The Eurozone might be a salvation to the crisis
Adelina Marini, October 18, 2008
This week there was a European Council in Brussels - this is one of the most important forms for decision-making of the EU because it puts together the leaders of the member states. As expected the financial crisis was the main topic which replaced even the discussion about the Lisbon Treaty which in the long term should be more significant.
Nevertheless, I have decided to draw your attention indeed on the Lisbon Treaty because I think this is the document which would give the EU much more adequate response to global challenges, the financial crisis including. I will start with that part of the Lisbon Treaty which is related to the single monetary policy and the tools which could have been applied to tackle the impact of the crisis. For example, article 115 A of the Treaty is related to the member states of the Eurozone. It says: "In order to ensure the proper functioning of economic and monetary union, and in accordance with the relevant provisions of the Treaties, the Council shall, in accordance with the relevant procedure from among those referred to in Articles 99 and 104, with the exception of the procedure set out in Article 104(14), adopt measures specific to those Member States whose currency is the euro: (a) to strengthen the coordination and surveillance of their budgetary discipline; (b) to set out economic policy guidelines for them, while ensuring that they are compatible with those adopted for the whole of the Union and are kept under surveillance".
All this can happen after voting with qualified majority. In article 155 C it is written that: "In order to secure the euro's place in the international monetary system, the Council, on a proposal from the Commission, shall adopt a decision establishing common positions on matters of particular interest for economic and monetary union within the competent international financial institutions and conferences. The Council shall act after consulting the European Central Bank." The bank itself, together with the central banks of the member states of the Euro Group shall establish the European system of central banks which will conduct the monetary policy of the Union. And one more very important thing, the ECB will have a legal personality which means that this will be an independent organ which will be responsible for the issuing of money as well. The main task of the Bank will be to support the price stability in the Eurozone. This actually is a new text which as put during the negotiation of the Lisbon Treaty. In other words this text had not been in the founding documents of the Union.
Now the question is whether a crisis of such a scale, as some experts say it can no longer be compared to the Depression, could be controlled by an economic and monetary union of the kind of the Eurozone in its current jurisdiction? This week in the British daily "Guardian" Simon Tilford writes that the eurosceptics have always maintained the thesis that indeed such a crisis will prove that such a Union is necessary. He thinks though that such a crisis will prove only that an economic and monetary union without politically binding would be a failure.
His arguments are that there are deep macroeconomic imbalances within the Eurozone. With the introduction of the euro the competitiveness of member states has started being significantly diverse, mainly because of the strict restraint of salary increases in Germany and the Netherlands and the very law productivity in countries like Italy and Spain. As a result, writes Tilford, very big deficits appeared in the current accounts of Spain, Greece and Ireland and in a lesser extent in France and Italy. The bad thing is that all this is happening in the background of large surpluses in Germany, the Netherlands and Austria. In many of the states there's even a depressing economic growth which can be related to the statistical margin. Tilford gives as an example Italy, Portugal and to some extent Spain.
Let us see now what was negotiated at the European Council in Brussels. A new mechanism for early warning will be created to give opportunity for quick and effective actions in case of a crisis. There would also be an exchange of information and assessment. This mechanism will consist of representatives of the current Presidency, the president of the European Commission, the ECB, the president of the Eurogroup and representatives from member states. This mechanism will work with the current administrative structures and will be activated only in case a member state is on the brink of a crisis. Beside this, the Council requested speeding up of the procedures of the current European Commission legislative proposal for increase of control over the work of the rating agencies on European level.