a debt that will have increased again. This means that German efforts, mimicked by the ECB, at avoiding losses are doomed. The choice is whether the Euro Area countries allow Greece to leave or not. One fear is that being “lenient” toward Greece might become a precedent and that other countries, including small Portugal and big Spain, might ask for the same treatment. This is quite possible. It is even more possible that a Greek exit will be followed by other exits and defaults. Either way again, European and German taxpayers will have to pay. We are trapped with no cheap way out. There are no firewalls high enough to prevent this and Eurobonds would just serve as a channel for this contagion. The real risk, then, is that a succession of defaults eventually bankrupts all Euro Area countries, including Germany. Debts of currently endangered countries represent about 200% of German GDP. What is to be done then to avoid a total European meltdown? The only possibility is spelled in three letters: ECB. The ECB is the only institution in the world that has deep enough pockets. It can issue a guarantee of all public debts or buy these debts, either through its SMP programme or on the secondary market. Of course, debt monetization is commonly seen as letting the inflation devil in the house. This is not so sure in the current circumstances. Assume that large amounts of debt are replaced by cash. The question is whether this cash will be used to support spending in the Euro Area, which is the way inflation could rise. Large scale spending is unlikely at this juncture. Eventually, when growth returns, the ECB can always drain cash by issuing its own debt instruments. The real inflation danger is that the ECB finances future deficits on an ongoing basis. This must be ruled out, hence the need to adopt, and if possible strengthen, the Fiscal Pact and to firmly re-instate the no-bailout rule. Of course, this all must be done fast, for the bill keeps rising any day that passes. The Leaders should stop wasting their times on small schemes that won’t work. It is about time that they design the big picture and jump ahead of markets. Charles Wyplosz is Professor of International Economics at the Graduate Institute in Geneva. http://www.eurointelligence.com/eurointelligence- news/home/singleview/article/germany-may-face-bankruptcy-unless-it-accepts-ecb- debt-monetisation.html

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vox Research-based policy analysis and commentary from leading economists The Eurozone’s May 2010 strategy is a disaster: Time to pay up and end this crisis Charles Wyplosz 20 June 2012 The EZ rescue strategy adopted in May 2010 failed to restore debt sustainability, avoid contagion, or reduce moral hazard. This column argues that a volte face is needed. The debt of Greece, Portugal and Italy – and perhaps Ireland, Spain and France as well – must be restructured to restore growth and end the crisis. All EZ nations should pay since their leaders’ decision to violate the Maastricht Treaty’s no-bail out clause is what brought us here. Chancellor Angela Merkel has sent word that Germany cannot save the euro. She is right. From the very start of the Eurozone crisis, it was clear that a domino game was under way and that a highly indebted German government should not be seen as the residual saviour. But keeping the euro will be costly and Germany will have to share the burden. The solution will have to combine debt structuring and ECB lending in last resort to banks and governments. Angela Merkel needs now to lift the German veto. All Eurozone leaders, including Mrs Merkel, are to blame for today’s predicament. • The politically expedient decision of May 2010 – to bailout Greece but promise that it would be “unique and exceptional” – was officially sold as necessary to avoid contagion. • Two years later, it is obvious that this has been a historical but predictable policy mistake (Wyplosz 2010). The crisis has engulfed three small countries – Greece, Ireland and Portugal – and is now on its way towards Spain and Italy. France might well be next. These six countries’ public debts amount to 200% of German GDP. With its own debt of 80% of GDP, Germany cannot indeed stop the rot. Moralistic rather than economic reasoning The public debate in Germany and elsewhere is often moralistic, matching the economists’ concern with moral hazard. • Countries that have long considered the government budget as a purely theoretical constraint cannot now simply ask for help. • The same applies to countries that have allowed their banks to fuel a housing price bubble and now socialize the resulting private losses. There is no case against the view that bad policies must have consequences. In this the moralisers are right. But the issue is more complicated than meets the eye. We must ask:

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• Which countries trampled the Eurozone’s fiscal discipline? • What should be the consequences? and • What are the costs for the monetary union as a whole? Many ‘debt sinners’ in 2007 Right before the financial crisis of 2007-8, few Eurozone countries could claim to have been fiscally disciplined. The figure below shows that Finland, Spain and Ireland could, but not Greece and Italy. Most other Eurozone nations – including Germany – were in the grey zone. Then the wheels of fortune that drive self-fulfilling crises started to spin, leaving us with an impression that strong moral judgments have to be terribly relative. Figure 1. Public debts in 2007 (% of GDP)

Source: AMECO, European Commission Banking supervision laxity As we know, poor bank supervision is what drove Ireland and Spain into the camp of guilty countries. Here again, the story is not over and several countries may soon be found guilty of forbearance. • Top of the list are France and Germany. • Had Greece not been rescued then some large French and German banks, already fragilised by the subprime crisis, could well have been ripe for costly bailouts. The debt reduction scheme applied to Greece effectively provided these banks with an exit strategy, and was delayed long enough for them to dispose of a large part of their initial holdings of Greek public debt. Even so, these same banks remain on the danger list if more defaults are needed, which is in fact the case. The list of truly innocent countries includes a small number of small countries. The consequences of bad debt and banking policy As for consequences, the issue is incredibly difficult. Austerity has been the accepted norm for punishment. Austerity proponents at first sought to characterise austerity as only moderately painful

