Bailout programmes should be underwritten by all major parties, writes former ECB member Bini Smaghi in this FT article.
One of the main reasons why the measures taken in the eurozone over the last two years have failed to address the crisis is that the decisions were often taken too late. Countries in financial difficulties only sought support when market conditions had deteriorated to a point of no return.
In the current system, the request for financial assistance is made to the Eurogroup, comprising the finance ministers of eurozone countries. However, some national parliaments are sometimes allowed to request extra conditions, giving the impression that certain countries – not the European institutions – set the terms of the programme. The Greek or Portuguese programmes being subject to ratification by the German or Finnish parliaments has fuelled resentment at policies being “imposed” by foreigners. This should be avoided, as programmes succeed only when voters accept them.
Further, to reduce the political cost to governments of requesting assistance, adjustment programmes should be underwritten by all major parties, not only those who form the prevailing majority, as was the case in Ireland, Portugal and Greece. This would prevent programmes being reversed directly after elections.
A request for assistance from the eurozone’s rescue funds could be further de-politicised by setting a threshold, in terms of bond spreads (for instance 200 bp, as in the Maastricht convergence criteria), beyond which the procedure would be triggered in a semi-automatic way. This would be analogous to the excessive deficit procedure, which also implies strict conditionality and monitoring and is launched as soon as deficits rise above 3 per cent.
If the survival of the euro requires further political integration, as many suggest, then Member States need not only to share more decisions at European level but also to accept more interference by EU institutions in areas previously held to be the preserve of national authorities. Politicians and commentators cannot ask for more Europe, then complain about the loss of sovereignty. The real issue is the democratic legitimacy and accountability of the institution responsible for the relevant decisions – in this case, the Eurogroup. Either the Eurogroup is considered legitimate, or it should be made legitimate, as soon as possible.
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