Hace tiempo que no publico nada en el blog, y no será por falta de noticias. Simplemente ya no es primicia nada de lo que yo pudiera decir, puesto que lo único que se podía añadir es que salen noticias día si y día también que confirman nuestros peores augurios. No merecía la pena revolcarse en el "veis como tenía razón" ni alegrarse de ello como si fuera un éxito, porque en realidad el hundimiento social y económico que se avecina (si no hacemos nada) es un fracaso de todos. Lo "bueno" que tienen las ciencias sociales en general, y la economía en particular, es que hacer previsiones certeras te sirve para evitar que las catástrofes sucedan, siempre y cuando logres hacer que esas previsiones lleguen a las personas oportunas.
Pero esas personas, en buena lógica, no te hacen ni caso salvo que les des una solución. De poco sirve señalar la existencia de un problema, si no tiene solución. Con eso en mente, me he devanado los sesos para intentar encontrar una solución que pueda ser aceptable para todos los actores implicados, y que a la vez no perjudique el futuro de ninguno de ellos. Y he escrito una carta que voy a enviar a las pocas personas con acceso al poder que conozco.
Disculpad si es muy larga, y disculpad que esté en inglés, pero creo que tanto la longitud como la lengua en que está escrita son condiciones necesarias para que realmente pueda tener algún efecto. Sois libres de reenviarla a quien creais conveniente.
Dear European Leaders,
You all know we are in the brink of EU destruction, as the economic survival of some countries depends on the economic and social suicide of others. In this letter I will try to give my modest opinion about what could be done to solve this puzzle.
First of all, we should make a brief description of the options we have on the table, and why they should not be implemented:
1.- Increasing the inflation target to 4% or more: Maybe this would help southern overindebted countries to avoid deflation, but also it would kill the heavy industries of Germany. In the end, we would end being a “new dollar” zone, with permanent trade deficit, unsustainable in the long run, and too unstable to keep on financing our welfare state.
2.- Implementing Rescue plans as needed: It’s politically impossible that northern countries, with their own problems, pay to solve the problems of others without asking something in exchange. And in the nationalist world where we live, it’s also impossible that southern countries pay with sovereignty or territories, which are the only valuable things that they still have. This path is leading EU into loop debates that will never end in consensus, and in a few weeks or months will end in massive defaults, FMI interventions, and political recriminations far away from the red lines of friendship. I am sure this option would destroy the EMU.
3.- Creating the Eurobonds to finance the rescue plans: while maybe this would give us a bit more time, this measure would not solve the problem of competitiveness of southern countries. The permanent trade deficit will finally end in bigger external debts that the EU would not be able to finance, being its budget only a scarce 1% of the GDP. Again, the nationalist paradigm would make impossible to increase this budget for that purpose, as it would be an indirect way to make northern countries pay the bill. Moreover, EU institutions would have to face the fact that there is not any international treaty giving them the power to sell their own treasuries.
While all those options are not enough to solve the problem, I have a proposal (in fact a combination of measures) that I strongly believe would solve the problem in the short term and give the EU the tools to prevent situations like this one in the future.
First of all, the € should be devalued. But at least Germany and Holland should leave the eurozone before that devaluation, otherwise it would not work. The next day, they should reenter the eurozone with a different exchange rate (for example 1,5DM=1€, instead of 1,93DM=1€). Only salaries and deposits should be updated, keeping all debts and assets in euros. Of course, German banks should be compensated for this change, but its government would have plenty of money to do that, as its debt would also be smaller after the devaluation of the euro.
German economy would suffer less with this increase of the salaries, than it would suffer if the inflation target is raised, as the heavy industries are more intensive in capital needs than in labor costs, and a high inflation would force the ECB to raise the interest rates. Also, this change would be quite acceptable to German citizens, as they would be richer than before without rescuing any country with their taxes. Moreover, this increase of salaries would likely increase the internal demand of Germany, making their economy less dependent on exports. In sum, German people would be rewarded for his savings, competitiveness, and hard work with a higher standard of live.
