EMU Member States should ignore Brussels and do whatever it takes

Last Thursday (March 26, 2020), the European Council met to discuss the way in which the European Union would deal with the coronavirus crisis. Not much happened. Well that is not exactly true. A lot happened in the sense that even when faced with the worst health crisis in a century that is already devastating the populations in Italy and Spain and creating economic havoc throughout, the leadership split along familiar lines and failed to come up with any solution. There was a lot of talk about solidarity and all the buzz words that the European leadership frequently outputs in their wordy statements. But very little action and lots of acrimony, division and back to form behaviour. My view is that the Member States should now just do whatever they consider it takes to bolster their health systems and protect their economies, which will involve significant fiscal deficits (multiples of the allowable limits under the Stability and Growth Pact), and trust that the ECB’s unlimited bond buying spree will back them. And when the Brussels technocrats start talking about Excessive Deficit Mechanisms and the rest of the blather, they should just show them the door. And if push comes to shove, they just should exit the whole rotten structure. But now is the time for defiance and disobedience. Now is the time that democracy fought back and told the elites to be quiet.

In their – Joint statement of the members of the European Council, 26 March 2020 – the Council waxed lyrical (as usual):

The COVID-19 pandemic constitutes an unprecedented challenge for Europe and the whole world. It requires urgent, decisive, and comprehensive action at the EU, national, regional and local levels. We will do everything that is necessary to protect our citizens and overcome the crisis, while preserving our European values and way of life.

They then went on about border control, the provision of medical equipment, promoting research, before they talked about “Tackling socio-economic consequences”.

At that point, more motherhood statements:

1. “will do everything necessary to meet this challenge in a spirit of solidarity.”

2. Support for the ECB.

3. “take note of the progress made by the Eurogroup”

The Council had received a demand from 9 Member States of the Eurozone – France, Italy, Spain, Portugal, Ireland, Greece, Slovenia, Luxembourg and Belgium) – calling for the creation of a common debt instrument – a Eurobond.

This is the familiar story line – weaker state want something that is sensible in the context and the stronger states reject it outright.

And they dither on and the crisis gets worse.

The normal voices came out – Netherlands, Austria, Germany – stating they would never accept any jointly borne risk bond being created.

There were all sorts of excuses.

1. It would take up to three years to establish a coronabond facility.

2. Only existing mechanisms, which are inadequate and biased towards austerity, can be used.

3. This means the flawed – European Stability Mechanism – is it. That hardly inspires confidence.

The – Transcript of Klaus Regling’s interview for the Financial Times (March 31, 2020) tells us in relation to ‘coronabonds’:

It would take 1, 2 or 3 years, and member states have to come up with capital or guarantees, or assign future revenue … If you use existing institutions, the Commission can do much more from next year … one needs capital, guarantees, or assigned revenue. Otherwise, there can be no new European debt that’s issued …

He also claimed that there would not be any need for fiscal stimulus to push deficits out to, say 13 per cent of euro area GDP, which is one estimate of the scale of the response required.

He said that much of the adjustment can come from “automatic stabilizers … there will be a loss of revenue …”

So the same sort of resistance is present as usual.

Things take time.

Germany has made it clear that they do not want the ESM funds used too early – wait and see how bad things get.

The Dutch don’t want them used at all and are implacably opposed to creating a federal debt instrument that would spread risk across all Member States.

The Dutch government, however, is facing a type of internal political revolt over the coronabonds issue. Some of the coalition parties want more solidarity shown to Italy.

The ruling party couldn’t give a toss about Italy.

There has been talk from some of the politicians in the Netherlands for another ‘Marshall Plan’ to help Italy and other nations.

But the Dutch finance minister has been acting in classic European fashion demanding an inquiry into why the poorer countries didn’t set aside fiscal capacity to ensure they could meet the demands of the crisis without drawing on European help.

The Calvinists regularly come out with this sort of morality play and cast aspersions on the wastrels to the south of them.

Remember, the previous Dutch finance minister who claimed the nations that lined up for bailouts were just splurging their cash on “drinks and women”.

As the elites talk about solidarity, we read comments from say Portugal’s PM who accused the Dutch finance minister of making “repulsive” and “senseless” statements.

There was a letter published in the German newspaper by 12 Italian politicians – mayors, regional governors and one Member of the European Parliament – which sought to split the German-Dutch nexus (Source).

