Speech by Sharon Bowles MEP given at the Blueprint Conference
It is clear that there have been steps forward in economic governance - 6 Pack, 2 Pack, Fiscal Compact. These serve two purposes, to prevent similar problems and also to promote market confidence. Even though they are relatively new, it is interesting how attitudes change - the flexibility options that were frowned upon by some even while we were negotiating the 2 pack are now being seen as more than idle promises that would never be activated. And a good thing too.
Steps have also been taken on banking union but only so far as the SSM - here it certainly looks like someone is hogging the fast lane with what we call 'Sunday Driving' - not in any hurry to get to the destination. Again, the ECB as supervisor is expected to improve credibility but without resolution - and the wherewithall to recapitalise or survive resolution - it is of limited benefit. The issue that banking union was born for - bank recapitalisation and breaking the sovereign-bank doom loop - does not come from the SSM alone.
A common theme in all the rhetoric is that more Europe is for the benefit of citizens: a common theme in all the Parliament reports is that this has to be seen, understood, and backed up by inclusiveness, solidarity, and accountability. However, we have had in many instances a lack of transparency, inter-governmentalism among selected Member States, and brinkmanship that has left citizens behind. This has to change, not just when we get Treaty changes, but now insofar as it can.
The 2-pack now coming into force foresees that the Parliament will have hearings with the Troika, and I had planned to hold them as soon as we could, It is a pity that the first ones, starting this week, will be in the context of the Cyprus bail-out catastrophe. Nevertheless, we hope going forward that we can begin to breathe transparency into the workings of the Troika and Eurogroup, otherwise they will continue to feed the anti-EU sentiment that is spreading throughout Europe, not just in the periphery. It should be in their mind - how are we going to explain and justify? Does it conform to the spirit and letter of the treaties and legislation?
Now, however it is nuanced, the Cyprus non-template has put the issue of writedown, bail-in, and resolution planning in a much more up-close and personal relationship with individuals. Maybe this should not come as a surprise given that vast post-war public debt was paid for by moving public debt to private debt, or by imposing wealth taxes. Indeed, it is also being clarified, in fact for the whole EU, in bank resolution legislation that bail-in must happen, in fact to protect sovereigns, or taxpayers if you prefer. So people and their pension funds, one way or another, are in the firing line and this is hard to swallow at the same time as round after round of austerity is already taking its toll on jobs and savings.
If you look at the graphs for debt repayment and apply this shock and that shock, the one that makes the most difference is growth shocks. The debt repayment under existing plans and growth forcasts - which recently have all been missed - already takes a generation. So measures to allow growth are the number one priority. This is why I welcome flexibility. I have always been in the camp of being more focussed on the trajectory of savings targets than total outcomes - this makes sense when there are so many externalities. Doing 'homework', as it is cutely called, is right but getting detention because the guy next door's homework was to stop buying from you is unfair.
So my action points are a reality check:
First, improve democracy, accountability, and explanation within the intrusive governance procedures, making sure that there is ownership by national Parliaments and citizens.
Second, allow flexibility and make growth the priority. This means in policy terms such as including 2020 strategy as a core commitment, and in financing terms inevitably this takes us back to bank recapitalisation and/or much greater backing from EIB or national development banks. Therefore the ESM, or some pooled form of growth, project, or redemption bond has to be utilised. The sums are not small - the FT today points to some 650bn implied guarantee for banks. That implied guarantee is put to the test in weaker countries but it is a collective decision to put it off - I have been there in informal ECOFIN when Trichet was quite explicit about recapitalisation, I have watched as EBA stress tests were undermined by Member States, including those we wrongly call creditor countries. So it is a collective responsibility to put it right.
Third, stop this division into creditor and debtor countries. All Member States contributed to the EFSM and IMF including non-Eurozone. All Eurozone countries contribute to the EFSF and ESM guarantees. So all are creditors. Yes those drawing are fewer - but let's get that straight, there is no transfer, not a cent. Yes there is a liability or guarantee, and the meaner you are about deployment the more rather than less likely it is that the guarantee will be called. Meanwhile, the triple A countries are paid more than cost and enjoy 2% lower sovereign debt interest rates, saving themselves billions. The cynic would say no wonder they don't want the full fix yet.
Fourth, we have to seal with symmetry. Real steps need to be taken to prevent macroeconomic surpluses, especially when some of the measures needed also help out the countries with those surpluses. We know that some wages in Germany are too low, and further that there is a pension liability on the state and regions that will be problematic in the future. These are not unrelated and the truth will become clearer with new reporting of contingent liabilities, required under the 6 pack and codified in the ESA 2010 reporting - despite attempts to prevent mandatory regional disclosures in the latter. Higher wages and higher pension contributions is one answer that would also help the imbalances and stability of the Eurozone. It may have been put off in order to drive exports, but when the cost is unaffordable pensions, a grumpy workforce and a collapsing Eurozone - which is a risk despite the windfall I just mentioned, then maybe the time has come to make the fix.
So roadmaps fine - but we have to fill some pretty big pot holes.