No, it is not the credibility of the ECB which is at stake here, the real insecurity is a combination of the Euro and the the economic and political dysfunction of European institutions in general. When the Euro was concocted, it was first a political compremise. Politicians at the time believed the currency would force further political integration and political union. The risk to have financial markets aggravate the various differences and risk involved in the existing disparity between the political and monetary union, were grossly underestimated. Yet the risk was taken deliberately non the less. European leaders like Helmut Koll, Mitterant and Chirac, Lubber and Kok, Prodi, Delore, were all high as a kite, making history! It was easily forgotten how the welfare state and the demographic challenges of the near future (meaning today!) did not allow for monetary experiments. Of course also, nobody expected an entire country to commit fraud. Greece was allowed to enter the Euro zone because of sentimental (historical heritage) and geo-political (the Balkan wars, Turkey) reasons. Goldman Sachs was allowed to help Athens to cook the books. Now it is the world of Goldman Sachs that drives up southern borrowing costs, and pits the South and North against one and other. The solution is not a piecemeal approach by the ECB, but a coup d'etate: a D-day meaning a Greek exist, a devaluation of the Euro, a debt restructuring of nearly insolvent countries and Target2, and a thank you good bye to banks and hedge funds.
I find it amusing how an institute named after a Flemish painter advocates an American Federal Model as the end game of European integration. It lacks understanding of European history to believe for the forces of globalization to transform the old continent after a split image of the USA. Besides, the introduction of federal legislation was always piecemeal. While the US federal government only managed to take control over macro and financial policy by means of the US civil war. So it is foolish to think for a meeting or debate to introduce a pan-European legislative body. There will be no constitutional congress in Europe. Instead Europe is to look at its own identity, not from the enlightened ideals of statehood fashionable in the late 18th and 19th century. The European notion of State is much older, much more complex and paradoxal. European politics is first and foremost defined by privileges. Sovereignty is a privileged earned. Towns, courts, states, all earned the right to exercise law, to be free from the laws of others. This process has been continuous from the high Middle Ages onwards. Slowly Europe had emerged out of a nearly Hobbesian state of feudal society, into a complex modern world tight together by a balance between the rights and privileges of the individual and the believes and the interest of the community and its neighboring localities. Today we have an abstract European community that resides in Brussels. Yet European communities have existed before, transcending language and cultures, economic and political interest. Christian Europe united by a common gospel and Roman law exists for nearly one and a half millennia. The Latin speaking world survived the continents darkest hours. The renaissance was a cultural and intellectual movement that inspired the entire continent. Humanism facilitated and articulated the first modern notions of statehood, formalized justice, codified the right to govern once own community; the freedom of interference by foreigners or higher princes. While ironically, the aristocracy was the foremost European community if there ever was one. The US model is relatively new. Its evolution runs parallel to the advent of modern ideas since the French revolution onward: the rediscovery of democratic ideals, the introduction of purely civic law, the understanding of the state as an absolute abstract authority, the embodiment of the people in flags and songs, the emergence of the national identity, centralized taxation and industrial and economic development. By stressing the antiquity of the European of statecraft, I want to exemplify how the state is defined and understood differently all the time. It is wisdom to understand there can be no consensus on what constitutes the ideal government. Europe. Europeans govern themselves, and call their governments many different names. Most Europeans also have very bad experiences with a government that pretend to be a fair arbiter between the various localities that harbors the various communities that represent the European spirit. The papacy failed in its attempt to bring the universal peace. Charlemagne was but an anomaly. Charles the V wisely split the Habsburg Empire into two spheres of influence. His contemporaries considered napoleon the anti-Christ. The totalitarian states devised by communist and fascist leaders are the one single reason Europe started European integration in the first place. If you look for a European community, do not in Brussels. There is no shared interest to be found. Yet this does not mean there are no communities in Europa that share a continental interest. For example, the cities of Europe share a common ideal of what a European city constitutes, the European farmer has a shared interest, labor unions cooperate, the world of finance constantly share information, industrialists negotiate resource allocation, environmentalists are not national in scope, religious communities worship the same deity. These communities need a platform to facilitate cooperation, but as citizens, these people that comprise these communities, do not generally want a European government.
Buy Euro put and call options on the money for the month of September, perhaps rolling over into October November. The Dutch go to the ballots on the 12th too, which basically constitutes a referendum on the Euro. The Greeks need more time to save their budget, awaiting the report of the Trojka early October. The ECB is likely to start buying Southern European debt sooner rather then later. The hidden risk of the target2 imbalances slowly emerge from the shadows. The US elections are due, the middle east is ready to explode any minute now. If you work and Goldman Sachs, it is time to make money.
Great article! It illustrates the complexity of the European debt program, and shows for a multifaceted solution to be the best remedy to resolve the sever financial and economic disparity within the Euro-zone. Indeed, the number fetish of the European stability agreement seems irrelevant at this point in time. Indeed, the Euro-zone will disintegrate if the core-countries will try and make for the periphery to readjust the imbalance by a harsh wage-policy. Yet I miss two notions that are part of the European problem which I believe are intertwined with the financial and economic conflicts within Europe. First the lack of mobility in the labor market, second the issue of corruption and political culture. The EU is first and foremost a market place, at least it was designed as such. This also means Europe has one common labor market. Yet the reality of this common labor market has proven a fallacy. Language and cultural barriers prevent for the integration of the labor market. Now the authors of this article propose a divergence of wage policy within the Eurozone. German and Dutch employees are to earn more, Spanish and Italian employees are to earn less. I doubt if this is politically possible, and to what extent migration will countermand such an approach. Secondly, the difference in political culture, especially with respects to corruption, are to be adressed before the northern Europe even entertains the thought to make the South more competative at the expense of the north. In the financial sector it is called moral hazzard, to reward people or systems for failure. In short, the Germans and Dutch and Finish people feel the south has let them down. The Spaniards, Portugues, Italians and Greeks had an oppertunity with the introduction of the Euro, and they have missed the oppertunity. There needs to be accountability. If Dutch and German Euro's are to bail out Spanish banks, and finance the budget deficeit of southern countries, it has to come at the expense not only of the Dutch and German tax payer. Spanish bankers are to pay too, Spanish home owners need to mend their own mistakes. I believe the European wellfare state is a great good, and nobody in Europe is to suffer abject poverty or grave injustice. Yet people should take their own responsibility, and southern States like Spain and Italy are advised to make the maximum effort to regain the thrust lost, and not only at the bond market or Northern Governments, but also the public in Holland and Germany and Finland. Because strangely enough I have not seen a Greek politican on the Dutch TV apologizing for the mess in Athens, thanking the Dutch public for their support. Perhaps a little PR would not hurt people!