Eurogroup Chairman Jean-Claude Juncker has as much right to offer possible solutions to the eurozone financial disaster as anyone, and better credentials than most. He laid out a ten-step plan, but it includes a number of suggestions already made and rejected by many of the governments that either need to be bailed out or that have to provide capital to a rebuilt regional financial structure.
Juncker gave his list to German newspaper Handelsblatt:
1 – “(Release) the next tranche, if that’s possible.”
2 – “Ascertain the sustainability of Greek debt, otherwise we have to think about other steps that we can only take if we have given thought to all the consequences of those steps — to those outside Europe as well.”
3 – “Strict continuation of course of budget consolidation, with automatic sanctions for repeated failures to meet budgets.”
4 – “A road map toward bank recapitalization. The under-capitalized banks have to first try to get refinanced on markets. If that does not succeed, states have to consider whether they can jump in to make available the necessary capital.”
Tax payers should get dividends for rescuing banks.
“We cannot simply hand them the money. We need to make sure that those who provide capital in whatever form are also represented in the decision making bodies — in the supervisory board, the board of directors, in management — and that we participate in the profits.”
5 – Introduce a financial transaction tax.
6 – “A growth program for so-called struggling countries.”
7 – “A different tone in Europe on budgets. It is not acceptable that European Union countries are divided into those who give and those who take.”
8 – “Stronger regulation of financial markets.”
9 – “A new way to deal with ratings agencies.”
10 – “We need an economic government. I’m delighted that the number of those supporting this idea has grown rapidly.”
The most important of his suggestions has already been rejected, at least practically. The region is divided between those who give and those who take. That cannot be changed. Politicians and voters in Germany believe that they are the backbone of any bailout of the area’s weakest economies. They expect a great deal in return. So far, the most obvious demand is the radical restructuring of Greece’s budget. And Greece has done that. This restructure proves the other side of Juncker’s proposal is already useless. Greece is on its back, and “those who give” think they should appropriately take advantage of it.
The most unrealistic part of Juncker’s plan to reset the finances of the regions is that “Tax payers should get dividends for rescuing banks.” Something similar to that happened in the U.S., although the structure was different. The TARP was set up to offer America’s largest struggling banks a lifeline. The Treasury argues that most of that money was paid back. The undertaking of the risk, which was borne by taxpayers, was never compensated in any tangible way.
Juncker’s list is similar to those given by the IMF and other organizations and countries that will have to participate in the recasting of the eurozone’s finances. He is late with his suggestions because decisions to save Greece are being made now. They almost certainly will be the precedent for any further assistance to sovereigns and the region’s largest banks. Those who provide the money will set the terms. Those who take the money will have to live with them.
Douglas A. McIntyre