We use cookies to help improve and maintain our site. More information.
close

September 27, 2017

On the future of the eurozone

We noted two contributions on the future of the eurozone this morning. One came in a letter to FAZ by a group of 15 French and German economists, most of them well known to us, urging France and Germany to take decisive action to fix the eurozone. They argue that the eurozone remains fragile for three reasons. The first is that stabilisation depended on the ECB, and the expansive monetary policy will eventually end. The second is that the legacy debt from the global financial crisis and the eurozone crisis remains formidable. And the third is that the instruments currently used - like the stability rules - have proven largely ineffective. The authors rightly note that France and Germany mean very different things when they talk about a European budget, or a European finance minister. These differences reflect deep divisions between the positions of both countries. If both sides stick to their position, the most to be expected would be "small solution" as the authors call it, a PR stunt (our expression) that will not solve any problems because it will not address the underlying issues. 

Germany and France should instead aim for more ambitious goals. The authors say one way to overcome the division over transfers and common budgets is to create non-fiscal and non-monetary instruments, like a common deposit insurance (is this not fiscal?), or further integration of capital markets. They will also need to take decisions on legacy debt, especially in view of the exposure of national banks to the government debt of their host countries. This will also have to include a discussion of eurozone-wide debt instruments. 

A compromise would require Germany accepting a greater degree of risk sharing, while France accepts more market discipline. 

It is clear from the tone of the letter than not all of the signatories agree with all of the points - so this is meant as a compromise not only for the French and German governments, but also between the economists' own different positions on this issue. We would agree that this would be a good way forward. We agree in particular that the eurozone will remain fragile unless these issues are addressed.

We also noted from Martin Wolf’s FT column a more specific suggestions by Adam Lerrick of the American Enterprise Institute, who proposes a scheme to deal with asymmetric fiscal shocks arising when sovereign bond yields diverge, as they did in 2012. He proposed a financing-cost stabilisation account, whose funds would go to members experiencing difficulties. We believe this is a non-starter because the ECB already put an instrument in place for this eventuality, the OMT programme, and there is no desire by northern member states to load this instrument with a fiscal capacity.

The approach chosen by the group of Franco-German economists seems to us a more promising route.

Show Comments Write a Comment

September 27, 2017

Catalan prosecutor orders sealing off polling stations

The Spanish government's last step to stop this Sunday's Catalan independence referendum - which is being organised in violation of a constitutional court injunction - is to prevent the use of the designated polling stations. To this end, the chief prosecutor of Catalonia has instructed the regional police, the Mossos d'Esquadra, to seal off all polling stations - usually public schools though other buildings can be used - by Friday. Any election materials present at the polling stations, or brought there until Sunday, must be confiscated. The police is also charged with ensuring voting cannot take place within 100 metres of a polling station, even on the street, dispersing gatherings if necessary. For this purpose, it will be necessary to keep a patrol at each of over 2,000 polling stations. At the latest regional election, there were just over 2,700 polling stations in Catalonia. Such an operation is likely to stretch the Mossos' capabilities, as they have under 17,000 officers. Meanwhile, La Vanguardia reports the firefighters of Barcelona have offered the grass-roots Catalan National Assembly ANC to help keep security and ensure that voting can take place.

The situation is serious enough that Mariano Rajoy will miss the informal EU summit in Tallinn this Friday.

Show Comments Write a Comment

September 27, 2017

Did the EU write May’s speech?

In the discussion about Brexit, whether it will be hard or soft, it is important to distinguishing the two phases. The transition will have to be soft - it wouldn’t be a transition otherwise. The actual Brexit will be relatively hard, but the precise regime will not be known until the final free-trade agreement is negotiated and ratified. 

Peter Foster has a revealing story in the Daily Telegraph in which he writes that there were contacts between UK and EU officials ahead of Theresa May’s speech in Florence. The phrases in her speech relating to Britain’s readiness to honour commitments made during EU membership, and the pledge that nobody should pay additional sums as a result of the UK’s decision to leave, had been pre-agreed. 

