Some days ago, I was asked by Greek Sunday newspaper To VIMA to bring them in contact with some of the main signatories of the Declaration in favour of a new New Deal for Europe, a statement of support for the Modest Proposal’s main tenets. Three questions were posed by Pavlos Papadopoulos (To VIMA financial journalist) and they were promptly replied to by Giuliano Amato and Guy Verhofstadt (former Prime Ministers of Italy and Belgium respectively). The full story will appear in TO VIMA tomorrow (Sunday 10th July). Here is an exclusive with the english text of this brief, but interesting, Q&A.
Questions by Pavlos Papadoloulos, replies by Giuliano Amato and Guy Verhofstadt
- In the Declaration you have signed, you have argued that the conversion of 60% of national debt to European debt provides a solution to the European debt crisis. This implies that 60% of the debt becomes common debt and will be guaranteed by all sovereign states simultaneously. Could this be done without closer political integration of the eurozone? Do you think that federalization ofEuropeis the ultimate solution to the debt crisis?
An economic and monetary Union cannot function properly without a political union.Europeneeds a genuine economic policy. That lack of this policy is one of the main reasons why we are not able to emerge from the current crisis.
But our article in the international edition of The Financial Times on Monday July 4th stresses that there is no need for the converted debt to be common debt or therefore guaranteed by all sovereign states simultaneously. This is a central point from our analogy with the New Deal. Viz:
“The bonds which mainly funded the New Deal were not financed or guaranteed by American member states such asCaliforniaorDelaware. TheRooseveltadministration demanded no fiscal transfers from them, and it did not buy out their debt.
“In the same way, the EU need not do so to issue Eurobonds. The European Investment Bank has issued its own bonds successfully for fifty years without debt buy-outs or national guarantees or fiscal transfers.”
On debt conversion we also stressed that although the converted debt could be held by the Union neither theUnionnor other member states would fund it:
“The member states whose share of national debt was converted to EU bonds could service it at lower and sustainable rates from their national tax revenues, without fiscal transfers from others.
- You have mentioned that “countries likeGermanyhave gained from a euro which is lower and more competitive than it would be for a core eurozone of fewer countries”. Do you believe that the Eurobond is necessary as the essential tool to correct the intra-eurozone imbalances that the euro has been fuelling in the first decade of its history?
We distinguish between debt conversion to stabilise the crisis and net issues of Eurobonds to finance recovery and growth. Both are needed. But a recovery financed both by the EIB on its own bonds and co-financed by the inflows of funds to the Unionthrough Eurobonds can contribute to both convergence and cohesion. The EIB has had such a remit since 1997 (see the 2008 European Investment Bank report, Fifty Years of Sustainable Development pages 54 to 58 Promoting Economic and Social Cohesion in the Enlarged EU).
The convergence and cohesion areas were defined by the 1997 Luxembourg European Council as investment in health, education, urban renewal and the urban environment. These were extended by the Lisbon European Council 2000 to include financial support for small and medium firms, and especially new high tech start-ups. The Nice 2008 Ecofin remitted the EIB to extend this support for small and medium firms by €30 billions.
Since 1997 the EIB Group – including the European Investment Fund – has quadrupled its investments which now are more than two thirds of the Commission’s ‘Own Resources’. It readily could quadruple these again by 2020 with co-finance from net issues of Eurobonds and make a reality of the currently frustrated ambitions for a European Economic Recovery Programme.
- Do you believe that without the bold solution you have suggested the eurozone crisis will almost certainly spread from one country to another threatening the stability and the future of the eurozone itself?
We should not wait for rating agencies rather than governments to decide the issue. Conversion of a share of debt without eitherUnionor national guarantees, or debt buy-outs or fiscal transfers is entirely feasible by a decision on an enhanced cooperation basis within Ecofin.