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– and this a ‘good pain’ that would provide a useful lesson for future generations. But the facts have now completely undermined this view. • The myth of expansionary fiscal contractions, also known as the negative multipliers, has now been proven disastrously wrong. • Its last proponents point to Latvia as proof that it works, but it unclear where this assessment comes from. The Latvian public debt is still rising as a percentage of GDP and GDP is now 15% lower than in 2007 before the stabilization plan. True, this is up from a loss of 20% in 2010, but this merely illustrates how positive the multipliers are. The costs to Latvia have been massive. • Unemployment jumped to a rate 20% and still is at 16% and emigration has apparently been massive. • Banks are foreign-owned and the owners decided to stay and absorb the losses. • The only good news from Latvia is that the economic collapse only lasted three years, largely because wages have been quite flexible in this very small and very open economy, leading Blanchard (2012) to conclude that “the lessons are not easily exportable”. Greece The Greek experience is one of never-ending economic decline, massive unemployment and intense social hardship. Sure, the Greeks are being taught a lesson, but which one? • Resistance to economic reforms is as intense now as it was before the crisis but xenophobia and the appeal of populist politicians is rising spectacularly. • The multiplier debate tends to conceal the political consequences of austerity in the midst of a recession. As economists, we also need to look slightly beyond our pond. When these aspects are factored in, the consequences of the strategy adopted in 2010 are simply not justifiable, even on moral grounds. This is so especially as those who are punished most are not those that benefitted most from fiscal indiscipline in the run up to the EZ crisis. The May 2010 strategy is a disaster: Admit mistakes and move on The strategy adopted in May 2010 has not just failed to achieve its aims: restore debt sustainability, avoid contagion and reduce moral hazard. It has not produced a solution that is likely to bring the crisis to its end. A 180-degree turn is still needed. Unfortunately it will be costly. • A number of countries will never be able to achieve sustainable growth under the weight of their current public debts. • This is the case of Greece, Portugal and Italy, • The list may eventually widen to include Ireland, Spain and France. Their governments will have to restructure their debts, totally in the case of Greece,

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partially – if done early enough – in the other cases. • As the banks in these nations fail (because they did not adequately diversify their portfolios), bank bailouts will also have to be financed from outside. Who will pay? • Foreign banks will, of course, end up writing down the restructured sovereign debt; they, in turn, may have to be bailed out by their own governments. • Official creditors too will suffer losses. This includes the ECB, to the extent that it imposed insufficient haircuts in its various refinancing programs, and the shareholders of the EFSF and the ESM, which also happen to be the shareholders of the ECB. Waiting only raises the eventual price The more we wait, the deeper the economic deterioration – more lending to governments and more non-performing loans in banks – and the bigger the eventual costs. • Importantly, the list of 'bailer outs' shrinks as the list of 'bailed outs' expands, so the costs of the rescue become concentrated on a decreasing number of healthy countries. • Waiting too long implies that there is no healthy country left or no Eurozone any more, probably both. The moral question reconsidered Why should German and other taxpayers, mostly from the north, pay for the others, mostly from the south? Because their governments are responsible for the disastrous situation we are in. • The rather well-crafted Maastricht Treaty had a n o-bailout clause that was designed to protect all Eurozone taxpayers from fiscal indiscipline in other countries. • Under Merkel's leadership, this clause was first violated in May 2010, and then again to bail out Ireland, and again for Portugal and now for Spain. This was an economic policy ‘crime’. It looked cheap at the time, at least under the assumption that there would be no contagion. A basic moral principle is that criminals must be held responsible for the consequences of their acts, even if those acts are unintended. Eurozone taxpayers are the victims of their elected leaders. They now face the choice between breaking up the Eurozone and paying up. Paying up still is the cheaper alternative, but not for long. Reference Blanchard, Olivier (2012), "Lessons from Latvia", iMFdirect, 11 June. European Council (2010), "Conclusions", ec.europa.eu, 17 May. Wyplosz, Charles (2010), "The Greek package: Eurozone rescue or seeds of an unravelled monetary union?", VoxEU.org, 3 May. http://www.voxeu.org/index.php?q=node/8117 164

Thursday, June 21 2012 Dublin Hi 16 °C | Lo 11°C Brendan Keenan: Withdrawal from EU core would leave us an impotent spectator

MOST people have heard of the South Sea Bubble, or even the Dutch Tulip Mania. Not so many will be familiar with the Scottish Darien Scheme.

Yet 400 years later, it has taken on an unexpected resonance: a financial crash which culminated in a political union -- in this case, the union between Scotland and England to form the United Kingdom. For the record, the scheme was an attempt by a then sovereign Scotland to establish a colony called "New Caledonia" in what is now Panama. It was a property play on a gigantic scale -- although maybe not more so than the Irish property bubble. Historians reckon that about a quarter of the money circulating in Scotland was put into the scheme. Almost all of it was lost. Then came an offer which those who had lost their money found hard to refuse. The proposal for a union of the two parliaments (in practice one parliament at Westminster with Scottish MPs) included £400,000 which would be borrowed on the English national debt, not the Scottish, and help compensate losers in the Darien scheme. Bribes That's perhaps £400m (€495m) in today's money, but far more measured as a percentage of GDP. There were also straightforward bribes, as with the Irish union almost a century later. But even without being bribed, the Scots needed the trading and investment opportunities provided by the union in order to rebuild their shattered economy -- which they did with considerable success.

