The EU Fiscal Crisis: Forcing Eurozone Political Union in 2011?

BISHOP Graham

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Résumé

The end of the euro would be the end of Europe – only tough collective action from eurozone leaders can prevent financial meltdown. But do political leaders fully realise the enormous scale of what is required and the frightening consequence of failure, and that intense financial and economic pressures are forcing far-reaching political changes in the eurozone? This searching and timely new study examines the driving forces and potential outcomes of the eurozone debt crisis. In early 2011, the eurozone debt crisis looks likely to take a dramatic turn for the worse – raising the intensity of the search for enduring solutions as the markets now price six states as ‘risky’. The eurozone leaders have collectively affirmed “that they stand ready to do whatever is required to ensure the stability of the euro area as a whole. The euro is and will remain a central part of European integration.” Chancellor Merkel of Germany and President Sarkozy of France also sent New Year messages to their citizens that cast the issue in terms that were both stark and historic. It is increasingly clear that the eurozone will take tough collective action on the economic governance of its members. However, in The EU Fiscal Crisis: Forcing Eurozone Political Union in 2011?, Graham Bishop – a leading technical analyst of economic and structural developments in the financial markets of Europe – argues that the eurozone leaders have yet to truly grasp the huge challenges they face and the implications of failure. Furthermore, intense pressures from the interactions of financial markets, economics and politics are forcing the creation of a genuine eurozone political union. The eurozone now faces several options for its future actions. Three scenarios are considered: an inflationary debt spiral; default; or the emergence of a collectively strong, federal eurozone. Graham convincingly argues that the visionary approach of the latter option is the only way forward for Europe. In this scenario, the eurozone will have emerged from the financial crisis as a political federation – loose in some respects, but with tightly centralised economic governance at its heart. The proven commitment to fiscal probity may even make it attractive relative to alternative investments around the world. The conclusion is that, if the eurozone does indeed do “whatever is required”, then it will survive.

Reviews:

"In this important book, Graham Bishop sets out many of the key challenges and choices facing policy makers as we move towards a system of European economic governance. It provides a valuable and thought-provoking contribution to one of the most important debates on public policy in Europe today." Jerzy Buzek, President of the European Parliament

Table des matières

Preface Introduction Overview Forcing eurozone political union: the 2011 EU financial crisis Part I: The development of the single market in financial services in 2010 and the direction for 2011 Introduction Financial regulation: completing the reform The single market for capital and financial services SEPA (Single Euro Payments Area) Consumer protection Accounting standards The G20 and reform of financial regulations: the role of the EU Declaration of the Summit on Financial Markets and the World Economy Financial sector reforms Conclusions on the impact of the single market Part II: Integrating European economic governance: crisis as the driver in 2010 to providing a stronger structure in 2011 Background The political response to the current crisis Implementing the de Larosière proposals for supervisory reform: ensnared in both a constitutional and fiscal crisis? May–October 2010: the European fiscal crisis erupts Economic co-ordination October–December 2010: the fiscal crisis deepens – becoming overtly a eurozone issue Issues for holders of government bonds Political evolution or revolution: collective decisions by the eurozone? After the December 17 Summit: still waiting for the real decisions Statement by the Heads of State or Government of the euro area and the EU institutions Part III: Why financial integration will force political integration in 2011 and later European government bonds in 2011 Economic governance of the eurozone Proposal for a Regulation on enforcement measures to correct excessive macroeconomic imbalances in the Euro Area A Regulation on enforcement measures to correct excessive macroeconomic imbalances in the Euro Area How to make sanctions effective Proposed Regulation amendments The Role of the European Systemic Risk Board (ESRB) European Financial Stability Fund (EFSF) Moody’s rating rationale Timetable for first half of 2011 Three scenarios for the future of the eurozone Scenario I: inflationary debt spiral Scenario II: default Scenario III: a collectively strong, federal ‘Eurozone’ emerges Appendix I: Market Discipline on Eurozone Public Debt – amend SGP Regulation and CRD IV Appendix II: The Graham Bishop papers