17 June 2019

Paul Goldschmidt: European Union: the Eurogroup disappoints!

[...]I will focus my comments on the completion of the Economic and Monetary Union, a subject that tends to be constantly kicked down the road unless there is a crisis. However, when considered within a context of increasing geopolitical threats, it is far from certain that the Authorities will be able to control a new crisis, especially if its origin is not “financial” as was the case in 2008. The measures taken to reinforce the financial system over the last ten years, though more than welcome are still far from sufficient and could prove to be inadequate if tested, putting both the survival of the € the EU itself into jeopardy.
 
The early signals emanating from the Eurogroupe are thoroughly disappointing! Meeting last week, the Finance Ministers were only able to come to a minimal consensus establishing the principle of a “Eurozone budget” without specifying either its purpose, its amount or its financing mechanism; in addition its introduction would be spread over a number of years. It is clear that such a program comes far short of comforting financial markets as to the political will underpinning the strengthening of the €.
 
One of the immediate consequences of such a timorous approach is to reinforce the supremacy of the US Dollar and its exorbitant privileges, further subordinating EU Members to the goodwill of the USA and exacerbating their own dissensions. It is only by defending its “shared” sovereignty (including monetary sovereignty) that the EU can overcome its inability to make itself heard on the world scene [...]

A further difficulty, that can easily be anticipated, is that as the step by step progress is being made, there will develop growing tensions between EMU Member and non-Member States. These will surface predominantly in the budgetary field as the plurennial and annual bargaining will prove all the more difficult to strike that they concern two entirely separate though deeply interrelated sets of discussions. It will only contribute to reinforcing a trend towards a two speed EU which will significantly weaken its overall structure and tend to inhibit the search for the greater protection and solidarity that is driving those who have understood the absolute necessity for the EU to speak with a single voice.
 
That is why, rather than adopting the plan implicit to the Eurogroupe proposal calling for small consecutive steps in the usual timid EU approach, one should, reconsider the entire process to alleviate the difficulties that are already looming over the horizon. Considering that the plan is scheduled to be deployed over the same 5 year timeframe as the life of the new Commission, should it not be possible to integrate within a single global process the implementation of the obligation of all Member States to join EMU enshrined in the accession Treaty and the completion of EMU?
 
Thus, the new Commission, fully assuming (at last!) its mandate of “guardian of the Treaties” would put the mandatory extension of EMU membership to all EU members at the center of its program. Having achieved this objective, the Eurozone would disappear being entirely subsumed into the Union, of which the € would become its true irreversible “single currency”.
 
Thus, the problem of creating a separate Eurozone budget is avoided because it is automatically integrated in the EU budget avoiding the risk of perpetuating conflicts of interest among the EU27. During the period of implementation, the – progressively expanded - EU budget could include a chapter dedicated to the assistance of the mandatory “convergence programs” of the aspiring Members and another covering support of EMU members facing difficulties (which was the prime purpose of a E ne budget); thus all Members would have a shared interest in the success of the process. [...]

Once the completed, all Members having adopted the €, part of the EU budget could, as in all sovereign States, be partially financed by the issuance of EU debt securities guaranteed by the budget and secured both by the joint and several budget guarantee of Member States enshrined in the Treaty and by developing in parallel EU wide “own resources”. The increased EU intervention capacity could progressively assist MS to adhere to a “national” balanced budget requirement (as in the USA) and reduce simultaneously their direct financing of the EU budget. The EU budget Authority would become the missing “political” link, responsible for coordinating its policies with the ECB and endowing the single currency with the firm footing commensurate with its vocation to become a viable alternative to the USD. [...]

In conclusion, the definitive stabilization of the € - which remains problematic at this juncture – is the sine qua non precondition to allow the sharing of sovereignty in other fields (defense, immigration, environment, etc.) to develop harmoniously. [...] It would be unforgivable to waste the golden opportunity arising from the renewal of its key actors not to respond with determination to the mandate that a majority of citizens expressed in the recent ballot.

Full article on Paul Goldschmidt website

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