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Unless you have been holidaying on the planet Zog, you will have spotted the connection. The euro crisis is accelerating moves towards some kind of new union between the euro members at an astonishing rate. Academic analysts, and some political enthusiasts, have even sketched out the bones of such a union. The fiscal treaty, so recently voted upon, would become a fiscal union. There would be a banking union, with a eurozone guarantee on de posits matched by eurozone supervision and regulation of banks. There would be eurozone borrowings, as well as national ones, giving a mixture of eurozone debt and national debts. Not surprisingly, the creditor and debtor member states differ as to what these terms might mean. The creditors see a fiscal union as essentially replacing national budgetary policies with centralised ones. The debtors see it having "federal" funds which could be dispersed to countries in trouble. Banking union Much the same is true of the banking union idea. The creditors want more centralised supervision of banking, but they do not want to give up national regulation. Nor do the debtors very much, but they do want the deposit insurance fund, and most of all the availability of eurozone capital for troubled banks instead of national injections of cash. There seems hardly even the bones of an agreement on eurozone debt, whether in the form of "eurobonds" issued collectively and traded on the markets, or some other, more technical, pooling of liabilities. In this case, of course, the interests of creditors and debtors are diametrically opposed. Except for the common interest of saving the single currency. It is impossible now to find a dissenting voice which says the euro can be saved without some kind of union along these lines. There are voices which say it cannot be saved at all, and more which say perhaps it could in theory, but that governments will not be able to agree in practice on these enormous matters. Everyone agrees that time is running short. It is running so short, and the dangers are so apocalyptic in scale, that there must be a distinct possibility that some kind of a union along these lines will in fact be formed in response to a growing crisis in Spain, the threat to Italy and, maybe, a negotiated Greek exit. The troubling thing about such a union is that, if it happens in that way, eurozone citizens will never have been asked if they actually want it. On past form, each step will be the minimum necessary to avert disaster. The Euroland house is being built without a plan; just bricks stuck in when what is already there threatens to collapse. Even the inevitable Irish referendums are unlikely ever to contain that question: do you wish to be part of a euro union? The really depressing thought is that the No campaigners will say this is the question, while the Government sticks to the old formula that there is really no question to be answered.

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This time, the No campaigners will be right about the question, or questions. It is time everyone faced up to the answers. There is the narrow question: do we leave the single currency, with the huge financial risks that would entail, but with the long-term prospect of a new role as an outer member of the new Europe, which is where the UK will undoubtedly be? Or would we prefer the immediate stability of staying with the euro, which means being part of very different arrangements than was the case in the past? There are big long- term risks in that decision. Could a ramshackle financial union created in an emergency evolve into something more rational, with an acceptable degree of democratic representation and accountability? Centralisation Would centralisation be matched by greater freedom for the member states to conduct their own economic affairs within the parameters laid down by the union? Even if one believes that better political and structural systems can be put in place over time, is Ireland really ready to overcome its inflationary habits to the extent necessary to prosper in such a union? It failed to do s o in 1999. If it is going to fail again, better to do s o through an increasingly worthless currency. Signing up f or the union would therefore be quite a gamble, but it raises the wider question. Does Ireland still hold to its 50-year strategy of being an outlying, English- speaking but unambiguously European state? The strategy has served us well, and is still the only approach which could possibly be called a strategy. Ireland's influence has been sadly diminished by the economic meltdown but a withdrawal from core Europe would leave it an impotent spectator of whichever way events unfold. No one imagined these great questions would arise in such circumstances. The worst option, surely, would be to let others answer them for us. http://www.independent.ie/opinion/columnists/brendan-keenan/brendan-keenan- withdrawal-from-eu-core-would-leave-us-an-impotent-spectator-3145551.html

ft.com World Europe June 21, 2012 12:38 pm Germans strike deal on eurozone pact By Quentin Peel in Berlin Germany’s government and opposition reached agreement on Thursday after weeks of negotiations on a deal to clear the way for parliamentary approval for the eurozone’s fiscal compact – in exchange for new measures to boost economic growth and promote a European financial transaction tax.

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The compromise was thrashed out by Angela Merkel, German chancellor, with opposition leaders in three hours of talks in her office in Berlin. It will allow the Bundestag to vote on June 29 on the fiscal compact and the parallel treaty establishing the €500bn European Stability Mechanism – the permanent eurozone rescue fund – so that the ESM can come into effect in July. More ON THIS STORY/ Merkel under pressure at home on fiscal pact// Merkel stands firm on tackling crisis// In depth Eurozone in crisis// In depth Financial transaction tax// Ireland backs EU fiscal pact ON THIS TOPIC/ Global Market Overview Weak Chinese data weigh on sentiment// Spain sells 5-year bonds at record yield// Eurozone debt crisis weighs on Germany// Markets Insight Europe needs its own US fiscal union moment IN EUROPE/ Berlusconi fans anti-euro flames// Greek finance job goes to civil servant// Transcript FT interview with Benoît Cœuré// Cœuré seeks greater economic integration Opposition leaders claimed a significant victory with the agreement forcing Ms Merkel to adopt a more pro-active policy to boost economic growth and commit to fight for a financial transaction tax even if it involves only nine members of the eurozone. Wolfgang Schäuble, finance minister, has warned that opposition to the FTT from the UK, and eurozone members such as Ireland, Finland and the Netherlands, could scupper a deal. But Germany will now push for a tax to be agreed amongst the minimum legally possible – nine of the 17 eurozone members. The compromise will force Ms Merkel to fly home from the European summit in Brussels on J une 29 t o attend a special session of the Bundestag, to report on he r success in getting an active growth plan agreed, and wider agreement on the FTT. She was forced to negotiate with the opposition because the fiscal compact is a treaty to change the German constitution and therefore requires a two-thirds majority in parliament. Ms Merkel will also have to win the same majority in the Bundesrat from the 16 federal states and further talks will take place to win their backing on Sunday. They are concerned that the pact will restrict their budget powers. Failure to reach agreement would have been a humiliation for the chancellor, who has insisted that her eurozone partners all adopt the fiscal compact – including a constitutional “debt brake” enforcing a balanced budget – in some cases against their better judgment. Ireland was constitutionally obliged to put the pact to a referendum. The urgency was caused by the need to get the ESM into operation, because it may be needed to help with the proposed €100bn recapitalisation of Spanish banks. The fiscal pact only comes into effect next January. Ms Merkel was determined to link the two treaties in a joint vote in the Bundestag, in order to persuade rebels on her own back benches to back the ESM. By tying it to the fiscal pact, she is seeking to demonstrate that more German money will not be pledged in guarantees to eurozone partners without the strict budget discipline enshrined in the fiscal pact. http://www.ft.com/intl/cms/s/0/57654390-bb8f-11e1-90e4- 00144feabdc0.html#axzz1yJz58r8q 168

