Saturday, July 23, 2011

ECB: "We Got What We Wanted"

On its face, the EU summit agreement to salvage Greece and save the euro would seem to mark a loss for the ECB, which had adamantly opposed partial default on Greece's sovereign debt. But this Times story portrays ECB officials as having got what they wanted. Of course everyone is spinning the agreement to accentuate the positive from his or her point of view, and a good agreement is one in which everyone gets something. But all parties have an incentive to play down whatever it was they had to give up to get that bit of positive, and the price that will have to be paid is buried in a welter of technical details that leave the identity of the ultimate burden-bearers difficult to unravel. I'm sure we'll be hearing more in the coming weeks. What no one got is what is arguably needed: a Eurobond and a transnational fiscal authority to manage its issuance and collect taxes to service it.

Despite the incense that has been burned to the idea of yet another instance of "progress in crisis" toward a truly federal European Union, I see no evidence of a more coherent future: just another patchwork solution, and yet another pseudo-independent, unaccountable institution that Sarkozy has taken to calling the "European Monetary Fund," as though being in such wretched shape as to require a "permanent emergency organization" at one's disposal were something to boast about. And the Fonds Européen de Stabilité Financière lacks the independence of the real IMF, at least when the IMF was intervening in emerging rather than developed economies. The FESF, for better or for worse, will be a highly political rather than technocratic institution (some will find that heartening) yet an almost completely opaque one. But this is standard operating procedure for the EU, and it affords European leaders a margin of maneuver that they have come to value, indeed find indispensable.

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