Ok, let me start here a small thread on yesterday's failed #EUCO. Let me do this with my Spanish half of the mind (the view from the South) and my Swiss half (which is sometimes even more brutal than the German and the Dutch perspectives, thats why Switzerland is not in the EU).
First of all, we have entered this new Covid-19 crisis with many open wounds from the previous 2010-2012 debt crisis. The biggest asset among partners is trust. And trust was eroded than and has not been recovered since. So this is not the best context to collaborate.
Lets start with the Spanish perspective. The situation is dire, this crisis will be harder than anything we've seen. We are in a state of emergency, people are locked-down in their homes and hundreds are dying every day. We have a joint enemy Covid-19 and we must fight together
In this time of war (and this is not an exaggeration) we expect from our partners (some of them stronger than us) solidarity, which means we should join our forces and resources as much as possible and in this regard the joint issuance of debt makes total sense. If not now, when?
But the northern perspective is different. It goes like this: first of all there is sense that countries like Spain (and Italy) have not used the past years of growth to reduce their debt and prepare better for a shock of this magnitude. This should be a lesson for the future.
But, ok, lets now help the countries in need. Indeed, they are suffering. Solidarity is therefore justified. But solidarity cannot become a subsidy. If you need money, the first thing to make sure is that you will not need money again in the future. Its the self-help principle
So while the South expects in this time of suffering solidarity without conditionality, this is not the case in the north. Conditionality is important to learn from the mistakes of the past and to use the new money in an an effective way now and with a view into the future
With 400 other social scientists I have signed a letter in favour of eurobonds. newpoliticaleconomyeurope.eu/t4media/OpenLe… I have always been in favour. I think it is key for the survival of the euro. But I think asking for this right now the way the 9 countries at the EUCO did it is a mistake.
The issuance of joint debt is not a technical exercise, it requires a level of fiscal and political integration that we do not have. If we want to create the equivalent of a US treasury bond, we need to create the treasury first. Eurobonds are the end of the process not the start
If you want to mutualise the issuance of debt (therefore mutualise risks in case of default) you also need to mutualise the control of 1) the revenues necessary to pay this debt and 2) the destiny of this resources through a democratic process that is usually done by a Parliament
So in the same paragraph that you call for eurobonds, or coronabonds, for that matter, you should ask for the creation of a European-level parliamentary control of the use of those resources. If you you want mutualisation you need to be coherent economically AND politically
So is it politically smart to put Merkel (& Rutte) against the wall when she said very clearly that there would not be any eurobonds during her (life) time in power? I don't think so. It is better to focus on the ESM, and the full firepower of the ECB. You can do a lot with that
This brings us to the ESM and the conditionality attached to the help. First, I don't understand the debate on stigma. Lets be honest, in a time of politics by Twitter everyone knows who needs the money. Why hide it. Second, certain type of conditionality seems reasonable.
But conditionality should not be understood as the IMF/structural adjustments type. It needs to be conditionality that has "ownership" from the receiver. And yes, it can focus on why certain countries were less prepared and what they can do to use the new funds effectively
To improve the macroeconomic resilience and debt sustainability of the countries we have an excellent tool: the country reports of the European semester. When I read those of Spain there is a lot there that I would apply immediately, starting with improving our education system
But, and here comes my Spanish half to the fore, what you cannot have is a country like The Netherlands doing fiscal dumping. Here too the country report of the Commission needs to be applied. This crisis will be deep, the social contract in Europe will change for good. Beware!
After this, if we want to maintain the single market and single currency, we will need to integrate deeper on the sanitary (the virus), the fiscal (joint capacities), the social (the losers of this process) and strategic (vis-a-vis China and the US) front.
This means on the fiscal side, countries like The Netherlands cannot do fiscal dumping. This is unfair. If we demand a level playing field vis-a-vis partners and rivals such as China, first we should start to have a level playing field at home, starting with QMV in fiscal. END!
