In these times of crisis, when, at any moment, our daily lives can be upset by geopolitical, health, economic or social events whose reciprocal and unpredictable interactions make the management of public affairs particularly difficult, a small but significant item, despite being largely ignored, is giving reasons for hope: the requalification of Standard & Poor’s sovereign rating of the EU’s debt from “AA+ with a stable outlook” to “AA+ with a positive outlook”, opening the possibility of recapturing its coveted AAA rating.
This revision, particularly surprising in such an unstable environment is, without doubt, attributable to the opportunities created by the “historic” decisions agreed at the recent EU Summit concerning an € 750 billion stimulus program to be financed through the issuance of debt securities benefitting – through the provisions of the Treaty – of the joint and several guarantee of the 27 Member States.
S. & P.’s decision appears all the more significant that it emanates from an American institution that can hardly be suspected of being manipulated by European interests. It could therefore be interpreted as an objective vote of confidence in a new determined push towards further European integration which has been stalled for years under the assaults of nationalist parties that have compromised, at regular intervals, the stability of the € and the survival of the EU.
In light of the depth of the unfolding economic crisis, the 27 MS have every incentive to avoid a further monetary crisis pilling up on top of first which would spell the ruin of the continent. This can only be achieved by reinforcing the cohesion of the Single Market as well as facing as a united block the challenges raised by increasing international disturbances.
It is the compelling nature of the case that underpins S. & P.’s analysis which, nevertheless – as required by its procedures – remains to be validated before confirmation. It appears, once again, that the (unfortunate) hazard of Covid19 has created the circumstances needed to break the stalemate that has paralyzed the Union, confirming that the EU only makes progress in a crisis.
The EU’s aims cannot be limited to stimulating its internal economy because the latter is too deeply anchored in the complex web of global economic and financial markets. It will be of paramount importance to have the capacity to defend fiercely the joint interests of the 27 MS by assuming an independent stance, both towards the United States and China. To be successful, the EU must develop a series of objectives contributing to the emergence of a truly “European sovereignty” which, in addition to common defense and foreign affairs policies (on which I will not elaborate herein), must necessarily be based on the reinforcement and the irreversibility of the €, if the Union wishes to free itself from the shackles of the US Dollar which confers exorbitant powers on the USA.
As suggested in my most recent article, the EU Stimulus Plan should – as a priority – be accompanied by the commitment to extend the Eurozone to all its 27 Members. Denmark has already unilaterally tied itself to the € through the operation of a “currency board” and the 7 remaining Members are committed to join by the treaty. It is therefore a simple matter of demanding compliance with the treaty, forcing those who would refuse, to withdraw from the EU.
The full identification of the Eurozone Membership with that of the EU would bring major advantages to all 27, in particular a far closer alignment of Members interests, thus avoiding paralyzing conflicts of interest. To accelerate the transition, a “Convergence Fund”, financed on the model of the “Stimulus Fund” (amounting to between € 50 and 100 billion?) could be set up while offering the candidates an advantageous exchange rate as an additional incentive. The costs involved would be dwarfed by the long term benefits, especially when considered together with the suggestion of substantially strengthening the fiscal base of the EU budget by developing its “own resources”.
Furthermore, the preconditions for the development of a European, €-denominated capital market would emerge, escaping from the dead end which has thwarted all efforts to create a “Capital Market’s Union” since 2014. Such a market would include a vibrant sovereign debt sector which, in addition to the existing national sovereign debts of each MS, would encompass a growing “mutualized” European debt segment creating a European “safe asset” serving as the recognized benchmark for the issuance of other debt securities. Freed from any foreign exchange risk, a pan European market for equities could also develop, facilitating cross border mergers, in particular in the banking sector that suffers chronically from excessive fragmentation.
Such an architecture would, in turn, greatly assist the ECB in the transmission of its monetary policy and would allow the ECB (now representing all 27 MS) to play a more active role in the foreign exchange policy of the EU. By pursuing a medium to long term objective of increasing the share of the € in cross-border payments and the financing of international transactions, the ECB would decrease the dependence of the Eurozone banking sector on accessing to the US money market and the FED, reducing any threat of blackmail that the current overbearing reach of the USD exerts on international relations.
This independence takes on a considerably greater importance when considered in light of growing tensions between the USA and China which could lead to a bipolar world in which the role of Europe would be reduced to that of a spectator. It is, therefore, of the utmost importance that the € does not cede to the Renminbi the role of an alternative “reserve currency” to the dollar. An € underpinned by the economic and financial strength of its 27 Members has nothing to fear from China whose regime suffers from a deep lack of trust which, considering recent developments (Hong Kong, Ouîgours, China Sea, etc.), is not about to disappear. To the contrary, however, keeping the € within the dollar’s orbit will only reinforce the EU’s vassalization and, indirectly, strengthen China’s position.
Despite such a rational argumentation, which should normally find the full support from the EU 27, the real difficulties do not stem from opposing views between “frugal”, “conciliatory” and “profligate” MS, as is suggested by the press releases after the summit: the crux of the matter resides in treading down an irreversible path that leads inexorably to the “federalization” of the EU. Indeed, this appears more and more as the only credible solution to the challenges of a world made inextricably interdependent, be it in the fields of climate change, the economy, health, technology etc., making the option of national autarky evermore inconceivable. This implies over time the emergence of a “European sovereignty” deploying its overarching regal powers in the name of all its citizens.
These fundamental developments, which may mirror the unexpected changes that Covid19 has only accelerated and reinforced, imply a considerable upheaval in the ways political power is exercised. Many European leaders remain focussed on an outdated world and are incapable of accepting an end to their dreams of conquest of – or remaining in – power; at the same time, their public opinions are clamouring their disenchantment and are demanding deep changes, a phenomenon that can be observed around the world. The economic crisis that is developing is rife with uncertainties; building a consensus around the stability of the € will constitute the best protection for the weakest while helping the economy to better absorb shocks and allowing Europeans to remain the masters of their own destiny.
Extending the Eurozone and completing its institutional architecture is undoubtedly a “win-win” wager worthy of celebrating the sacrifice of “national egoisms” on the altar of “European solidarity”!