When we talk about devaluing the euro, a question is automatically raised: Why Germany would want to reenter the eurozone? The answer is that this is the only way they have to avoid the problems Japan has had last decades, Germany needs to have at hand a really strong market available, with free trade, and with a currency and institutions they partially control thanks to the EU regulations. Without that, they will suffer a really strong Deutsche Mark, and they will have to buy lots of dollars and euros with their trade surpluses to keep a convenient currency exchange rate.
The devaluation of the euro would help southern countries to recover international competitiveness without suffering a painful internal devaluation process, impossible to implement in some countries just because the traditional political behavior of their institutions, parties, and unions. Without this devaluation, the payment of the net external debt is just impossible, as the exports would never grow as quickly as it is needed. Devaluation is also needed by all Eastern Europe, as they have huge amounts of external debt denominated in euros.
This kind of devaluation, possibly with the help of some Eurobonds or little financial aid from richest countries, would solve the problem we face in the short and medium term. But we also need to be sure that this will not happen again; we have to implement economic policies to prevent this kind of unbalances.
First of all, there should be a “kind of” restriction to trade deficits between every country and the sum of the other countries inside the eurozone. International credit is good when is well invested, but can be really bad if it is used just to finance an unsustainable consumption rate in the poorest countries, which have no means of paying the debt and the interest. Maastricht states: public deficit and debt should be below 3% and 60% of the GDP. Trade deficits and net external debts should also be restricted at some level. This restriction should be proportional to the budget of the EU dedicated to develop the poorest regions, which now is really low if we compare it with the huge amount of net external debt and deficits that all those countries have. With the conditions we have now, net external debt should never be above 60% of the GDP, including private and public debt. In this very moment, many countries are far above that level. Of course, if we really want the EMU remains as a free trade zone (without export quotas), we will be forced to increase that threshold. But if we want to increase that threshold, we have to increase the budget dedicated to the poorest regions and countries, to be sure their net external debt is always payable. One way is to increase the Cohesion Funds. Another option, in my opinion a better one, would be to put some Labor policies in hands of the EMU institutions. An example could be the creation of a European unemployment benefit, which countries would have to fund with a % of their GDP. That way, countries with higher unemployment would receive a direct transfer from the countries that keep a higher rate of labor force. Of course there should be protection mechanisms to make sure no country takes advantage of that kind of policy. EU should watch that everyone that receives that benefit is really a job seeker, and also should keep in mind that after those direct transfers no net contributor is below a net receiver in terms of GDP per capita.
These kind of automatic stabilizers are completely necessary to balance the cycles any free market region suffers. These stabilizers exist between regions inside the same country, and must also exist inside the EMU if we all want to become a fully integrated economy. In sum, to solve our long term problems we need automatic stabilizers of the unbalances between countries in the EMU, just as countries have between their different regions. Otherwise, a free trade market with the same currency for different countries would not work and would end in an external debt collapse.
Finally, these measures could put the euro in danger in the very long term. The fact that Germany and Holland raise their standards of live could lead Europe into a permanent trade deficit (just as it happens in the USA). This could not be a hard problem in the medium term because we have our own currency, and the net external debt of the eurozone as a whole could always be paid, because it is denominated in euros, which we fully control. But I strongly believe this is a path that would finally end in a necessity to raise the inflation target, and our heavy industries would not survive. We must try to make sure that the eurozone does not have trade deficits against the rest of the world. ECB and other EU economic institutions should permanently keep an eye on that. There is no permanent solution to achieve that kind of stability, but I believe that the emphasis on renewal energies and recycling would help a lot, as we would need less commodities which are a great portion of our imports.
In conclusion, at the moment the EMU lacks the necessary economic long term policies to become a stable monetary zone. Obviously, we lack the free currency exchange rate needed in any free trade zone, which would work as an automatic stabilizer between different countries. But we also don’t have enough automatic stabilizers (only the exception of cohesion funds) needed in any monetary zone. First we need to recover the balance, and then we have to make sure it is a stable balance implementing measures that keep it. Otherwise the EU construction process will fail, and the hopes it has bring to so many people and countries will be forgotten. The implications this failure would have for democracy and peace in Europe should not be underestimated.