Dimitris Rapidis

In the last week’s Summit in Brussels, Eurozone’s political elite has agreed that the creation of a fiscal union is vital so that the debt-striken, monetary union’s integration can be finally achieved. Nonetheless, there are two conflicting perspectives about how this process can be achieved.

The first one focuses on the establishment of robust rules for the punishment of the non-abiding member-states. The second one puts emphasis on the fact that weak economies have to be supported as long as they face debt irregulation. Germany stands for the first option that entails more wipe and less carrot. After that, the critical achievement of the Summit was that the ECB was “upgraded” to the highest regulatory body of the European banking system, meaning that it is going to monitor banks of the Eurozone’s member-states, including the German ones. Therefore, the crucial step towards banking integration has been achieved and the ECB will be in place to regulate and deal with the so-called “grey zones” and the illusive mechanisms that take profit from the deficiencies of the entire banking system.

Nevertheless, the monitoring of the banking system from the ECB it is not but a part of a bigger effort called “banking union”, which is designed to function as complementary tool to the fiscal and political union. From that perspective, the ECB is functioning as a “punisher” for those banking institutions that do not comply with the rules of a fair market. This is the wipe part.

The carrot part was already discussed and elaborated in last June’s Summit, where it was agreed that the ECB would be in position to soar up member-states’ banks with additional funds when conditions demand it. But Chancellor Merker clarified at the time that this mechanism will not be implemented backwards (i.e. as in the case of a couple of Spanish banks, that had already declared a “difficulty” in fulfilling conditions of liquidity BEFORE the Summit on June and therefore will not be eligible to receive further stabilization funds afterwards). Therefore, where is the real problem here?

The real problem is that no reference was made regarding a common agreement on the safeguarding of savings. As a matter of fact, in the last Summit emphasis was only put on measures that would guarantee fiscal discipline and financial reforms, with no mention on how savings will not flee or get roughly cut by a sudden financial crackdown. After all, the Growth and Stability Pact that was destined to fulfill both targets, has been transformed into a Discipline Pact with no provision for growth.

Despite the fact that this incline towards the Discipline Pact was what Germany was vying for, I firmly believe that some certain regulations over the fate of overdebted states should at least be mentioned. In this respect, it not yet clarified what would happen in case Greek or Spanish governments can no more afford to soar up their banks or what would be the outcome of a massive savings withdrawal. Furthermore, has the EU pondered about a possible social upheaval in overdebted countries that would lead to the rise of political parties that might deny to abide by the banking regulations? Has the EU though about the fact that bond owners would be more skeptical and fearful about their losses and therefore try to impose more regulations over the banking system?

I believe that these questions should start concerning Eurozone as long as there is nothing more certain than the fact that nothing seems stable nowadays. Otherwise, we should all realize that there is no Growth and Stability Pact, but Discipline Pact and start debating about a real Growth and Stability Pact hereafter.

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