Sometimes we have to cultivate useless questions because they often lead to instructive discoveries.
Since I delight myself in this intellectual exercise, few days ago I asked myself: how will Europe be in ten years ?
You wouldn’t believe me, but I found some useful answers to my pointless question by reading a transcription of Yves Mersch’s (member of ECB board) aseptic but full of promises speech, entitled “Towards the European banking union.”
I will not dwell on the meaning and purpose of the banking union, on which I wrote in a different post.
What’s interesting is the passage in which Mersch recalls that “something new has emerged in June 2012 at the summit of European leaders: glimpses of a common European vision for a coherent architecture and life of EMU”.
Better late than never.
The protagonists of this vision were four presidents: of the European Council, Herman Van Rompuy, of the Eurogroup, Jean-Claude Juncker, of the European Commission, José Manuel Barroso, and of the ECB, Mario Draghi. The four visionaries drew up a document that was graphically nicknamed “The relationship of the four presidents.”
Supermario bros, a new video game for Europe.
I read the report and I began to think Europe has slipped into a dangerous adventure with an uncertain outcome which will require great skills to overcome the various levels of difficulty which will provide crises, falls and rebirths, as glimpsed by Jean Monnet, unsurprisingly cited by Mersch in a famous statement that “Europe will be forged by the crisis and will be the sum of the solutions adopted for the crisis.”
The Europe we should see ten years, which is the time horizon outlined by the four presidents in their report of June 2012, will be the result of this game, or rather, this mass media game, considering the battleground will mostly be TV studios and the internet.
Supermario bros’s Europe.
Ten years of time to play and four levels to beat. Each level hides dozens of pitfalls. Scary monsters (nation-states), traps and pitfalls, in the form of codes and codicils.
First level: The Banking Union. We already know that we are at a third of the work. After the approval of unified supervision it’s expected the approval of the resolution mechanism and then the deposit insurance. The result: a wobbly bank will be closed by the solver at no cost to the taxpayers but costs will instead be borne by shareholders, bondholders and depositors. In this way they aim to break the link, which is still very strong, between the banks and the states where they reside.
Second level: The fiscal union, “which includes – says Mersch – a unitary context of budget that goes beyond the fiscal compact.” To quote the words of Supermario Bros, “are essential for effective mechanisms to prevent and correct unsustainable fiscal policies in each member state.” How? “The issuance of public debt beyond the level agreed by mutual agreement, should be justified and approved in advance.” Under these conditions “in the medium term it could be considered the issuance of common debt that would involve the development of a greater ability to manage economic interdependence.”
Third level: The economic union, given that “greater integration – the report reads – is necessary to facilitate the coordination and convergence of the various policy areas between the countries of the euro.” This level of integration would be “particularly important to guide policy in areas such as labor mobility or coordination in the fields of taxation.”
Fourth level: The political union. Supermario bros admits that “decisions on national budgets are at the heart of parliamentary democracies, then move towards a decision-making process in the field of taxation and economic takes strong mechanisms to ensure the legitimacy and accountability of decisions common “.
Game instructions will also provide a working method. The four presidents will build a roadmap that will be socialized over time so that everyone will be aware.
That’s the game, and it’s already written. However, as often happens, almost no one is reading.
One question remains: who will maneuver the joystick?
PS Obviously, I don’t have answers. But I follow a track.
Yesterday, Mr Draghi said he was very surprised that somebody disputes the principle that states should recapitalize the banks that may be found capital deficient from the European Supervision, noting that states have already provided recapitalization for some time and that the resources made available to banks will not be counted among the parameters that define the fiscal deficit.
So, very soon, states will be called to pull out more money after those already spent to save the banks from 2008 and past. Clearly, they will have less to spend on everything else and even if it will help to stabilize the European banking system, it will threat real economy to become even more anemic. Since consolidation calls for another consolidation it’s easy to foresee another season of fiscal crises that will surely be a great encouragement to get to the second level of the game: Fiscal Union.
The crisis as ace in the hole to get to the next level, the winning trick of Supermario bros.
Considering prior events, there is more than enough to worry.