European monetary union

Tony Barber

You know that the European Union is in trouble when Russia offers more intelligent advice on the eurozone’s debt crisis than Spain, the country that holds the EU’s rotating presidency.  Dmitry Medvedev, Russia’s president, disclosed the other day that he had recommended to George Papandreou, Greece’s prime minister, that the Greek government should request assistance from the International Monetary Fund to sort out its problems.

This is exactly the course of action advocated by several non-eurozone EU countries as well as a host of distinguished economists and, dare I say it, the editorial writers of the Financial Times.  As it happens, I don’t agree – if by IMF assistance we mean financial help.  The IMF will be involved, along with the European Central Bank, the European Commission and eurozone finance ministers, in monitoring Greece’s public finances and providing technical aid as required. Read more

Tony Barber

An unambiguous message of solidarity among eurozone states will come from Thursday’s European Union summit in Brussels, but it is still unclear if this will translate into a specific financial rescue plan for Greece.  Debate among governments is continuing.  However, expectations in financial markets have been raised so high over the past 24 hours, what with European Central Bank president Jean-Claude Trichet flying in for the summit from Sydney and officials in Berlin hinting at a German-led rescue, that it would be risky for the EU leaders not to commit themselves to some sort of initiative.

There are various possibilities: bilateral loans from Germany and France, with perhaps Italy and the Netherlands chipping in; an International Monetary Fund-style standby facility, organised among the 16 eurozone countries; or an EU-wide loan, involving a show of support from all 27 member-states.  It is quite likely that the IMF will be asked to continue providing Greece with expert technical advice, but I don’t think the eurozone countries will go further and call on IMF financial resources.  Apart from anything else, there is a fear that the US may raise objections on the grounds that the IMF’s firepower should be reserved for fighting emergencies not in prosperous Europe but in other, more disadvantaged financial hotspots. Read more

Tony Barber

Europe’s leaders are getting radical.  On Thursday the presidents, prime ministers and chancellors of the European Union will meet for a day of economic policy discussions in Brussels – but not in their normal location, the marble-and-glass Council of Ministers building, famous for its charmless, disinfected atmosphere and its 24km of headache-inducing corridors.  No, this time they will get together in a nearby building called the Bibliothèque Solvay, which is a pleasant old library rented out for dinners and receptions.

The switch of location was the brainwave of Herman Van Rompuy, the EU’s first full-time president, who thought it would encourage a more creative, informal exchange of views.  He has introduced another innovation: each leader is to be restricted to just one adviser at the talks.  This isn’t a problem for countries with leaders who are masters of economic policy detail.  But others are less happy about the arrangement.  It is whispered that the Italians are swallowing especially hard, wondering what on earth Prime Minister Silvio Berlusconi will say once he’s on his own. Read more

Tony Barber

From a European Union perspective, it’s somewhat surprising that the extraordinary financial crisis we’ve been living through has not generated more pressure for another big push at EU integration – if not in the political sphere, then at least in the economic one.  According to conventional EU wisdom, it usually takes a crisis to make Europeans understand why closer integration is a good thing.  But on this occasion, it’s not happening – or at least, not yet.

For the perfect explanation as to why this should be so, I recommend an article by Otmar Issing, the European Central Bank’s former chief economist, in the latest issue of the journal Europe’s World.  Issing’s article discusses the merits of issuing common bonds for the 16-nation eurozone – an initiative that would, in theory, mark a major step forward in European integration – and comes down firmly against the proposal. Read more