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Back to Tres palabras sobre el nuevo plan de la UE
Rodolfo Campos and Gonzalo Gómez Bengoechea, Professors, IESE, University of Navarra
Three words on the new EU plan
Early Monday morning, European Union finance ministers agreed on a set of economic measures whose goal is to "save the euro, whatever it takes". These are, in fact, actions at three levels that seek to restore the confidence of international investors in the common currency and in the countries that use it. These three groups of measures can be summarized in three words: homogeneity, standardization and discretionality.
Homogeneity. The European Union has been offering a line of financing to non-Eurozone countries with balance of payments problems. The line, with 50 billion euros from budget, was requested by countries such as Romania, Latvia and Hungary.
The agreement reached in the early hours of Monday morning, provides for the creation of a line similar to this, with a budget 10,000 million euros more, and open to the countries of the eurozone. It is therefore a question of fairness. That all the member countries have access to the same subject of aids, independently of whether they belong, or not, to the euro.
Standardization. Troubled countries that, having resorted to this line of financing, remain on the same status, will be able to access more funds. Up to 440 billion euros, in the form of bilateral loans, will be offered by Eurozone partners to countries in trouble. In addition, the International Monetary Fund (IMF) will offer at least half of what the Monetary Union will provide.
The International Monetary Fund will also be in charge of setting conditionality for beneficiary countries. In this way, a fund is standardized for financial aid whose operation is the same as the one used with Greece, with its advantages and disadvantages. Any country of the Monetary Union that, in the future, faces similar problems to those of Greece, will know what to expect from the Community authorities at apply for partnership . The process will thus be faster and more transparent.
The main barrier that these new financing channels will encounter is the slowness of their implementation. It will be months before the final mechanism is configured, approved and implemented. This uncertainty may not calm investors who are worried as time goes by and the status of some Eurozone countries does not stabilize.
Discretionality. goal With the aim of curbing these doubts, the European Central Bank (ECB) announced that it will begin to buy private and public debt from euro member countries. It did so at the same time as the other measures were announced, shortly before the Asian stock markets opened. The intention leaves no room for doubt, despite the fact that, in the statement offered by the European Central Bank, it is assured that the lack of effectiveness of the monetary policy is behind this decision.
The real reason is the need for a strategy to buy time until the measures taken by the finance ministers are fully operational. The purchases will be focused on the secondary market and raise enormous questions: why was it decided to buy public debt on Sunday, when on Thursday it had been said that it would not be done? Will public debt be bought from all countries? In what amounts will it be done? Until when? Are we not dealing with a simple transfer of funds that will not really solve the problems of countries in difficulty?
Considering agreement as a whole, one gets the feeling that the finance ministers wanted to reassure the markets with "a battery of good news". And, in view of yesterday's favorable reception by the stock markets, they seem to have succeeded. Investors are satisfied with these measures to protect the euro countries.
But make no mistake, all this will be of little use if the governments involved are not able to take responsibility, make decisions and convey to the markets the certainty that they will eventually repay their debt. This is not easy, as demonstrated by the Greek population's rejection of the austerity plans. The maxim attributed to the American poet Ogden Nash, "Some debts are fun when we are getting them, but none when we are paying them," is true.