The head of the European Central Bank
and other euro zone leaders worked on Saturday on a grand vision for
the euro zone meant to reassure investors and allies that flaws in the
currency union will be addressed quickly.
The plan will include measures to prevent bank runs and reduce what has
become a vicious cycle of government debt problems turning into banking
crises, as has happened in the past two years. In addition, the plan
will push for countries to remove the regulations and layers of
bureaucracy that inhibit competition, keep young people out of the work
force or make it difficult to start a new business.
The goal would be to make the euro zone less vulnerable to crises and
better able to grow its way out of the current debt crisis. But it is
unclear whether yet more pledges of reform, which would face significant
hurdles, will calm financial markets.
Mario Draghi,
the president of the central bank and one of the authors of the plan,
said Friday that it would be unveiled within days, ahead of a meeting of
European leaders at the end of June.
Under the plan, euro zone leaders will seek to establish the central
bank as supreme bank regulator with broad powers, in place of the
relatively toothless European Banking Authority.
Countries would also create a deposit insurance program to augment
national programs. The goal would be to reassure ordinary depositors and
prevent bank runs, an imminent danger in Spain as well as Greece. But
any sharing of financial burdens almost automatically encounters
opposition in Germany. For example, Mr. Draghi has not advocated pooling
euro zone debt into common bonds, an alternative that Germany rejects,
at least for the near term.
Mr. Draghi is unlikely to soften the central bank’s insistence that euro
zone countries continue to pursue budgetary austerity even as their
economies sputter. But the plan may call for governments to go about
belt-tightening differently. Instead of slashing transportation projects
or other infrastructure, for example, leaders would be pressed to cut
operating expenditures.
Central banks and investors have been bracing for the markets’ reaction
Monday following national elections in Greece on Sunday, which could
determine whether the country is capable of remaining part of the euro.
On Saturday Benoît Coeuré, a member of the European Central Bank’s
executive board, underlined Mr. Draghi’s comments, saying that Europe
needs unified banking regulation to replace the hodgepodge of national
regulators and deposit insurance programs that now exist. A so-called
banking union would help break “the adverse feedback loop between banks
and sovereigns, in which doubts about the solvency of the sovereigns
feed doubts about the solvency of the banks, and vice versa,” Mr. Coeuré
told bankers in southern France.
The euro zone has no shortage of plans and pacts intended to end years
of sluggish growth and impose discipline on its 17 members. The
challenge for Mr. Draghi and the plan’s authors — Herman Van Rompuy,
president of the European Council; José Manuel Barroso, president of the
European Commission; and Jean-Claude Juncker, head of the euro group of
euro zone ministers — will be to package their plan in a way that makes
investors believe something will get done.
“There is a long-standing agenda on growth,” Mr. Draghi told a gathering
of economists on Friday in Frankfurt. “It is time to implement it.”
The most difficult task for Mr. Draghi and the other leaders may be to
establish a binding timetable, to ensure that political leaders do not
drag their feet. The leaders are “only capable of acting at gunpoint” —
when markets force them to, Willem H. Buiter, chief economist at
Citigroup, said at the same gathering.
Over the past year, authorities in Brussels have steadily accumulated an
array of new powers, but that has not yet been enough to reassure
investors that the euro zone can survive the crisis.
For now, the most important new tool is a half-dozen rules known as the
Six-Pack, which took effect in December. In coming months, the European
Commission will be able to impose fines on euro zone countries of up to
0.2 percent of their gross domestic products if they flout rules on
public debts and deficits.
In March, European Union
members agreed to a fiscal compact, championed by Germany, requiring
countries to introduce balanced budget rules. Britain and the Czech
Republic did not sign the agreement.
The European Union also is seeking agreement on rules that would require
member states to present public finance plans in greater detail, and
sooner than is now the case, to the commission.
Over the years, countries have repeatedly pledged to clear the rules
that hinder competition and led to chronically anemic growth. If the
euro zone grew faster, tax receipts would rise and the debts of
countries like Spain or Italy would seem less daunting.
But most countries have been deeply reluctant to tamper with regulations
that protect established businesses from competition or workers from
dismissal. In practice, the rules make companies reluctant to hire new
people and have contributed to astronomical youth unemployment.
Any grand plan must ultimately win approval from euro area citizens, perhaps via referendum.