The accused the Dutch of lacking in ethics and solidarity

They reminded Germany that after WW2, the other European states allowed Germany to write off its debts, to help it get back on its feet without having to default.

They also noted how the Netherlands was a major tax haven.

We have been hearing the same old narratives – that if the Member States are not disciplined to look after themselves then there will be no pressure on them to engage in ‘structural reforms’ – read:

1. Hack into government spending including reducing the capacity of the health systems.

2. Sell off public assets to corporate vultures at bargain prices – thus shifting wealth from the public sector to the elites in the private sector.

3. Cutting pensions and other income support systems.

4. Creating more precarious work conditions and entitlements and cutting wages.

And all the rest of it.

The same old narrative also tells us that even though the world is enduring a once-in-a-century crisis (just after another similar crisis – GFC) – deficits will rise but they cannot be allowed to rise very much.

And, any assistance from the European institutions will require conditionality and payback, which means the chance of recovery from the crisis for the weaker nations is slim.

We we see a long, drawn out return to tepid growth and a massive legacy of elevated unemployment, underemployment, poverty, suicides and unnecessary deaths from the virus itself.

We have been hearing this sort of stuff for the two decades of operation of the common currency.

So the whole debate comes down to a basic and terminal lack of trust between the countries.

That lack of trust is also buttressed by an overt sort of racism and racial superiority.

Everytime there is economic stress, brought on by the flawed architecture of the EMU, the racism and lack of trust comes to the surface.

There is no European solidarity.

There is no ‘Europe’ in the sense that there is a common understanding and respect.

Suspicion is the norm, which is why the richer nations will do anything but set up financial vehicles to allow permanent transfers from north to south, which would help create the ‘convergence’ the elites always rave on about.

The norm in the EMU is divergence. It has failed badly according to its own objectives.

It is embedded in a sclerotic legal structure that resist reformation.

I have always espoused the view that the EU is incapable of reform. The neoliberalism and the racism is built into the very legal structure of the Union (in its treaties).

The citizens cannot just vote the neoliberalism away. Treaty change is nigh on impossible and as the latest shenanigans about coronabonds is demonstrating there is no chance of a progressive program agenda being accepted simultaneous by the remaining 27 Member States.

The Germans, the Austrians, the Dutch and most likely the Finns, will always scupper change that might help nations such as Italy and Spain, not to mention Greece and Portugal.

My solution

Regular readers will know I advocate unilateral exit as soon as possible, given there is little chance that the 19 Eurozone Member States will agree (as they should) to dissolve the common currency in an orderly manner.

In the interim they can do the following.

1. Adopt the position that their democratic responsibility is to their own people not to Brussels.

2. Realise that the ECB has announced an unlimited public asset purchase program to save the euro.

3. Take matters into their own hands and disregard all the dictates from Brussels and spend whatever is required to meet the health emergency.

The Australian government in one day announced a $A130 billion scheme to save jobs. I don’t like the scheme (there are better alternatives) but I like the fact that the Government is understanding that it must act quickly and in a large way. No delays, save jobs and businesses.

The Member State of the EMU should take a similar position.

Forget the Eurogroup.

Forget the Council.

Ban the European Commission bureaucrats from coming to their Ministries to do surveillance.

4. As well as issuing their own debt to match the increased deficits – given they are still using a foreign currency – the 9 ‘rebels’ could agree among themselves to issue a joint bond, which they would all share responsibility for.

It would be almost certain that the ECB would purchase it once it was issued.

They could then leave the ‘frugal four’ to their own mean-spirited discussions and get on with saving their nations.

5. By going it alone, these Member States would also be able to avoid all the ‘conditionality’ that would follow access to the ESM. They should steer clear of the ESM.

Bailout funds only bring more pain and suffering to the people.

6. And meanwhile, they should be working on the mechanisms to reintroduce their own currencies and restore their monetary sovereignty.

But in the meantime, they should act as though Brussels didn’t exist.

Conclusion

I hope this crisis finishes the Eurozone off for good.

More and more people are realising that it is beyond reform – and that goes for the EU in general. The Eurozone is just the most advanced expression of the neoliberalism built into the EU treaties.

Even though who have vehemently opposed splitting the EU up and were vocal opponents of people like me who advocated Brexit are now admitting that the EU is beyond reform and is at its core destructive and hurtful to ordinary people.

Out of this shocking crisis I hope there is a silver lining for the European nations – to go free of the yoke and leave Mr Hoestra and his peers to their small-minded racism and penal thinking.

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.