ft.com Comment Opinion June 20, 2012 6:55 pm Don’t count on Germany’s economic surrender By David Marsh There is a strong sense of déjà vu in the eurozone. The conundrums over economic and monetary union – whether Greece gives up, Spain messes up, Germany pays up, France seizes up – are complex. However, behind these lie historical patterns. We have just witnessed further twists. Greece may have a new coalition government but it faces the same old problems in implementing the terms of its bailout deal. The €100bn rescue of Spanish banks, on r elatively undemanding conditions, is likely to exacerbate angst among the Germans, Europe’s main paymasters, that creditors are treating the debtors too generously. Precisely the opposite sentiment is on show in Paris, where President François Hollande accuses the Germans of imposing destructive austerity on eurozone debtors. More ON THIS STORY/ New Greek coalition government agreed// Greek finance job goes to civil servant// Global Insight If only EU were like Euro 2012// In depth Greek debt crisis// Greece’s ailing economy grinds to a halt ON THIS TOPIC/ Global Market Overview Weak Chinese data weigh on sentiment// Eurozone debt crisis weighs on Germany// Markets Insight Europe needs its own US fiscal union moment// Cœuré seeks greater economic integration IN OPINION/ Dominic Raab Bankers and unions can get their just deserts// William Dobson Egypt has not had a coup, merely a return to the 1950s// Anatol Lieven The west must work with Putin’s Russia// Josef Joffe I come to praise Ms Merkel not to bury her These contemporary diplomatic manoeuvres and tensions are reruns of behaviour in the febrile build-up to the launch of the single currency in 1999. A ll the scenes in the eurozone drama have been played out many times before. Take, for example, the belief that political and fiscal union is necessary to make monetary union work. Helmut Kohl, the former German chancellor, said in 1991 that monetary union without political union would be a “castle in the air”. Similarly, the economic dislocation facing southern Europe is not new – nor was it unanticipated. Bundesbank officials said publicly 15 years ago that profligate states that could no l onger devalue would face wrenching unemployment and social upheaval unless they controlled costs. Gerhard Schröder, Mr Kohl’s successor as chancellor, said in 1998 t hat Germany would dominate the economic and monetary union because it would manage its costs better. The rescue saga, where fear of catastrophe forces Germany into last-minute concessions, is all too familiar. After the fall of the Berlin Wall in November 1989, President François Mitterrand of France, cajoled Mr Kohl into accelerating moves to 169

economic and monetary union by threatening Germany with the kind of isolation that led to two world wars. Germany grudgingly accepted Italy as a founding eurozone member country in 1998 partly because Bundesbank officials feared a spurned Italy would devalue the lira and so gravely damage German companies. German obduracy in the face of French demands for more funding has been repeated countless times. In a precursor of today’s strains, Germany refused in 1968 to give in to strong US, French and British pressure to help other currencies by revaluing the Deutschmark, although it relented a year later. “The French want to put shackles on what they see as our sinister monetary policy,” wrote Otmar Emminger, former Bundesbank board member and president, in 1970. In 1981, a fter Mr Mitterrand’s election victory, the Bundesbank called for French devaluation, asking: “What do they really want?” The Bundesbank again threatened the French with devaluation in 1992, softening only when Mr Kohl intervened. Mr Kohl and President Jacques Chirac nearly came to fisticuffs in 1996 over French pleas for relaxed budgetary stringency. France’s perennial refusal to give up fiscal sovereignty explained why an earlier plan for economic and monetary union failed in the early 1970s. Germany’s current insistence that mutualised liabilities through eurozone bonds or Europe-wide deposit insurance can come only after full-scale economic convergence echoes Germany’s 1960s and 1970s view that monetary union should be delayed pending full economic harmonisation. Germany’s European lecturing has a long pedigree. Willy Brandt, former German chancellor, told his finance minister in 1970 to “stamp our hallmark” on monetary union plans so that “our monetary policy views prevail”. As the costs of either breaking or underpinning the eurozone rise to giddying heights, the big question is whether the Germans, once again, will give in to neighbours’ pressure for more money. George Soros, whose investment fund made an estimated $1bn in betting against British currency policies in 1992, says the Bundesbank is again the key player. Today’s dilemma is much more fraught. In 1992 Germany rejected the UK but stuck to the alliance with France to prevent the exchange rate mechanism from shattering. This time, its own currency is at stake. The risks and rewards are many times greater. And German public opinion is increasingly eurosceptic. The danger is that creditors’ and debtors’ contrary reactions will be self-reinforcing. Greece’s new leaders may see the Germans’ partial climbdown over the Spanish bailout as a sign that Greece can repudiate its debt with impunity. German politicians may move in the opposite direction: with a backlash against perceived softening and an insistence, next time, that Germany will not relent on conditions for debtors – especially for Greece. The lesson of economic and monetary union brinkmanship over many years is that the Germans always give in – until the time they don’t. That moment may be approaching. The writer is co-chairman of the think-tank OMFIF and author of ‘The Euro – The Battle for the New Global Currency’ http://www.ft.com/intl/cms/s/0/ba817a40-ba1b-11e1-aa8d- 00144feabdc0.html#axzz1yJz58r8q

