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Defending against new crises by deepening the monetary union

05.02.2018Comments are closed.

Brdo pri Kranju, 2 February 2018 – The last financial and economic crisis revealed certain flaws in the European monetary policy and, although the member states have successfully recovered after having introduced a few changes, the discussion about extra measures was launched in the euro countries at the end of last year. Additional measures were also considered to be very important by those participating in today’s conference at Brdo pri Kranju.

The European Stability Mechanism (ESM) was established in 2012, replacing the temporary EFSF facility, so as to help resolve crises in the euro area. Both lent money to five members of the euro area.

“Greece, Ireland, Spain, Portugal and Cyprus received 273 billion euros,” said ESM Managing Director Klaus Regling. “Four countries successfully completed the assistance programme and only Greece is still involved; however, the procedure may soon come to a successful end as well,” he added.

During the conference on the European monetary union’s deepening organised at Brdo pri Kranju by the Ljubljana-based Faculty of Economics with support of the European Commission Representation Slovenia, Regling presented the ESM’s potential roles in deepening the monetary union. One idea was to transform the ESM into a European monetary fund.

The discussion on the monetary union’s deepening started last December and is planned to be completed by June this year. “Significant institutional reforms have been carried out over the past few years to strengthen the European monetary union; yet, its structure remains deficient,” said Maarten Verwey, Director-General of the European Commission.

Among concrete steps, the European Commission highlighted the completion of a banking union and a capital markets union, including a strategy for reducing non-performing loan levels and a decision on the European deposit insurance scheme. Several proposals are on the table and the member states vary in their opinions, but Verwey expressed his belief that it will be possible to come to an agreement by the deadline.

“We have to be prepared for potential new crises,” Verwey noted, with other conference speakers agreeing with him. “Every financial crisis has the same rules and we have to find a mechanism that will protect us,” added the Governor of the Bank of Slovenia Boštjan Jazbec.

“Slovenia is one of those countries hit hardest by the crisis,” stated Mateja Vraničar Erman, the Slovenian Minister of Finance. “We have introduced fiscal rules to improve public financial management, but these should not be merely a result of cold calculations twice a year. Fiscal rules should be simple and easily understood,” she said.

Like Vraničar, Dr Dušan Mramor from the Faculty of Economics also warned about the lack of clarity in the rules. He reminded that the European Commission had perceived the Slovenian economy’s overheating back in 2007, which was not the case, and had called on Slovenia to make even more savings.

Dr Mramor was displeased the discussion on deepening the European monetary union has failed to consider the differences among countries on the periphery of the euro area and the core countries. “But if the countries on the periphery find themselves in difficulty, the latter will also spread to the core euro-area countries,” he warned.

In his opinion, the only true solution is if countries on the periphery were to have economic policy instruments available allowing them to take immediate action if ever facing difficulties. But he noticed this has not been included in the discussion on the monetary union’s deepening. “The discussion was focused more on resolving the difficulties that appear on the periphery by those in the centre, which usually involves setting conditions and is also time-consuming,” he warned.

“Slovenia should not consider itself a country on the periphery, because you are not there,” Jeroen Dijsselbloem, former President of Eurogroup and the former Dutch Minister of Finance, said in reply to Mramor.

Dijsselbloem stated the euro area was doing excellently at the time. “The highest growth was reported by those countries which did the hardest work,” he established, expressing his view that we should look at the past and ask how we ever allowed ourselves to ‘get into such a mess’. “We should not let this happen ever again,” he added.



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