Dear Triple A’s: Start Thinking Twice

Posted on 05. December 2011

by Thomas Baumgartner


23-thomas-baumgartner“Pressure pushing down on me

Pressing down on you no man ask for
Under pressure – that burns a building down”

When Queen and David Bowie released their number 1 hit “Under Pressure” in 1981, they didn’t know how applicable their opening lines would be for the state of the EU thirty years later. There is no doubt that the roof of the European building is already – or better: for months now – on fire. The question rather seems to be if it will burn down completely, or if the European fire brigade will be capable of controlling and forcing it back at the next European Council meeting taking place on Thursday and Friday this week.

Market pressure on the EU and its most vulnerable members is rising constantly: Not only because of economic figures, but also due to the lack of political action and will amongst European leaders. Most commentators and analysts say that it will require drastic measures to regain scope for action. Otherwise there is the likely risk of countries running out of money and a breaking-apart of the Eurozone – with unknown consequences. Nothing more than the Euro and the European project is at stake.

One would think that the time for muddling through is over now, as the World Bank President Robert Zoellick pointed out in September. But two of the most powerful and concrete instruments to resolve the current crisis – Eurobonds and a more active role of the ECB – get rejected constantly by the AAA states like Germany or Austria. Yes, they fear that such a burden sharing would be made at their expense, but they should think twice: What’s more expensive? A common Eurozone debt issuance or the non-existence of the Eurozone within the next twelve months? We should move beyond the illusion that this crisis can be resolved in a cost-neutral way. Choosing between these two options, I think that Eurobonds are the lesser of the two evils.

Quite a number of political figures do put forward that the concept of Eurobonds can only be realized if the EU turns into a fiscal union first. “As long as we can’t have any influence on the debt sinners, then Eurozone bonds are the wrong way,” the Austrian Minister of Finance, Maria Fekter, recently said. Such bonds require budget discipline from all countries, the fulfillment of the Maastricht criteria and a sanction mechanism.  “Only when these requirements have been met, could I be in favor of Eurobonds”, Maria Fekter added.

Fair enough, Ms Fekter. But it’s not a question of which step to take first, but how to lay out a roadmap for all these measures at once – fiscal union, eurobonds and maybe a redefined role of the ECB.  Enough time has been lost over the last couple of months. What we need now is a great leap forward in order to tackle the problems we are facing. It’s up to the European Council to take the next major step in European Integration – otherwise it might be too late. And strange enough, Queen and David Bowie also mentioned this in their closing song lines:

“This is our last dance
This is ourselves
Under pressure”