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Europe Needs a Federal Reserve By AARON TORNELL and FRANK WESTERMANN AS the world economy teeters again, pressure is mounting on central banks to reopen their spigots, make it even cheaper for companies and households to borrow money, and prop up c ommercial banks to prevent another financial crisis. On Wednesday, the Federal Reserve, which had already promised to keep short-term interest rates near zero until the end of 2014, extended its latest, modest strategy to keep long-term rates down, too. The Fed’s counterpart, the European Central Bank, was created in 1998 to maintain price stability in the new euro zone. With so many depositors taking their money from troubled banks in Greece and Spain, observers are urging the central bank, based in Frankfurt, to fire another round of the “big bazooka” — the roughly 1 trillion euros in cheap loans that it granted to banks in December and February. But even if it is willing to do this, the central bank is not equipped to do so without putting Europe’s financial system at risk. Its design is flawed. To save the euro, the 17 countries that use the shared currency will not only need a more unified fiscal policy. They will also need a single institution to tide over troubled financial institutions, and a single banking authority to supervise banks and, if necessary, close or merge them. Bizarrely, although the deutsche mark, franc and lira are gone, members of the euro zone still have their own national central banks, which can step in and lend euros. Since 2007, the credit extended by the central banks of Italy, Spain, Greece, Portugal and Ireland has increased tenfold, in part because the criteria for the collateral put up in exchange for central-bank loans were relaxed significantly in 2008 (and later, in Greece, Ireland and Portugal, almost completely discarded). What ails the euro zone is not a Teutonic allergy to inflation, or a timidity about extending loans, but what economists call the tragedy of the commons. Here’s an example: A group of people go for a drink and agree to split the tab. They tend to drink a bit more than when each goes alone. Each person gets to enjoy 100 percent of the marginal benefit of an additional drink, yet she is responsible only for a portion of that drink’s cost. So she has an incentive to outdrink her friends and exploit the common pool of money that will be used to pay the tab. The central bank system in Europe is akin to letting the government of California issue bonds, pledge them as collateral at the San Francisco branch of the Fed, and then get fresh dollars to pay for its budget deficit. If this were reality, imagine the strong temptation for California to tap Fed resources to indulge imbalanced spending and borrowing. If the system isn’t fixed, it w ill lead to another financial crisis. In the past, many countries that pursued expansionary credit policies to avoid economic turmoil 171

precipitated only a deeper crisis. In 1994, for example, Mexico’s central bank significantly increased loans to private banks, in an attempt to forestall a recession before a presidential election. The result: capital flight, a speculative attack on the peso and a financial crisis. Europe is heading toward a similar mess. Since 2008, hardly any banks have been shut down in the euro zone, while American regulators have closed hundreds of institutions. Bank “stress tests” in countries like Spain continue to underestimate the true extent of bad loans. Greek banks were deemed solvent — and therefore eligible for loans from Greece’s central bank — even as nervous depositors withdrew hundreds of millions of euros. Only the European Central Bank, not national regulators, should have the power to decide if a bank is financially sound, and eligible for central-bank loans. If the European Central Bank were to gain this power, it could shut down insolvent (zombie) banks, limit excessively high levels of central-bank credit, and make it clear to the euro zone’s members that help from Frankfurt cannot go on forever. Under Jean-Claude Trichet and now Mario Draghi, the European Central Bank has forestalled a panic and avoided setting off inflation so far — a priority for Germany, Europe’s largest economy. But it has been powerless as bank insolvencies mount, and it has failed to pressure governments to lower their budget deficits and implement economic reforms. The national central banks — including Germany’s Bundesbank and the Bank of France — should become subsidiaries of the European Central Bank like the 12 Federal Reserve Banks (in New York and San Francisco, etc.). Voting rights at the European Central Bank should be reorganized so that they are proportional to the share of the loss that each country would bear in case of default. Those who bear the largest share of the cost should have greater say as to when the drinking should stop. To bolster ailing banks in southern Europe, some have called for the European Central Bank to insure deposits. Fine, but in exchange, all banks, not only the biggest ones, should be under the supervision of regulators in Frankfurt. They should have the sole authority to shut down, or merge, failing banks. When they offers credit, they should accept only marketable securities as collateral. Without these reforms, zombie banks represent another financial crisis waiting to happen. Aaron Tornell is a professor of economics at the University of California, Los Angeles. Frank Westermann is a professor of international economic policy at Osnabrück University, Germany. Véase su trabajo:The tragedy-of-the-commons at the European Central Bank and the next rescue (en: http://www.voxeu.org/index.php?q=node/8122 http://www.nytimes.com/2012/06/21/opinion/the-european-central-bank-needs-more- power.html?nl=todaysheadlines&emc=edit_th_20120621 Pero… son bancos de la reserva federal, que tienen como soporte una federación de estados (USA)…, ergo…. (USE) [comment: AE]

