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¿Un salto gigante para Europa?

May 26, 2020 Lucrezia Reichlin

LONDRES – El fondo de 500 mil millones de EUR (547 mil millones de USD) para la recuperación de la COVID-19 que propusieron la canciller alemana Angela Merkel y el presidente francés Emmanuel Macron fue recibido como un punto de inflexión para la Unión Europea, por buenos motivos. Más allá de sus implicaciones económicas concretas, la propuesta reafirma un compromiso con la solidaridad por parte de las dos mayores economías de la UE, preparando así el terreno para un avance genuino hacia la unión fiscal.

La propuesta básica es simple: la UE tomaría créditos de largo plazo en el mercado con la garantía implícita del presupuesto común, luego canalizaría los fondos obtenidos hacia las regiones y sectores más golpeados por la crisis de la COVID-19.

Aún hay mucho por negociar, por ejemplo, si ofrecer créditos o subsidios, el tipo de condiciones que corresponderían a los proyectos y el grado en el cual habría que aumentar la capacidad fiscal agregada. La oposición de los llamados «cuatro frugales» —Austria, los Países Bajos, Finlandia y Suecia— indudablemente obligará a buscar un acuerdo.

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The Eurozone’s Real Weakness
Juhari Muhade/Getty Images

The Eurozone’s Real Weakness

Lucrezia Reichlin highlights the difficulties facing the monetary union's policymakers in the event of a new recession.

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COVID-19 Is an Opportunity for Europe
John Thys/AFP via Getty Images

COVID-19 Is an Opportunity for Europe

Lucrezia Reichlin
The European Union has always advanced on the back of crises. In this sense, the COVID-19 outbreak could represent a chance for the EU to create a powerful crisis-management mechanism, which pools members’ resources and channels them toward a coordinated fiscal policy.
advocates a coordinated fiscal stimulus that takes advantage of the European Union's joint-financing power.

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Europe’s Hamiltonian Moment
Francois Mori/Pool/AFP via Getty Images

Europe’s Hamiltonian Moment

Anatole Kaletsky sees a potential historic breakthrough in the new Franco-German proposal for a European recovery fund.

13
The Euro’s German Question The Big Picture
Bjorn Holland/Getty Images

The Euro’s German Question

With a controversial recent ruling, Germany’s Federal Constitutional Court has intensified its long-standing conflict with the European Central Bank. Does the court’s judgment represent an existential threat to the eurozone, or is it the wake-up call that Europe needs?

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0 Comments on this paragraph, 7 Comments on this article

Frans Withofs May 31, 2020

I feel unease with the EU which for me dated back to 2005 when a majority in France and the Netherlands voted against the proposed constitution. The answer of the elites was: dumb people, no problem, we'll make a Treaty with nearly the same content, the so-called Lisbon-Treaty. It is evident that when you behave like this , people become angry, populist, or indifferent...
The Euro was set up by the Maatricht Treaties. They were and are a very delicate balance between the different parties involved. What have we seen since ? Since 2012 we have seen an accrued transgression of the rules concerning the no-bail out clause, the respect of the Maastricht-criteria has been a bad joke, and now the ECB by closing the spreads of interest rates monetize national debts. Of course no official will admit that but that's what happening...
Now we have the poposal for a fund of 750 billion. First, I am curious knowing the terms and conditions of the financing, but I am pretty sure that a big part of those issues will find their way to the ECB-balance sheet. Secondly, the Commission proposed the reimbursment of this 750 billion with an increase of own fiscality: air fare taxes, plastic taxes, GAFA-taxes… Again they seem to present this as painless for ordinary citizens. Well, it will not. It is evident that those companies will increase their prices…
Futher , it seems for me quite evident that if a country accept the funds , they should also accept the control on how and on what the country spend this money. It cannot be an hammock.
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Patrice Horner, CFP, MBA May 28, 2020

This is an evolutionary movement towards a workable federation. There may be anticipation of proportional recapture of the funds disbursed. Non-recourse debt would be frowned up across the North/South divide. The point is the acknowledgement of a common capital pool.
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Jeremy Duke May 28, 2020

The EU faces very difficult governance problems, as highlighted by the New York Times, among others:

https://www.nytimes.com/2019/12/17/world/europe/EU-farm-subsidies-corruption.html

Unless these are be tackled, it is difficult to see the more northern and so-called "frugal" countries buying in to this. But to push on without such buy-in will surely increase the appeal of more marginal parties such as the AfD in Germany, which will gradually propel them further to the main stream. Creation of true accountability should ideally come before any mutualisation of debt. Current circumstances make this impossible, but voters in the northern countries are likely to be vigilant when it comes to ensuring that the funds so raised are well spent.
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Henk Crop May 28, 2020

Europe could surely use a giant leap. However not in the direction that the centralists thinkers (Brussels/France) has usually in mind.
Under Juncker that direction was "the ever closer Union". It now seems to be off the table.
The new Commission has not yet produced a new plan.
My suggestion is that the members only approve the recovery fund on the conditions, that not only the members restructure, but also the EU organisation itself.
More transparancy, more directed at serving the citizen, cut on nepotism ( Selmayer), more real democracy, no Spitzenkandidaten. more involvement of the National Parliaments, limits to the bureacratic EU expansion, limits to foreign adventures.
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Michael Hullevad May 28, 2020

