By Svetla Dimitrova
The European Commission (EC) tabled on Wednesday (November 23rd) two new regulations that would boost its powers over the national budgets of the 17 eurozone members and allow it to strengthen its supervision of members facing serious financial difficulties.
They were part of a package aimed at resolving the crisis in the euro area that includes an annual growth survey defining the EU’s economic priorities for 2012 and a plan containing three options for the introduction of common euro “Stability Bonds”.
“To return to growth, [EU] member states need to raise their game when it comes to implementing their commitments to structural reforms, as well as embrace deeper integration for the euro area,” EC President Jose Manuel Barroso said.
“The goals driving this package — economic growth, financial stability, budgetary discipline — are linked to each other,” he added at a joint news conference with EU Economic and Monetary Affairs Commissioner Olli Rehn. “We need all of them, if we are to move beyond the current emergency, towards a Europe in which solidarity is balanced by strengthened responsibility.”
Under one of the two new regulations it proposed, the eurozone countries would have to submit their draft budgets for the forthcoming year to the Commission and the Eurogroup first, and then to their own parliaments. They would do that no later than October 15th, when they have to make their budgetary plans for the following 12-month period public.
The second legislative measure would allow the EC to place eurozone nations experiencing grave financial problems or receiving assistance from others in the area, in its rescue fund, the European Financial Stability Facility, or under bailout programmes with the IMF under enhanced surveillance.
The idea for the issuance of common Eurobonds as one of the means for alleviating the eurozone debt crisis was floated earlier this year. The EC launched the debate on the matter on Wednesday with a 38-page Green Paper offering a detailed analysis of three options for the full or partial replacement of national bonds by Stability Bonds, backed by all 17 countries in the euro club. A final decision is expected after a broad consultation with all relevant stakeholders, due to close on January 8th.
The idea for common Eurobonds has been rejected by German Chancellor Angela Merkel, who reiterated her opposition to it on Wednesday. She has also been resisting calls for expanding the European Central Bank’s (ECB) role in efforts to deal with the debt crisis.
“It is extremely troubling, I might say inappropriate, that the Commission is now focusing on proposals on Eurobonds in different varieties,” Merkel was quoted as saying in comments at the German parliament.
At the auction the same day, Germany was able to sell just 3.9 billion euros worth of ten-year securities out of the 6 billion euros it offered to the market. The setback raised concerns that Europe’s powerhouse is unlikely to avoid being scarred by the crisis. Threats that France, the second-largest economy among the 17 in the euro area, could lose its triple-A credit rating have increased recently.
“As the crisis deepens with yesterday’s bond auction, the veil has been torn off Merkel’s policy of muddling through,” Bloomberg quoted Sebastian Dullien, a senior fellow at the European Council on Foreign Relations in Berlin, as saying in a telephone interview Thursday. “It’s only got us closer to the end-game: either the breakup of the euro or euro bonds. The strategy has failed.”
One of Berlin’s main arguments against the joint Eurobonds idea is that it will deter countries with big sovereign debts from settling their financial problems.
Petar Ganev, senior economist at the Institute for Market Economics (IME), a Sofia-based think-tank, said on Wednesday he expects a serious debate in the coming weeks.
“Obviously there are different positions on the issue,” he told SETimes. “The problem with the huge debts amassed by individual member states can hardly be solved by accumulating new debt by all eurozone countries taken as a whole. It is somewhat naïve to believe that new debt can help settle the difficulties posed by existing debt, which has risen to a level that makes it unsustainable.”
Other experts and analysts believe that the Eurobonds would be a key element of steps to resolve the debt crisis in the eurozone, but stressed the need for additional measures.
“We have a panic regarding peripheral debt and thus a liquidity crisis [for both sovereigns and banks],” Daniel Gros, director of the Brussels-based Centre for European Policy Studies, told SETimes. “Only the ECB can alleviate the liquidity crisis. But the ECB might do this only if there is more fiscal integration and Eurobonds. So Eurobonds might be an essential element of any crisis resolution.”
Former Romanian Finance Minister Daniel Daianu voiced doubt that the eurozone would be able to survive the current crisis unless it moves quickly to revamp its common policy and takes steps towards deeper fiscal integration.
“Fiscal rules are needed, as sanctions are. But fiscal rules are far from being sufficient; they cannot be a substitute for a solid fiscal arrangement that must include a common treasury,” he told SETimes. “Appointing also a finance czar, who should make judgments and recommend penalties, is not enough either … The eurozone, in particular, needs a rounded up common policy in order to survive.”
That policy should provide for “deep financial integration via a common regulation and supervision of financial entities, as well as joint resolution mechanisms”, Daianu explained, noting also the need for “a common treasury”, which would involve joint Eurobonds. All that would require deeper political integration as well, according to him.
“A monetary union cannot function properly [survive] without adequate fiscal underpinnings (including burden-sharing arrangements), a common regulation and supervision of financial markets,” Daianu stressed. “Eurobonds would be a radical step to this end.”
EU leaders are expected to discuss the package and related ideas during their summit on December 9th.