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ft.com World Europe June 20, 2012 6:55 pm Transcript: FT interview with Benoît Cœuré By Ralph Atkins and Michael Steen in Frankfurt Financial Times interview with Benoît Cœuré, European Central Bank executive board member. Ralph Atkins and Michael Steen spoke with Mr Cœuré on Wednesday June 20, 2012, in Frankfurt More ON THIS TOPIC/ Dollar lifted by Fed Twist extension// Editorial Eurozone weighs another palliative// Asian stocks climb on stimulus hopes// Denmark warns over pressure on krone IN EUROPE/ Putin seeks to reassure foreign investors// Prosecutors want Breivik declared insane// Footballers seek to sidestep euro politics// Germans strike deal on eurozone pact FT How would you assess market tensions and the liquidity situation of eurozone banks. Are we back where we were late last year? Benoît Cœuré Well, we are not back in the difficult state we were in the autumn 2011. Certainly we see a great deal of anxiety in financial markets. In my view this reflects mostly a lack of direction. The issues that we’re facing now are mostly political issues. When it comes to Greece there is an obvious political dimension – there was an election and we are waiting to know what will be the stance and commitments of the new government. The Spanish banking crisis also has a political dimension. It’s about putting in place the right kind of co-ordination, collaboration between the Spanish and European authorities, and this has taken some time to be worked out. Now we’re coming closer to the details and we’ll know more when the stress test has been published at the end of this week. More fundamentally, we are now in the third year of the European crisis and are coming to a point where some of the short-term fixes have been tested and exhausted and deeper questions are being asked. Political choices have to be made and it’s not surprising that markets are in disarray because they don’t know the answers. Market participants, investors, especially those outside the euro area, are waiting for direction and decisions by political leaders. I hope we have a sequence of meetings and events that will provide the kind of information and guidance that markets need, but for the time being markets are in disarray. FT Is there a problem with collateral shortages, especially at Spanish banks given the downgrades in Spain? BC We certainly have to make sure that sound counterparties have the means to access our liquidity including in terms of collateral availability. We have not reached the point where there is a co llateral shortage but certainly the amount of excess collateral, the collateral buffer – which is very substantial at the aggregate level in the euro area – has 173

become more strained in some places. There is an ongoing reflection on how to alleviate these tensions. What is important is that any adjustment of our collateral framework should not increase the risk exposure of the Eurosystem. FT Which implies you would not reduce haircuts for lower grade bonds ... BC It’s an ongoing technical discussion so I’m not going to go into details. FT But the broad idea is that you would widen what was acceptable as collateral? BC If needed, yes, but this would have to come with strict risk control, in particular with haircuts. FT One reason markets reacted badly to the Spain bank aid plan was because of the preferential creditor status of the ESM. Is there a design fault in the system there that needs to be rectified? BC It is not clear yet whether the ESM will be used for Spain, and the EFSF does not have preferred creditor status. But if you think about possible improvements to the ESM, this is certainly one. Preferred creditor statuses contribute to the fragmentation of capital markets because they create different kinds of bonds, and this is not what we want to achieve. FT Eurozone leaders are discussing using the EFSF to buy Italian or Spanish bonds. If they did, you would have to submit a report. Have you thought about that yet? BC Well certainly it’s a mystery why the EFSF was allowed almost a year ago to undertake secondary market interventions and governments have not yet chosen to use that possibility. And this is not to blame the EFSF itself, since it is instructed by the governments. It’s not our role to trigger these kinds of interventions. We would provide an opinion. FT What would your opinion be? BC Well we’ve not been asked ... But certainly euro area bond markets are under very severe strain at the moment, in particular, the market for Italian bonds and for Spanish bonds. A lot of what is going on now on these markets is not warranted by fundamentals but reflects the state of uncertainty and the anxiety of market participants as regards the course of political decisions to be taken, in particular in Spain to fix the banking problem. Here there are two conclusions: the first is it is entirely an issue for governments to decide on, it’s not really something the ECB can fix. And second, yes, current circumstances would probably warrant EFSF intervention in the secondary market – provided that this happens against the right background of political decisions and solutions to the underlying issues and strong conditionality. In particular this would require a lot of clarity and details on t he way the Spanish banking sector will be supported. We’ll know more when the stress tests are published. FT Is the EFSF big enough to intervene successfully in secondary bond markets? BC Yes, it is big enough for the purpose for which it was created, which is to alleviate temporary tensions on s econdary markets. The EFSF is not big enough to finance permanently euro area countries. This is not the purpose it was created for. We need fundamental solutions on the fiscal side and on the banking side. Again, the EFSF can be used to alleviate temporary tensions. It is not an instrument of a transfer union.

