Europe’s reforms may come at a high price

Le contexte : Axel Weber démissionne de la Bundesbank

En annonçant son départ, le Président de la Bundesbank connu pour son intransigeance vis-à-vis de l'inflation, met officiellement fin à ses chances de devenir le prochain président de la Banque centrale européenne.

Axel Weber, 53 ans, connu pour son intransigeance vis-à-vis de l'inflation, a quitté la réunion avec le chancelière et le ministre des Finances sans faire de commentaire aux journalistes.

Il était considéré comme le favori pour succéder à Jean-Claude Trichet dont le mandat s'achève en octobre. Son retrait relance la course à la présidence de la BCE et alimente les inquiétudes sur les marchés financiers concernant la capacité des régulateurs européens, divisés, à résoudre le problème de la dette souveraine de la zone euro.

La BCE a joué un rôle crucial dans la réponse à cette crise avec, entre autres, des rachats de dette de pays périphériques de la zone euro lourdement endettés pour apaiser les marchés.

Axel Weber to Leave Bundesbank, Throwing ECB Race Open


Axel Weber to Leave Bundesbank, Throwing ECB Race Open

Extrait de : Zone euro : Axel Weber opposé au rachat d'obligations par le mécanisme européen de stabilité, AFP, Les Echos, 22/02/11

Axel Weber, gouverneur sur le départ de la Bundesbank, est opposé au rachat par le mécanisme européen de stabilité (ESM) en cours de création d'obligations publiques de pays de la zone euro, écrit-il dans le Financial Times mardi, une position aux antipodes de celle de la BCE.

"Des achats d'obligations sur le marché secondaire ne devraient pas faire partie de l'ESM", écrit M. Weber dans une tribune.

La Banque centrale européenne (BCE), où il siège au conseil des gouverneurs, s'est pourtant exprimée en faveur d'une telle mesure. C'est elle qui, depuis mai, achète sur le marché des obligations émises par les pays en déroute financière de la zone euro, et elle aimerait se décharger de cette tâche.

L'ESM, sur les contours duquel planchent actuellement les pays européens afin d'en décider les grandes lignes le mois prochain, doit orchestrer à partir de 2013 la réaction aux crises des finances publiques en zone euro, prenant la succession du fonds de stabilité financière (FESF) à l'oeuvre depuis le printemps 2010.

Outre la BCE, un certain nombre de pays aimeraient voir les prérogatives de l'ESM élargies au rachat d'obligations. Pour l'instant, son successeur, le FESF, ne fait que lever de l'argent sur le marché pour le prêter aux pays en difficulté, et accorde des garanties à ceux-ci.

Mais pour M. Weber, les rachats d'obligations seraient "un moyen extrêmement inefficace de réduire la dette", et constitueraient en outre "un transfert de la part des autres pays membres", à éviter à tout prix à ses yeux.

Évidemment, ce que l’on ne fait pas, pour sauver les banques
sur le dos des Européens.

M. Weber, partisan d'une ligne dure de politique monétaire et budgétaire, n'a jamais fait mystère de son opposition au programme inédit de rachat d'obligations mis en place par la BCE.

Sa position intransigeante, et les critiques qu'elle a suscitées, n'ont d'ailleurs pas été étrangères à sa démission surprise au début du mois. Il était auparavant considéré comme le candidat le plus sérieux à la présidence de la BCE, poste à pourvoir en novembre.

Un banquier,qui avait encore un sens moral, c’est rare !


Extrait de: Europe’s reforms may come at a high price, Axel Weber , FT, February 21 2011

In the coming weeks, European policymakers will have to decide on an overhaul of governance of the European monetary union. As a guiding principle the European Council has clearly – and, in my view, rightly – stated that the main foundations of EMU and the European Union treaty have to be respected. This means the principles of subsidiarity, responsibility of individual member countries and no-bail-out remain essential for the EU. In this context, what cornerstones are to be considered in the matter of reforming EMU governance?

First and foremost, it is up to the member countries themselves to consolidate their public budgets and to initiate comprehensive economic reforms. Financial assistance is a supplement to buy some time and to smooth this process. Against this backdrop the existing instruments for short-term crisis resolution are adequate and, despite repeated demands to the contrary, should not undergo significant adjustment.

In terms of future crisis prevention, it will be essential to set the correct incentives for stability-oriented policies in member countries. Additionally, financial market regulation and surveillance have to be improved in order to significantly increase the financial system’s capacity to absorb shocks. Finally, in the event of a crisis nevertheless occurring, there is a need for a resolution mechanism which does not diminish the individual responsibility of member states and market participants.

With this in mind, the decisions taken by the European Council represent a step in the right direction: the stability and growth pact is to be strengthened, although I fear that the proposals currently on the table fall short of what is required and run the risk of being weakened further in the political process. Macroeconomic surveillance will be enhanced in order to detect structural developments within member states that might be harmful for the rest of the monetary union. In this context, it is vital that the process remains focused on major imbalances and that any unproductive macroeconomic fine-tuning be avoided.

Furthermore, if such preventive measures turn out to be insufficient, the European stability mechanism (ESM) will be available as a means of crisis resolution if there is a risk to the stability of the eurozone as a whole. The properties of this mechanism, as endorsed by the European Council in December 2010, are derived from the current design of the European financial stability facility. In particular, financial support will be granted at non-concessional rates only, and will be conditional on a tough adjustment programme.

Going beyond the EFSF, collective action clauses should allow for an easier restructuring of debt in the event of insolvency. Further, taxpayers in other member states will be protected by a preferred creditor status. These basic features should allow a prompt response to crises without undermining the incentives for sustainable economic policy in member states or exposing taxpayers in other member states to undue risks.

Against this background I am rather sceptical about some proposals to broaden the scope or to soften the conditions of the agreed framework. If implemented, these would result in a weakening of the responsibility of financial market participants and member states, diminished incentives for sound fiscal policies, and again a shifting of risks to the taxpayers of other member states. I therefore perceive a danger in reducing the interest rates of ESM borrowing significantly below the conditions of the EFSF, thereby introducing eurobonds more or less through the back door.

As I see it, bond purchases on secondary markets should not be incorporated into the ESM.

First, the conduct of such purchases would run into significant operational governance problems regarding their volume, timing and conditions.

Second, given the direct support of the ESM, member states in distress would already be protected from high market interest rates.

Third, secondary market purchases with the aim of a debt buy-back would not only be a very inefficient way of reducing the debt burden, requiring very large volumes to achieve a sizeable effect, but they would also constitute a transfer from other member states − a transfer that would be all the higher, the lower the interest rate charged for ESM buyback loans.

Fourth, proponents of secondary market purchases argue that these would stabilise bond prices and, as a result, financial markets, too. While that may be true, I doubt whether purchases would be an efficient way of achieving that goal. We should not forget our experience of setting up banking stabilisation tools in several member states at the height of the financial crisis.

At that time, asset purchases were regarded as costly instruments that were not well targeted given the problems at hand. Such considerations are all the more relevant in a more complex European context. Finally, secondary market purchases combined with the well-justified and necessary preferred-creditor status of ESM loans might even jeopardise financial market stability as the risks of the remaining private bondholders would increase sharply, thereby significantly heightening the pressure to sell.

The current crisis has challenged the founding principles of EMU. Still, EMU can emerge stronger and more resilient than before. To that end, the decisions on EMU governance have to reinvigorate rather than circumvent the basic principles of subsidiarity, responsibility of individual member countries, and no-bail-out as laid down at the launch of monetary union. This is an opportunity that must not be lost.

The writer is outgoing president of Germany’s Bundesbank .