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THE STATE OF THE EUROPEAN UNION
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risk. For example, the design of the banking
union includes risk reduction elements (single
supervisory body) which are already in place,
and shared risk elements (European deposit
guarantee system) which have not yet been im-
plemented. Moreover, the reality is that the
countries of the eurozone already share risk,
because this is systemic; what they do not share
are the costs. Some of the structural problems
mentioned above are systemic problems, affec-
ting the whole eurozone, and thus can only be
addressed through shared eurozone-wide pu-
blic mechanisms, whose mere existence would
reduce risk.
However, over the past year neoliberal eco-
nomists have put forward a number of propo-
sals which, while ostensibly defending stability
and market discipline, conceal national interests
and raise the risk of sovereign instability.
Examples of this include the introduction of risk
weightings for certain sovereign bonds on bank
balance sheets, and the implementation of a
debt restructuring mechanism which assumes
that bondholders are capable of absorbing los-
ses. The underlying philosophy is pernicious and
poses a threat to the stability of the eurozone.
According to this approach, the problems of the
euro result from the markets’ miscalculation of
sovereign debt, which was classified as a risk-
free asset, leading the banks to accumulate sta-
te bonds from countries with poor fiscal discipli-
ne. This failure in market discipline would
explain not only Greece’s fiscal problems but
also their spread to other peripheral countries.
In this view, the solution to this lack of discipline
is to tighten the conditions under which natio-
nal banks purchase sovereign debt and to create
a debt restructuring mechanism, which would
make it possible for state bonds to default.
The reality is that, if implemented, these pro-
posals would massively undermine confidence
in the markets and thus destabilize them, inten-
sifying the existing problem of financial frag-
mentation and clearly penalizing certain
southern European countries to the benefit of
others. The negative experience of the Franco-
German Agreement of October 2010 at
Deauville, on the restructuring of Greek private
debt, should serve as a lesson to us all. If these
mechanisms had been in place during the crisis,
the consequences for Spain and for Spanish
banks would have been very damaging. To start
with, it would have led to a huge increase in the
cost of borrowing, both for the state and for pri-
vate issuers (given the fact that rates for the for-
mer effectively set a floor for the latter), and hence
would have caused higher public deficits.
Moreover, it is almost certain that many more
banks would have failed as a result of having large
holdings of Spanish bonds. Clearly, then, such pro-
posals undermine the internal solidarity and cohe-
sion necessary to consolidate EMU, and do not
offer a long-term solution to the problems of fiscal
indiscipline or financial instability in the eurozone.
Outlook for 2018
The French presidential elections culminated
with the victory of Emmanuel Macron, while the
German general election ultimately produced
another Grand Coalition between the CDU/CSU
and the SPD, opening the doors to new efforts
to deepen and reform EMU, which seemed
unthinkable only a few months ago.
Shortly after taking office, Macron gave a
keynote speech setting out his proposals for the
eurozone. The centrepiece was the creation of a
budget to support the euro, with three main
functions:
– A major fund to support investment in the
future.