The message is very clear for all

The market is puzzled. It is also pushing and pulling into different directions. There are financial investors betting on the eurozone’s meltdown. On the other hand, there are stakeholders who strongly believe that this is just the end of the beginning of an EU based on its current governance model.

...the world of politics, economics and finance combined will all have to change- Stefan Gauci Scicluna

No single person can really predict the future. But what we know is that the debt problem is moving towards the core of the EU, that is, Germany. A few months ago, several analysts, commentators and politicians thought that this was a problem of the periphery of Europe. But it is no more.

Very recently, even Germany struggled in attracting buyers for its 10-year bunds – bonds against which all other bonds in the EU are compared with. In fact, the bid-to-cover ratio was reported to be just 0.65 times even though it seems that buyers are becoming more cautious about the expensive price of the bund, which is usually considered as a safe haven in financial markets.

It is the imbalance between local politics and global money that is really putting us all into a big dilemma. The pressure exerted by the international financial stakeholders on the political systems of Italy and Greece is something that we all should analyse, basically in finding a balance between technocracy, the political class and the will of the people.

What type of democracy do we envisage in the face of this tension between what is international and what is local? At this point in time, we only know that the world of politics, economics and finance combined will all have to change. The main challenge is likely to be how such pillars can talk with each other more effectively and how they will be able to engage with people in the legitimising process of technocracy, also for the purpose of building more long-term sustainable economies and societies.

This is also the main challenge for the EU. To put this into perspective, on November 23, the European Commission proposed “stability bonds” in order to ensure that all eurozone members could meet their debt obligations but also in order to compete with the US Treasuries.

But to ensure this, the European Commission will also be proposing more measures to give it more authority over the national budgets of eurozone states, including a requirement to submit tax and spending plans before taking them to their national parliaments. It can also send fiscal inspectors to member states even if they were not requested by the states.

Another option put forward by the Commission is a plan that would allow countries to provide limited guarantees for new bonds, whereby they do not eliminate national bonds or even pool their risk.

The other option would give the possibility for member states to issue their national bond, only if their debt level would have gone too high, after being funded by the common Eurobonds.

Damian Chalmers, head of the European Institute at the London School of Economics and Political Studies, was quoted saying that all these conflicts of ideas in the EU between different stakeholders – the EU institutions, rich member states, vulnerable states and all other interested parties – would eventually lead to a different EU.

And the message is clear for all European citizens and the world, not least for us Maltese. The EU is moving slowly but decisively towards more centralisation of power in order to have a more balanced and disciplined monetary, economics, financial and fiscal union. The recent developments and pressures exerted by the financial markets are nothing more than their preference towards a centralised EU that acts more efficiently.

Germany’s resistance to Eurobonds and also to having the European Central Bank acting as a lender of last resort could seem a lost case in the face of the demands made by the global financial markets.

The most important in all these developments is that local politics would eventually become more familiar with global demands but also that global finance would become more responsive to local needs.