It is very hard for a frugal Dane to understand the lack of reforms in Club Med. We now retire at 70 but a french traindriver retires at 50. The EURO were a political "invention"! From an economic perspective it were not sane to implement it without a Economic Treaty. De Gaulle said: We wil end up in a league of nations! I hope he were right.
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Bernhard Kopp May 28, 2020

They are pushing forward with mutualising the debt, the source of funds, without any stringent harmonisation of the use of funds. For expenditures, the receiving countries will remain sovereign states. This disparity will fuel the animosity among the peoples of the EU members, it will lead increased resentment, hatred of the political class, and it will open the doors for civil unrest. What they are planning to do is totally destructive for the noble project of European Unification in peace and prosperity.
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David Punabantu May 27, 2020

The post COVID 19 economic reconstruction of the EU has to not only look inwards but also look outwards. The problem the EU faces is the use of a single currency. Looking back in history the dilemmas the EU faces is the strong Franco-German position within the union. As seen in 1949, Britain devalued the pound sterling by 30%. This was a major world economic event given that the pound was and still is one of the major currencies in the world, much like a single currency shared by sovereign states. In fact, 9 other countries followed suit then. They were Australia, India, South Africa, New Zealand, Eire, Denmark, Norway, Egypt, and Israel. Interestingly, several among those who devalued were former British colonies. They devalued by a similar margin as if their economies had the same posture of the British economy including having the same financial muscle. In reality the effect of the devaluation was much greater in India, Norway, Denmark etc as their economies had to absorb more liabilities greater than the 30 percent. This is the same crisis the Euro and the EU is facing. The German economy cannot be compared to the smaller EU states that cannot fully absorb changes on the EU as Germany can, hence Germany gets richer at the expense of other EU states that are driven into poverty. Within this gets built the COVID19 recovery plan which is a symptom of the structure of single currencies.
Understanding the symptoms of a single currency that represents a single value across many sovereign states is clearly seen in the IMF fixed cross rates system. The IMF fixed cross rates goes against the free market system. The IMF fixed cross rates are based on the exchange rate of the US dollar against the Sterling pound. For example on the 30th of March 2018, the Sterling pound value to the US dollar was £1 equal to US$1.404. The Euro value against the Sterling pound was £1 was equal to €1.140 while against the US dollar it stood at US$1 to €0.81169. By dividing €1.140 by €0.81169 it gives the cross rates of 1.404. When looking at the North Korean Won its Sterling pound value stood on the same day at KPW1,263 while its US dollar value at KPW900.69 giving a cross rate of 1.403. For the Japanese Yen on the same day the JPY149.067 for the Sterling pound manifested and JPY106.185 for the US dollar giving a cross rate of 1.404. The same picture is seen in the Indian Rupee INR65.06 per US dollar against INR91.36 per Sterling pound to give a 1.404 cross rate. The Canadian Dollar CAD1.288 per US dollar against CAD1.809 per Sterling pound to yield a cross rate of 1.404. The Ethiopian Birr ETB27.56 per US dollar against ETB38.69 per Sterling pound gives 1.404 as a cross rate. The Chinese Reminbi CNY6.272 per US dollar against CNY8.812 per Sterling pound gives a similar cross rate as all currencies across the world do. The question is do all money markets across the world have day in and day out the exact liquidity of Sterling pound and US dollars to reflect the exact exchange rate between the UK and US as reflected in the IMF fixed cross rate system? Are these fixed cross rates really justified in comparing the EU cross rates value to be exactly the same as North Korea?. The reality on the ground is IMF fixed cross rates distort the market and value and thus undermining free trade. It distorts value to create and perpetuate debt and deficits within the fabric of the EU economies. The EU needs to remove the economic constraints of the IMF fixed cross rates and move to free floating cross rates.
This would give the EU the PRICE edge over China and make it globally competitive.
An example of free floating cross rates was noted by managing director Mr. M. Gutt at Harvard University on the 13th February 1948, when he presented a paper entitled The Practical Problem of Exchange Rates.
Then, the official direct Sterling-US dollar rate ruling in Britain and the United States is one Sterling pound to US$4, but the Lira-Sterling and Lira-US dollar direct rates are such that the Sterling pound-US dollar cross-rate in Italy is one Sterling pound to US$2.6."
Americans found it cheaper to purchase goods from the UK via Italy until the IMF stepped in and imposed the IMF fixed cross-rate system in favor of the UK and not Italy nor the US. Even corporate Britain lost out on the increased consumer demand, as Americans demanded from the UK British products that appeared cheaper through the Italian money markets.
Corporate and ordinary Americans at the end of the day because of the IMF fixed cross-rate system, had to pay out more US dollars for the pound, while corporate Italy lost out on US dollar inflows because the market price of the US dollar to the Sterling pound was temporary in a pseudo-free floating Lira driven market system based on Lira liquidity.
The IMF ban contradicts Article VIII Section 3 of the Fund Agreement, in that no member shall engage in any discriminatory currency arrangements or multiple currency practices.
The EU needs to move to Free Floating Cross Rate to reflect the real position of currencies within markets and let currency arbitrage equalise quotations between markets.
As for the single currency the Euro it would have been better to use the Euro for outside transactions outside the EU, while nations within the EU maintained their national currencies to trade within the EU so that each nation with in the EU economically communicates with its members through their national currencies as in the post-Euro era.
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The Eurozone’s Real Weakness

COVID-19 Is an Opportunity for Europe

Europe’s Hamiltonian Moment

The Euro’s German Question

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