A thundery summer

international | economy | opinion / analysis

Tuesday July 26, 2011 20:16

by Donato Romito - FdCA

The EU rushes for cover

It's a thundery summer all over the European Union, and now the famous ESEF (European Financial Stability Fund), created in order to keep the books of the single EU States under control, is becoming that "cupola" that we dreaded last year. [Italiano]

A thundery summer

The EU rushes for cover

It's a thundery summer all over the European Union, and now the famous ESEF (European Financial Stability Fund), created in order to keep the books of the single EU States under control, is becoming that "cupola" that we dreaded last year. [1]

So what's changed? Well, quite a lot, actually. The so-called "State-saving Fund" was until recently limited to guaranteeing loans to member States in the euro zone. Now it is authorized to intervene in markets, buying any member State's government bonds - not just those that have been subjected to recovery plans. The Fund can support the re-capitalization of banks. It is in effect becoming the defender of the euro and its economies by intervening to stabilize the markets. Something similar to the role of the US Federal Reserve or the Bank of England.

The reliability of the euro was tied to the reliability of the single national economies and their respecting the famous Maastricht parameters regarding debt and deficit.

But violation of the stability pact (Maastricht) and the growth in national debts had placed the performance of the euro under serious threat and caused a revival of national interests, while the European Central Bank increasingly showed the limits of its operations, since - by occupying itself with liquidity and not the solvency of individual European budgets - it risked budget losses originating in the political decisions of individual national governments. Not to mention the fact that the ECB was buying national bonds surreptitiously.

Intervention through the ESFS seems to have put off for now any threats of contagion as a result of Greece's insolvency.

There remains the question of the exchange within the EU between France and Germany. The latter had been demanding the involvement of private creditors in the restructurization plans for Greece's debt, following pressures at home. It obtained the clause on the "voluntary nature" of private participation in the Greek bailout.

On the one hand, the ECB did not want the involvement of private creditors for fear that it would spark off a default by Greece and thus place Greece in the position of not being able to gain access to liquidity at the ECB for the very reason of the insolvency of its public debt. On the other hand, the involvement of private creditors and the EU intervention which lowers the cost of the Greek debt by extending it, could avert the risk of default.

We will see now whether the reimbursement of matured Greek bonds will take place without losses for their holders and whether any possible losses in the short term can be compensated for by gains in the long term.

Otherwise there is already the fear that the risk default will be inevitable.

For now, the European banks (those oh-so-willing private creditors so dear to Merkel's heart) can breather a sigh of relief.

On the other hand, the working classes throughout the European Union - from the islands to the continent and the Mediterranean - can only sigh with regret for all the gains they have lost over the past two years.

But just enough time to catch our breath, after which we will need to launch a new attack to win back our salaries, our rights, our protections, to build an alternative without State and without capitalists.

Donato Romito

Note:
1. See the FdCA documents "I lavoratori europei svenduti per uno scudo di 750 miliardi", "Oppose the European Union" and "La crisi della Grecia smaschera l'inganno dell'Unione Europea".