On Wednesday of last week, Olli Rehn, the EU Economic and Monetary Affairs Commissioner, stated that there were only 10 days left “to complete and conclude the crisis response of the EU”.
He was referring to the crisis in the eurozone because of the lack of sustainability of the sovereign debt of some countries, notably Italy, Spain, Portugal, Ireland and Greece.
The deadline he posed is the summit of the EU heads of government, which is scheduled for today. At this meeting he is expecting that member states of the EU agree on the final rescue plan. Hence the feeling that this is D-Day for the EU.
Since last week a number of things have happened.
There was the Franco-German summit between Nikolas Sarkozy and Angela Merkel.
The news that emerged from this summit was that the two countries have agreed that the EU treaties need changing, with a target set for the coming March to determine what these changes would include.
They have agreed that such changes would definitely apply to the 17 states that have adopted the euro, but could also include the whole of the EU.
There is agreement that the European Court of Justice be charged with verifying that countries are fulfilling their EU obligations, especially in the area of public finances.
They would like to introduce automatic sanctions to be applied to any country that goes above the three per cent threshold for the deficit/gdp ratio.
They reiterated their request that each country in the eurozone introduces in its constitution the principle of the balanced budget.
Eventually, France agreed with Germany on the issue of the Euro bonds, namely that this instrument would not present a solution to the crisis.
In the meantime, the financial markets started recovering some of the losses of previous weeks, following the decision to reduce by half of one per cent interest rates on credit swaps involving the US dollar and following the austerity package presented by the Italian government (led by technocrat Mario Monti).
The strong common position of France and Germany adopted at their summit made everyone assume that the markets would get a breathing space at least until the end of the EU summit. This was not to be, because Standard and Poor’s decided to announce on Monday (for no apparent reason whatsoever) that it was placing under watch the sovereign debt of Germany, France, The Netherlands.
Austria, Finland and Luxembourg and that these countries were at risk of losing their AAA rating.
It was obviously the sign that the speculators were hoping to get back into action.
One really wonders what made S & P issue its statement and one what the agenda of the credit rating agencies really is.
This presence of a hidden agenda becomes even more apparent when the two major economies in the western world, the US and Germany, have both reported a drop in their unemployment rate, with the growth in employment being generated by the private sector.
The decision of Standard & Poor’s highlights once more the need to tackle the crisis of the eurozone not only from an economic, technical perspective, but also from a regulatory and political perspective.
Yes, there needs to be a healthy balance between economic growth, fiscal prudence and social cohesion needs to be created, and this balance can no longer remain a mirage.
In this regard, the economic experts have to identify the right policies, strategies and measures that help to achieve and maintain such a balance. The independence of the European Central Banks also needs to be maintained and the institution has to be seen to be distinct from the countries that make up the eurozone.
On the other hand there is no doubt that certain processes in the financial markets are bordering on the unethical (even if they may be in accordance with the letter of the law).
The financial markets can no longer be expected to regulate themselves or to be prosecution, judge and jury in economic matters.
The high level of volatility in the financial markets is making it increasingly difficult to distinguish between truths, errors and untruths in whatever is churned out under the description of “economic and financial news”.
In this regard the national financial regulators have to get their act right, or we may require a supranational financial regulator.
Malta can just be a bystander in all of this. We have made our sacrifices over the years to maintain a sustainable fiscal deficit.
We should be prepared to adopt the balanced budget in our Constitution.
However, we cannot be expected to give up our economic policies that have maintained a low level of un-employment and a more-than-acceptable growth rate.
We must play our part on this D-Day for the EU.