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FT The most effective way to alleviate tension would be for the ECB to buy bonds ... BC That is a different issue. We have a bond buying programme, the securities markets programme. The SMP has not been terminated, but it is an instrument of monetary policy. It is not an instrument that can be used to fix fiscal difficulties or to help insolvent banks. FT But why is it OK for the EFSF to intervene in secondary markets but not for the ECB, when the ECB could be much more effective. BC The EFSF is a fiscal instrument, and fiscal instruments must be used to address fiscal issues. Don’t mix the central bank with the fiscal authorities. FT Earlier, you said some of the short-term fixes have been tested and exhausted. Was that a reference to the SMP? BC No, the SMP was successful when it was used in 2011. FT It could be successful again? BC Yes it could be successful again, but we do not consider that the SMP would be the best instrument to use at the current juncture. As Mario [Draghi] said, we are not in a quid pro quo with governments. If there is a sequence of decisions to be taken, including short-term actions and long-term fixes for the banking sector, and also on the fiscal side it will be more efficient and also more credible if the whole sequence is conceived and implemented by governments. FT If you cut interest rates would not that be a big help for banks in the periphery? Is that an option for you to help right now? BC Cutting rates is certainly an option as far as our monetary policy is concerned. It was discussed at the last governing council meeting and I would expect the next council to discuss it again. As regards the current crisis, it could perhaps help to some extent, but, like all we do a t the current juncture, it would certainly not fix the fundamental problems. Cutting rates may of course help alleviate some of the consequences of the current situation, in particular in terms of confidence. FT And it would be justified by the inflation outlook? BC We are in a situation where there is no threat to medium term price stability. FT Would another three year LTRO also contribute to alleviating the current situation? BC The three year LTROs are part of our toolbox. But let me note that we have not yet seen fully the consequences of the first two LTROs. They were useful in a particular situation at the end of 2011 where they clearly avoided a major credit crunch in the euro area. The effects of these two LTROs are still feeding through. They will be seen to their full extent only when the demand for credit returns – which is not yet the case. Is a third LTRO possible? Yes, it is possible but it would probably be warranted only in the face of generalised liquidity challenges – and it is probably not the best instrument in the case of localised difficulties for banks. FT Why is a banking union so important?

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BC The ECB has warned for some time about the danger of the link between banks and governments, which lies at the heart of the current downward spiral on f inancial markets. To cut that link, the priority is to increase banks’ credibility, to increase capital buffers in banks. Then anything we can do to cut the link with government is useful. We’ve mentioned the ESM and certainly making it possible for banks to directly access the ESM – of course with strong conditionality and strong control – would also be conducive to that outcome. This is not an immediate perspective though as it would require amending the ESM Treaty. FT What role do you see the ECB playing in a future banking union? Should it take on supervisory powers? BC I don’t see that as the most important question. There are two issues that we have to work out. The most important is the fiscal consequences of a banking union and how to “connect the dots” between banking supervision and a resolution authority and then providing, if needed, fiscal backstops to bank recapitalisation or resolution. The second issue is the scope of the banking union and its relation with the single market. This is the 17 [eurozone members] versus the 27 [European Union members] issue. The issue of who does the supervision is secondary to that. The ECB could do it, but it could also be organised around the EBA. FT Those two issues suggest that this is a very long term project? What timetable are we talking about? BC Centralised supervision is probably the part that can be implemented relatively quickly, once these fundamental decisions are taken. Everything that has a fiscal dimension – in particular the resolution scheme – would require political discussion in member states and should have strong democratic accountability and be voted on by national and the European parliaments. It would take quite a number of months to put such schemes into place. FT How much integration do you think France would be prepared to accept? BC I don’t want to comment on the situation in France. I think that we are at the point in the history of our monetary union where it has to be understood that monetary union requires a banking union for reasons of financial stability. Everything that has happened since 2010 shows that we need more fiscal integration. We need solidarity mechanisms among euro area countries and solidarity should come with joint control of public finances – and this is why we need to make steps towards fiscal union. So my answer to those who doubt the necessity of fiscal union is that if they want to keep the euro and the benefits that the euro has brought to their economies, they have to make steps towards a fiscal union. Otherwise the system will not be stable and we will continue to experience crises. FT Are fiscal union and banking union inseparable? BC Monetary union needs both banking union and at some point will need a fiscal union. What really will be very important at the next European Council will be for leaders – not to provide details because it is a long-term project and difficult – but to show commitment towards this long term perspective and preferably to agree on a path towards it. This will be very powerful in stabilising the monetary union and financial markets.

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FT Would people feel that this was not what they were expecting when the euro was launched in 1999? BC It was not explained to them because it was not understood at the time. The principles were there and stated in the Maastricht treaty. But some were not implemented properly or considered seriously enough by governments – for instance the principle of fiscal discipline and joint surveillance of fiscal positions and economic imbalances. We have also to draw the lessons of the crisis and take account of the fact that some instruments that we needed were not in the Maastricht treaty – for instance the EFSF and ESM, which represent new steps in fiscal integration. Further steps in that direction would require new stages in political integration, and I think that European citizens can understand that. FT Where does the City of London feature in your vision of a European banking union? BC I don’t think we need to have just one hub for financial markets – I would certainly favour competition. But I really don’t think that the banking union is a threat to the single market. Currently we have a single market for financial services and 27 national supervisors or even more. If anything, moving towards a banking union would reduce the number of actors with which you would have to co-ordinate. The biggest threat to the single market is not the banking union, but market fragmentation. There is a tendency for national supervisors to try to raise fences around their backyards in a very volatile and uncertain situation. Whatever organisation is chosen for the banking union the EBA will certainly retain a very important role as a guardian of the single rule book for financial services. FT The fear in London would be of the City facing a bigger bloc of unified regulation and therefore it would lose influence? BC But the City of London has flourished since 1999 in the face of monetary union. I have a lot of confidence that the actors in the city of London will use the situation to their best advantage. I have trust in its entrepreneurship and pragmatism. That said, it would be an illusion to think that a single supervisor and a banking union would not have consequences for capital markets. Certainly one of the purposes would be to achieve a better integration of capital markets. As a co nsequence of these dynamics there is an economic rationale for the main infrastructures required for the functioning of the monetary union to be in the euro area. I am thinking in particular of Central Counterparty Clearing houses. http://www.ft.com/intl/cms/s/0/9b39b0ba-baea-11e1-81e0- 00144feabdc0.html#axzz1yJz58r8q

