domingo, 3 de junio de 2012

What Europe Need Is A Washington

When the US Government was forced, back in 2008, to step in and bail out giant lender Bank of America, not one American in Oklahoma or Wisconsin doubted where their tax payer money would end up being spent: in US soil and rescuing an American financial institution.

It should not be a surprise then that German Chancellor Angela Merkel appears to be über resilient to a Germany-driven financial rescue of Spanish banks. How could she justify to a voter deep into the Bavarian countryside that her hard-earned money would be used to bail out Caja Rioja, Caja Avila and Caja Segovia (i.e. Bankia)?

What Europe badly needs is a Washington. An abstract concept that engulfs all that is European in order to justify cross border transfers in the name of pan European interest.

There is not one single bank that is pan European, cross border mergers stopped short of creating a single financial brand that could align cross border interests. Rescuing Bank of America, unfair as it was for tax payer stepping in to bail out private bets with public money, meant the protection of a national icon, a popularly recognized brand any American could connect with.

How can a citizen in Munich connect with Caja Rioja?, How could she feel it is in her best interest to inject German tax payers money into ailing regional Spanish banks?

Love it or hate it, Americans have Washington to agree on: it is the Nation’s capital and thus the abstract conjunction of all that is American. When Washington came in to bail out American banks and investment banks it was not seen as if Texan tax payers were bailing out financial institutions in Florida. All the anger and the blame was put in Washington’s mishandling of Wall Street’s rogue traders.

The reason why a financially sound and coherent idea, issuing commonly-backed Eurobonds, doesn’t seem to gain track among creditor nations in Europe is exclusively political: there is not a common brand behind which Europeans can rally behind. There is not such a thing as Bank of Europe, the way there is a Bank of America; there is not an European Express; or a Charlemagne Mutual the way there is an European Express or a Washington Mutual.

This lack of pan European brands is only the reflection of an even deeper rooted problem: the short term political impossibility of establishing a common European budget that would stand behind the common European currency.

A currency reflects markets perception of an issuer’s fiscal position, thus having one single currency for 17 separate an unrelated budgets is a disaster by design. Those countries with healthy fiscal balances would be Ok with the currency’s market price, but those with subpar fiscal balance sheets would have a hard time gaining access to markets.

Take the United States, where 50 States with different budgets enjoy a common currency, but they are entitled to share tax collection and budget outlays through a common clearing house: Washington. A Washington is what is lacking for the Eurozone: tax revenues and budget outlays are not shared and compensated through a common clearinghouse they can call on when things get rough.

The reason for that is über simple: Europe is not a nation, but a loose association of independent nations (some of them with nations of their own within), and thus can not have a common capital city. Brussels works only as the headquarter for pan-European institutions that lack cross border powers, but Brussels does not engulf a notion that can be read as all that there is European, the way the White House embeds  the notion of a nation united under one history.

There is a profound tension arising from the long-term goal of building pan European budgets, institutions and brands, and the short-term need to work out a commonly founded bail out of the weakest links in the Euro zone design: Greece, Spanish banks,  Portugal, etc. Short-term is easy to see that what is needed is a common budget that is funded with common bonds, but that is easier said than done, since satisfying those short term needs depend on painstakingly long-term changes in the way European see themselves.

The time has come however for those long-term goals to be fulfilled, even decades in advance, in order to gap the short term pressure on local markets. If that contradiction is not favorably resolved in coming weeks or months, the short term pressure will end up blowing up the long term goals, and the key to all this dialectic conundrum lies on the hands of the inventors of reloaded dialectic: the Germans.

Germany must see now that they must be generous and aggressive. They must be financial conquerors of Europe in order to save it. They must understand that they ought to leave behind their millenary outre-Rhein hermitage and impose their austere and hyper efficient approach to public finance and industrial innovation despite themselves.

But humans, as nations, are slow learners, and we only learn after the fact. Hardly in the history of mankind nations are proactive and forward looking. It took Pearl Harbor for the US to step in and side  with the allies in the WWII, even when it was clear that the only way to defeat Hitler and avoid a massive human disaster was for the US to join the fight.  It may take the equivalent of that before the Germans realize that what is at stake is something beyond the Rhine, and that something is its own destiny in a world that has grown so complex that not even Europe’s survival is to be taken for granted.

1 comentario:

Daniel dijo...

Great article Edgar, I just hope there are no macro-economic surprises (e.g. Germany losing its AAA rating, etc.) however sometimes the inevitably obvious is surprising when it happens. European banks are not as well capitalized as US banks were at the beginning of 2008. As you have mentioned in your previous articles it is a matter of when and how does the Grexit occurs; hopefully without spilling any contagion over to Spain and Italy (perhaps). In the mean time I still remain super short.