Ms May’s speech managed to change to the tone of the debate - so much so that Donald Tusk, who visited her, concluded that the UK is no longer wishing to have its cake and eat it. But he also noted that sufficient progress has not yet been made. The EU wants these pledges to be translated into hard numbers.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • February 01, 2017
  • Do Republicans have a plan B if Fillon falls?
  • Unforgiven
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 31, 2018
  • Hans Werner Sinn demands German euro exit
  • The politics of the SPD’s links to Russia
  • September 18, 2017
  • Why Germany cannot lead Europe, let alone the free world
  • Will Macron help to build up Mélenchon?
  • Boris' Coup
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 12, 2018
  • What the euro debate is really about
  • How Brexit can still falter
  • July 06, 2017
  • On Merkel’s imperial overreach
  • When the opposition opposes to oppose
  • Everybody wants the medicines agency
  • November 29, 2016
  • On the politics of the Italian referendum
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 10, 2018
  • A mood of radicalisation in France
  • The German far right makes inroads into trade unions
  • On the absurdity of a new centrist party in British politics
  • October 12, 2017
  • Panicking in London
  • Gabriel's unbearable hypocrisy on the eurozone
  • April 15, 2017
  • Happy Easter
  • October 19, 2016
  • Walloons stand firm
  • Juppé and Macron - father and son?
  • J’ai vraiment dit ça?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • January 19, 2018
  • On the futility of discussing the German current account surplus
  • The Brexit revocation madness
  • Varadkar, the enfant terrible in the Brexit negotiations
  • September 14, 2017
  • Bravo Mr Juncker
  • ... what he said about the labour market
  • ... and what his speech means for Brexit
  • May 11, 2017
  • Germany rejects IMF’s policy recommendations before they are issued
  • Why Labour is losing
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 26, 2016
  • Will the refugee crisis return?
  • Montebourg en avant
  • Moisi on Sarkozy's chances
  • Binary choices
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • June 14, 2018
  • A Labour rebellion, really?
  • May 23, 2018
  • Mattarella’s limited options
  • May 03, 2018
  • Finland's take on universal income
  • The lessons from Weimar
  • April 13, 2018
  • German support for eurozone reform next to zero...
  • ... and no support for France on Syria either
  • A French sermon
  • Why the euro endures
  • March 26, 2018
  • On the run no more
  • Terrorist attack will challenge Macron
  • A double-whammy of geopolitical and financial uncertainty
  • March 08, 2018
  • EU will not offer UK a financial services deal
  • What if the DUP implodes?
  • Has Mario Draghi expropriated German savers?
  • February 19, 2018
  • SPD divided over grand coalition
  • Wauquiez - the French Trump?
  • Why Brexit will be extremely hard to reverse
  • February 02, 2018
  • Centeno cleared
  • How Brexit can go wrong
  • A short note on Five Star and the Lega
  • January 18, 2018
  • A Franco-German blueprint for eurozone reform
  • Philippe's controversial airport decision
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • December 18, 2017
  • SPD regional party preemptively rejects grand coalition
  • Future of eurozone to be decided by March - we can hardly wait
  • December 04, 2017
  • Can Brexit still be stopped?
  • Could Poland open up the Posted Workers Directive again?
  • Has the Bank of England solved the productivity puzzle?
  • November 24, 2017
  • Irish snap elections in January?
  • Alternatives to single market membership
  • Are the Irish bluffing?
  • November 15, 2017
  • A Christmas bonus for poor Greeks
  • Dim prospects of negotiated de-escalation on Catalonia
  • Macron's favourite to succeed Juncker - first round
  • On sovereignty
  • Gli Azzurri
  • November 06, 2017
  • Pressures on EU rise over Catalonia
  • German pre-coalition talks hit glitch
  • If you thought UK politics couldn‘t get worse...
  • October 30, 2017
  • Italy's electoral reform seems to backfire already
  • Bregretometer hits another peak
  • October 23, 2017
  • Macron's plans for the European Parliament
  • First phase of Brexit negotiations in final stretch
  • Why the left hates Europe
  • October 16, 2017
  • What‘s the deep meaning of the elections in Lower Saxony?
  • Can Brexit be revoked?
  • Macron's grand narrative
  • October 09, 2017
  • UK is starting to prepare for a no-deal Brexit
  • Why Germany will resist meaningful eurozone reform
  • October 05, 2017
  • May clings on
  • On German ECB conspiracies
  • Mélenchon's crusade against the EU flag
  • October 02, 2017
  • Catalonia recalls EU and eurozone instability
  • French trade unions increase pressure over labour reforms
  • Watch out for a political accident in the UK
  • Municipal elections boost Portugal's Socialists
  • September 28, 2017
  • The closing of the Catalan polling stations
  • Still dreaming of a US-UK trade agreement?