Central bank liquidity eases pressure on banks but does not solve the debt crisis. And every increase in the bailout fund only serves to postpone the redde rationem. It seems that European leaders (if there are any left?) are finding it difficult to accept the idea that the crisis is the fruit of an inherent fragility of the euro. And it is partly understandable: why blame the currency, when it is so much easier to blame the undisciplined countries? And hasn't the euro given Europe greater stability in prices and interest rates? Why should the euro (even before the size of the debt or the real divergence between countries) be the main cause of the current storm?
In an article written on the eve of the euro, required reading for my students but strangely little remembered these days, Charles Goodhart stated that separating monetary sovereignty from the state (as the single European currency does) is a risky bet: the euro without political unit would have been not the currency of the Europeans, but the foreign currency of each European.
And it happened promptly: the single currency reduced each member state to the rank of a regional entity, like any American state. Even in the United States, the dollar is the single currency of many (and different) states, but it is governed by Washington. And not even the (entirely political) debt ceiling crisis has managed to raise rates on the federal debt. The music doesn't change if we look at Japan, where the debt/GDP is almost double that of Italy and long-term interest rates do not drop from 1%.
Italy (and every other euro country) looks more like Jefferson County in Alabama which is currently renegotiating and restructuring the debt issued to redo the sewers. It is the fundamental difference between users and issuers of money. Those who issue money must carefully calibrate their public deficit on the state of the economy so as not to create inflation, but they can never find themselves in the technical impossibility of paying the debt. Nor can it afford to prevent the deficit from growing in the midst of a serious crisis like this without starting the depressive spiral already underway in Greece and now also in our country.
The markets have finally noticed this and do not foresee any decisive choices on the horizon. It is increasingly evident to a growing audience of observers that the so-called sovereign debt crisis (which is not so sovereign) has two extreme solutions: the dissolution of the single currency or a decisive acceleration of federal Europe. The first is considered (for now) politically and economically unbearable. But for the second there is no time. What to do?
Germany cannot bail out everyone, not only because the Germans do not like this solution, but because it is technically impossible, just as the state of Texas cannot finance other states in fiscal crisis. The solution of the purchases of the ECB (the only place, non-political, where European monetary sovereignty resides) is instead technically flawless. Indeed, if it weren't politically unacceptable, Frankfurt could announce that it is the buyer of last resort for European debt and spreads would instantly disappear. Instead, it does so in small targeted doses, simultaneously asking governments for a credible commitment to return to common rules. But the fact that a non-democratically elected body could end up commissioning another that enjoys democratic legitimacy is another symptom of the democratic deficit that Guido Rossi spoke about in the Sole 24 Ore.
The other condition that would reduce the pressure on the debt is a recovery in growth, which will not come from austerity programs, nor from the United States or China. The fact is that a monetary area in which political monetary sovereignty is absent cannot technically withstand a recession for long without risking what the euro risks today. Other solutions to buy time have been proposed, and almost all of them involve sacrifices of sovereignty and inevitably encounter political vetoes: from the proposal that the ECB finance the EFSF which in turn purchases the debt of the countries that Europe deems solvent, to that, provocative, that Germany buys Italian bonds in exchange for Eni and Ferrovie.
A proposal that does not require transfers of sovereignty is that of Mosler bonds. This is being discussed today at a conference in Dublin. These are public bonds issued with a clause: in the event of default, the bonds in question will be accepted by the issuing state as a means of paying taxes. This simple promise about the maturity value of the security would make the default purely hypothetical. A depositor who pays taxes in the bank would effectively buy the government bonds in the bank to pay taxes. The clause therefore creates a demand for public bonds whose nominal value (plus coupon) is guaranteed by the promise of the issuing state. The device does not appear to be in conflict with the art. 128 of the Treaty, reduces the spread on debt, grants Europe the political space to decide between the options left without breathing down the neck of the spreads. And it could make the consolidation operations that today look like impossible missions more credible due to the spreads that immediately eat up a large part of the fiscal sacrifices of the most affected countries.
Reducing spreads is an emergency, and not only in view of the cost of public debt but due to the very serious repercussions on banks and the real economy, as we see these days. But of course it is not enough to save the euro, which will only be able to survive with courageous decisions that restore the functioning principles of a monetary economy. As happens in the United States.
