Page 49 - The Economist20171214

The Economist December 16th 2017 Europe 49

Charlemagne Banking on it

Everyone has a euro-zone plan until theygetpunched in the mouth
monitor fiscal miscreants, and to protect European taxpayers
from payingforfurtherbail-outs.
After years of crisis summits and monetary experiments, the
euro zone’s hawks are not in the mood for concessions. They feel
they have done their part; time for weaker governments to pull
themselves together by cutting debt and reforming their labour
and product markets. And with the recovery in full swing, why
rush? Domestic politics do not help. Germany may not have a
government until next spring, and the Dutch coalition enjoys a
parliamentary majority ofone.
Officials elsewhere have answers to these questions. France
spies a contradiction in the German position. It cannot decry
quantitative easingwhile remainingso hostile to spending, espe-
ciallywhen deficitsare lowacrossthe euro area. (MrDraghi often
calls on those governments with fiscal room to use it, lightening
the burden on the ECB.) Brussels thinks it can entice Germany to
move by promising a carefully phased reduction in risk on the
balance-sheets of banks elsewhere. To countries that have failed
to use the time Mr Draghi’s bond-buying has bought them, the
commission will argue that structural reforms are more effective
in good times than bad.
N DARKER times language tends to be blunt. But when Euro- These strands will coalesce on December15th, when the euro
Ipeans are feeling perky, out come the metaphors. And by that zone’s leaders gatherin Brussels fortheirfirst summit in overtwo
measure, things in the euro zone are looking remarkably bright. years. To avoid rows, Donald Tusk, who chairsthe event, wantsto
With the wind in Europe’s sails, it is said, the time has come to focus four-square on completing the zone’s banking union,
clamber through the window of opportunity and fix the roof which still lacks a common backstop fund to wind up troubled
while the sun shines. Failure will leave the euro exposed when lendersand a shared deposit-insurance scheme. Euro-zone mem-
the economic storm clouds gather, orChina starts to sneeze. bers are also edging towards consensus on converting the ESM
Three things saved the euro zone from destruction in 2011-12: a into a beefier organisation that can, among other things, obviate
€500bn ($588bn) bail-out fund, the rudiments of a banking un- the need to involve the IMF in future bail-outs.
ion, and Mario Draghi’s “whatever it takes” promise—never test- None of this will be at all easy. The Germans and Dutch will
ed—that the European Central Bank (ECB) would, if needed, un- stridently resist proposals that hint at a potential call on their tax-
leash a massive programme of bond-buying to protect the payers. In some countries banks are still weighed down with
currency. Each of these was supposed to be a last resort, as the their own governments’ bonds, a reminder of the “doom-loop”
wildfires of the crisis licked at the bond markets of one country that proved so damaging a few years ago. Non-performing loans
after another. Red lines were crossed, sacred cows slaughtered, still trouble the balance-sheets ofbanks across the southern belt,
rules bent beyond recognition. although economicgrowth isnowreducingthatburden. MrTusk
Those were desperate measures, necessary when they were hopesthata deal will be strucknextJune. German officials do not
enacted. Butreform in good timesisnevereasy. Asone EU official share his optimism.
putsit, when the sun isoutyouwantto go to the beach. Growth in
the euro area isup (fasterthan America), unemployment isdown The art ofthe possible
(the lowest since 2009), and businesses and consumers are brim- WhatofMrMacron’sgrand schemesfora euro-zone finance min-
ming with cheer. Polls find that Europeans love their currency ister and a whopping investment budget? What about the euro’s
again. The constantpurrofgood newshasyielded a hashtag, #Eu- rococo fiscal rule-book, which judges governments’ budgets ac-
roboom. The tools built to weather the last crisis have proved cording to phantom “structural deficit” projections that no one
their worth. The most recent Greekdrama, in 2015, barely rippled understands and is apparently reinvented, as one official sighs,
elsewhere in the euro zone. everytime Italyhasan earthquake? Fewthinksuch questions can
Yet no one denies that the euro edifice remains half-built. be postponed for ever. But nor do they have the appetite to take
Whatbetteroccasion to boostthe euro zone’sdefences? There are them on when itwill be hard enough merelyto sortoutthe finan-
plentyofideasaround. Lastweekthe European Commission pro- cial plumbing. Moreover, good intentions get you only so far. Ev-
posed a package ofreforms, including a fund to protect public in- ery Eurocrat has a shelf full of dusty plans to reinvent the euro
vestmentin countrieshitby“asymmetric” shocks(like the poten- area. Few survive contact with reality.
tial blow to Ireland from Brexit) and money to encourage Lowered ambitions may be no bad thing. Europe’s political
non-members of the euro, like Bulgaria, to join it. Emmanuel bandwidth is limited. Difficult debates lie ahead on asylum poli-
Macron, France’s president, has higher ambitions, including a cy, defence, personnel and the EU budget. An awkward Italian
euro-zone budget worth several percentage points of GDP. (The election will be held in the spring, Poland’sgovernmentisunder-
currentEU budgetisjust1.23%.) The Italianswanta common fund miningthe rule oflawand the spectre ofBrexitislooming. The EU
forunemploymentinsurance. Butotherstake a different tack. The must choose its battles. Becoming involved in a fruitlessly divi-
German finance ministry wants to turn the European Stability sive one will distract from the others—and risks raising expecta-
Mechanism, the euro’s bail-out fund, into a super-policeman to tions that cannot be satisfied. 7