July 11, 2012
It was one of the fundamental topics of the last two summits in Brussels in an effort to provide a more direct and efficient solution to the recapitlization of banking institutions of overdebted states. But is this a realistic solution for Eurozone in order to address financial instability and pressure from global markets and keep alive the single currency?
Since now rescue and bail-out packages were flowing directly from the EFSF, the European Central Bank and the International Monetary Fund to governments so that national economies can shore up their teetering banking institutions. As Spanish, Italian and Cyprian bond yields are jumping to dangerous levels, funding national economies from the global market independently through private loans is getting even harder. We just need to look to the case of Cyrpus seeking a loan from Russia in a bilateral level or even earlier the case of Greece being unable to reach markets and get its debt privately financed without resorting to the EU. Therefore let us start from the conclusion that as growth and development planning is missing and investment rate is extremely low -leading to further recession, standstill production, and increasing unemployment- soaring the banking institutions in order to revitalize economies is something Eurozone and all European lending mechanisms cannot avoid.
Furthermore, as doubts over EU summit’s decisional and implementation power are still confusing global markets, recapitalizing banking institutions -instead of providing governments with binding growth plans where investments and packages can go through- is turning to be an inevitable solution. This is the second conclusion stemming from both the already acquired experience from the EU summits, as well as from the weak decisiveness and pace of national governments to minimize bureacracy and boost growth.
In addition to that, as national governments of overdebted states seem to rely on Eurogroup’s firmly stated policy to provide them with more rescue plans and bigger safety nets, reforms are waning. Instead of attributing governments with the privilege of functioning as channels of recapitalizing their banks indirecly, it might be more efficient for both ECB, IMF, and the EFSF to capitalize directly banks without any intervention of national governments. Let us all agree that almost four years now since the triggering of crisis all rescue plans have almost nothing succeeded to offer to overdebted states rather than increasing public debt, prolonging insecurity and social unrest, putting Europe into a vicious circle of endless debates, conflicts, temporary solutions, flourishing antagonisms, and making international credit-measuring institutions like Moody’s Standard and Poors behaving like regulators of the Eurozone and serving others on betting over speculations for the future of Eurozone.
Global and regional markets, including the European one, need to be finally regulated in a manner that widespread speculations will no more affect political decisions but instead being affected by political decisions. We all have finally come to the point that neither absolute economic liberalism nor state-centered economy can solely bring the long-awaiting financial security nor the lower necessitating degree of regulation in the international financial system. What is needed is a more flexible and combining model of regulation that will not impede but promote and balance a less rigid or a more loosening system of financial transactions. For Eurozone by elaborating all technical and political aspects of establishing a banking union it will be a turning point of mutual economic management and for sure a great step towards regaining its trust in the global market and keeping Euro robust in the international monetary system.Dimitris Rapidis