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ft.com Comment Editorial June 20, 2012 7:36 pm Eurozone weighs another palliative Just as in Cannes last year, this month’s Group of 20 summit in Los Cabos was hijacked by the troubles in the eurozone, still the heart of the global financial crisis. Eurozone leaders pledged to lower borrowing costs across the currency area – which is a polite way of referring to Spain and Italy. Soaring yields present two challenges for Madrid and Rome. While they can sustain high rates for some time, rising yields are a warning that they may soon be shut out of the bond markets. As voters see no reward for austerity, high yields can weaken support for reform-minded governments. More ON THIS STORY/ Bailout fund should buy euro debt// Cœuré seeks greater economic integration// Transcript FT interview with Benoît Cœuré// New Greek coalition government agreed// Merkel ambushed by crisis lectures at G20 ON THIS TOPIC/ Dollar lifted by Fed Twist extension// Asian stocks climb on stimulus hopes// Denmark warns over pressure on krone// ECB on standby for Greek election fallout EDITORIAL/ Cable misses a trick on top pay// Pakistan’s lifeline// French tax gambit// EU bank reforms While the G20’s communiqué was vague on h ow to achieve this objective, Mario Monti, Italy’s prime minister, floated his own proposal. This would make the European rescue funds – the European Financial Stability Fund and the European Stability Mechanism – buy sovereign bonds of “virtuous” countries on t he secondary market, helping lower their yields. The main advantage of this proposal is that the rescue funds already have the powers to buy bonds on t he open market. According to existing rules, such purchases need not require commitments from Spain and Italy beyond what they have already agreed with the EU. This move would also be welcomed by the European Central Bank, which has become increasingly wary of using its security market programme to stabilise peripheral bond yields. But letting the rescue funds come on stream only makes sense if it convinces investors to re-enter these markets. Otherwise, the risk is that the plan triggers a sell-off and does little to reduce yields. This is why Mr Monti’s plan needs to be changed. First, the rescue funds should target only those bonds issued after open-market purchases are given the green light. Buying old debt would do little for Spain and Italy’s refinancing needs. Second, the funds should be beefed up so they can provide a credible backstop. This could be achieved by allowing them to become banks, so they can borrow directly from the ECB. Even if Mr Monti gets his way, lowering peripheral bond yields will not address the deep-rooted problems of the eurozone. If its leaders are committed to keep the currency union together, they must take steps towards rebalancing and to build a banking union. Lowering borrowing costs via the rescue funds could borrow time. Using this opening to adopt a cure – rather than another palliative – would be the eurozone’s next big challenge. http://www.ft.com/intl/cms/s/0/759d2220-baee-11e1-b445-00144feabdc0.html#axzz1yJz58r8q

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EDITORIAL June 19, 2012 The Trouble With Ms. Merkel After their two-day meeting ended on T uesday, leaders of the Group of 20 t op economies managed to say some of the right things. Focusing on t he euro-zone debt crisis — clearly, the largest threat to the global economy — they pledged to do more to spur growth, ensure financial stability and support a stronger European fiscal union. The question now is whether these words will ever translate into effective action. If the past two years of the euro crisis is any guide, the likely answer is no. As recession and banking crises have enveloped Greece, Ireland, Portugal, Spain and Italy, the crisis response, led by Germany, has been dominated by a r elentless insistence on self- defeating austerity and piecemeal rescue plans. The result has been deeper recession, social unrest and political upheaval in Europe’s weaker economies and increasing mistrust between the strong and weak nations of Europe — precisely the wrong conditions for integrating the banks, budgets and politics of Europe in a way that is needed for the long-term survival of the euro. Will this time be different? There are mounting reasons for Germany to alter its stance. For one, the stakes are higher. No sooner did the elections in Greece on Sunday ease fears of a disorderly Greek exit from the euro then borrowing costs spiked in Spain and Italy. Both countries must sell government bonds to refinance heavy debt loads, but investors, spooked by recession and financial instability, are instead pulling money out of the countries. That presages far bigger challenges than Europe has faced thus far and underscores the failure of policies to stem the crisis. Against that backdrop, the world leaders had a ch ance to press Angela Merkel, Germany’s chancellor, to provide stronger and more flexible bailout support — for example, by allowing Greece more time to meet the backbreaking terms of its bailout package or injecting capital from the euro zone directly into Spain’s banks or seeking more aggressive ways to lower interest rates for vulnerable borrowers, including issuance of a common Eurobond or direct bond pur chases by the European Central Bank. Ms. Merkel has long rejected such steps. But, next week, when leaders of the European Union meet for a planned summit meeting, the discussions from the G-20 could provide a foundation and political cover for her to begin to take bolder action. Then again, she could hold firm to her current stance. She has repeatedly insisted on austerity for hard-pressed countries, even when it has been a demonstrable failure. And, while she has correctly asserted that more aid on better terms should be accompanied by greater European unity, the lack of unity appears to be an excuse to delay steps to ensure that adequate aid is available on workable terms. Under current policies, the euro zone and the global economy have been put at high risk. By next week we will find out whether world leaders at the G-20 got through to Ms. Merkel. http://www.nytimes.com/2012/06/20/opinion/the-trouble-with-ms-merkel.html?ref=opinion 179