E depois da Troika?
4 de Julho de 2011
A New Deal for Europe
without debt buy-outs,
or national guarantees or fiscal transfers
Stuart Holland
Former Labour MP and adviser to Harold Wilson, Andreas Papandreou,
Jacques Delors and António Guterres [email protected]
The Missing Background
In a 1993 report to Jacques Delors I drew on the US New Deal and drafted the
case for Union Bonds which he then proposed to the European Council
that December in his White Paper on Growth, Competitiveness,
Employment.
This argued that bonds shifting savings into investment could counterpart a
common currency with a common financial instrument and finance
convergence and cohesion without fiscal transfers.
Luxembourg and the Netherlands were in favour. Germany and France at the
time were opposed.
The case fell by default. The outcome is that we now are faced with the threat
of serial default of several Euro member states and a disintegration of the
Eurozone.
Twin Strategies for Stabilisation and Growth
What is needed to ‘cut the Gordian knot’ on debt and make a reality of
the European Economic Recovery Programme is the twin but
complementary ETUC strategy.
1. A Conversion of Debt by shifting a share of the sovereign debt of
member states to Union Bonds and the Union holding this in its
own untraded ‘debit account’.
2. Funding a New Deal style Recovery Programme by Eurobonds which
would be traded and would attract global surpluses from the
central banks of the emerging economies and sovereign wealth
funds.*
* See further Yannis Varoufakis and Stuart Holland The Modest Proposal for Overcoming the
Euro Crisis
Opposition to Bonds
There are several proposals to convert shares of national debt to the
Union by
►debt buy-outs,
► national guarantees for the debt and
► fiscal transfers between member states
These understandably are meeting resistance.
But none of these conditions was in the original proposal of Union
Bonds to Jacques Delors in 1993.
None of them is needed either to stabilise the Eurozone crisis
or to recover growth and employment.
A Gestalt Shift
Europe needs a Gestalt shift. For while EU member states are deep in
debt, the EU itself has next to none.
It had none at all until May last year when the European Central Bank
began to buy up national debt.
Its buy-outs to date are only one per cent of EU GDP (€138 billion
summing €77.5 and €60.7 in the previous figure). *
This gives Europe a late starter advantage. It is as if the US had near to
abolished its federal debt.
* As shown also in the right hand column of the next figure, the total excess national debt of EU member states
over the Stability and Growth Pact 60% limit is only 16% of EU GDP.
The Bruegel Proposal for Debt Conversion
The Blue Bonds Proposal, The Bruegel Institute, Brussels, 2010. Blue debt is conversion of 60% of national
debt to the Union. Red debt is remaining national debt.
Debt Conversion to a Union Debit Account
What is needed, starting from this near nil Union debt base, is to
convert a share of national debt of up to 60%of GDP into EU Union
Bonds.
But such converted debt need not be traded on open markets . It could
be held by the Union on its own debit account, by the EFSF or the
ECB.
Since not traded the converted debt would be ring fenced against
rating agencies.
The Eurogroup could set a sustainable low long-term interest rate for
such Union Bonds.
►Governments
would govern rather than rating agencies rule.
Enhanced Cooperation
The debt conversion could be done on an enhanced cooperation basis
like the creation of the Euro itself.
Those member states such as Germany which wished to keep their
own bonds could do so.
The national bonds now converted into Union Bonds would not count
on the debt of member states any more than US federal debt
counts on the debt of California or Delaware.
The member states whose national bonds were converted to Union
bonds would service them not Germany or other member states.
Not Buy-Outs nor National Guarantees nor Fiscal Transfers
Holding the converted debt as Union Bonds does not need
► buying out of national debt
► or national guarantees
►or fiscal transfers between member states.
The European Investment Bank has issued its own bonds for fifty years
without these, and with great success.
The EIB already is twice as big as the World Bank and has macro
economic and social potential.
It also already has a specific convergence and cohesion remit.
The EIB, Cohesion and Convergence
Since the Amsterdam Special Action Programme in 1997 and the
Lisbon 2000 Council this EIB convergence and cohesion remit has
has been to invest in
► health
►
education
urban regeneration
► environment and green technology,
plus finance for SMEs and new high tech start-ups.
►
It has done so with great success, quadrupling its finance for these to
the equivalent of two thirds of EU Own Resources.
Credibility and the Stability and Growth Pact
The SGP neither is assuring neither stability of the Eurozone nor
growth. Markets do not believe it can stabilise the crisis.
By contrast, a debt conversion from national to Union Bonds would
reinforce the credibility of the SGP on markets since all member
states other than Greece would be Maastricht compliant - under
60% - on what remained of their national debt.
Recovery – as the 1990s Clinton recovery indicated - also is the best
way to reduce debt. It increases national fiscal receipts whereas
recession reduces them.
Investment multipliers would triple bond financed investment in
recovery (Observatoire Français des Conjonctures Économiques, 2009)
Attracting Global Inflows
The BRICS have again repeated last month that they want a more
plural reserve currency system.
Eurobonds would attract surpluses from their central banks and
sovereign wealth funds enabling them to diversify their reserves.
These would be financial inflows to Europe rather than fiscal transfers
between member states.
With EIB bonds these could co-finance the European Economic
Recovery Programme without counting on national debt.
Debt stabilisation and a European New Deal
Adapted from Stuart Holland, Europe in Question and What To Do About It, University of Coimbra,
2003.
GDP
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60%
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Excess Debt Reduction from economic
recovery
Conversion of up to 60% of national debt to the Union
EIB eco-social investment led New Deal
Investment Multipliers
Time
Summary 1
There is a strong case for distinguishing debt stabilisation through
Union Bonds and net issues of Eurobonds.
A share of national debt converted to Union Bonds could be on an
enhanced cooperation basis as was the creation of the euro itself.
Germany and other member states could keep their own bonds.
Union Bonds need not be traded. They could be held in a debit
account by the EFSF or the ECB at an interest rate set by the
Eurogroup.
This would mean that governments could govern rather than rating
agencies rule.
Summary 2
The share of national debt of up to 60% of GDP converted to Union
Bonds would be serviced by the member states gaining from the
conversion, not by others.
Net issues of Eurobonds would attract surpluses from the central
banks of the emerging economies and sovereign wealth funds.
These would be financial inflows to the Union serviced by co-financing
EIB project finance rather than fiscal transfers between member
states.
Inflows to Eurobonds by the central banks of the emerging economies
would transform the Eurozone from weakness to strength.
Summary 3
Neither untraded Union Bonds for debt stabilisation nor traded
Eurobonds need count on national debt any more than EIB Bonds
or US Treasury bonds do.
They would stabilise the Eurozone crisis and fund growth, gaining both
market and political credibility for the Stability and Growth Pact.
This is not printing money. It is not deficit financing. It can be
achieved:
►without
debt buy-outs,
► or national guarantees
► or fiscal transfers between member states.