{"id":119450,"date":"2019-04-23T11:12:48","date_gmt":"2019-04-23T11:12:48","guid":{"rendered":"https:\/\/www.bnreport.com\/france-and-germany-agree-on-eurozone-reform-219\/"},"modified":"2019-04-23T11:12:48","modified_gmt":"2019-04-23T11:12:48","slug":"france-and-germany-agree-on-eurozone-reform-219","status":"publish","type":"post","link":"https:\/\/www.bnreport.com\/en\/france-and-germany-agree-on-eurozone-reform-219\/","title":{"rendered":"France and Germany agree on eurozone reform"},"content":{"rendered":"

PARIS \u2014 Governments talk a lot about eurozone reform<\/a> but cant get their act together. So its time for academics to step in.<\/p>\n

That impatience seems to be at the core of an unprecedented initiative by French and German economists, who published Wednesday a detailed plan on how to make the monetary union shock-resistant and a better guarantor of long-term prosperity.<\/p>\n

Fourteen influential scholars, who in September published a joint op-ed in Le Monde<\/a> and the Frankfurter Allgemeine Zeitung<\/a> to urge their respective governments to be bold on reforming the monetary union, have taken a step further to detail what they think should be done \u2014 and the sooner the better.<\/p>\n

The basic idea underlining their plan \u2014 which came in the form of a \u201cpolicy insight\u201d jointly published in Paris and Berlin \u2014 is that France and Germany may well be separated by historical and cultural differences in their approach to monetary union, but both make strong arguments. The plan is given extra weight because the German authors are more varied than the usual center-left academics traditionally sympathetic to French arguments.<\/p>\n

\nThere is no time to waste, the economists argue, because no one knows when the next financial crisis will hit.\n<\/p><\/blockquote>\n

In a nutshell, the eurozone needs both financial discipline \u2014 as the Germans argue \u2014 and risk-sharing \u2014 as the French insist on. But both need to be credible, and must stop relying solely on either strict rules that cant be enforced, or government promises that cant be kept.<\/p>\n

Furthermore, there is no time to waste, the economists argue, because no one knows when the next financial crisis will hit, and even though the economy is recovering at a brisk pace, the eurozone remains vulnerable.<\/p>\n

The report seems to make a point to skirt around the terms in which the eurozone debate has been framed in the last few months, notably by French President Emmanuel Macron who has pushed for grand reforms including the creation of a eurozone finance minister who would manage a \u201ccommon budget.\u201d<\/p>\n

Neither a finance minister nor a joint budget are mentioned in the paper because, according to one of the authors, Agn\u00e8s B\u00e9nassy-Qu\u00e9r\u00e9<\/a>, \u201cthat is not a crucial question\u201d for the monetary union. Another of the headline reforms for the single currency bloc \u2014 the German idea<\/a> of transforming the bailout fund known as European Stability Mechanism<\/a> (ESM) into a full-fledged and strictly independent \u201cEuropean Monetary Fund\u201d \u2014 is similarly discarded.<\/p>\n

Instead of highly charged words that may encounter political obstacles, the 14 economists suggest six major economic reforms that they argue should be undertaken simultaneously and without waiting \u2014 although the actual debates, votes and implementation of the package would have to be spread over several years.<\/p>\n

First, the banking systems residual weaknesses need to be taken care of. That means limiting the amount of sovereign debt of their own countries that banks can keep on their balance sheets, shrinking their stock of bad loans, and completing the deposit guarantee scheme, which would help avoid possible bank runs in times of crisis.<\/p>\n

Second, the EUs deficit rules need to be reformed, and made both simpler and more credible. \u201cIm unable to explain the current system to my own students,\u201d said Philippe Martin<\/a>, an economics professor at Sciences Po and one of the reports authors. And the current system of fines and penalties for countries violating the Stability and Growth Pact<\/a>, he added, \u201carent credible because they are never enforced.\u201d<\/p>\n

Instead of focusing on budget deficits, the authors suggest that governments abide by a strict goal on spending \u2014 which should not increase faster than GDP, and even at a lower pace for over-indebted countries. That should be controlled by independent bodies and the penalty would come in the form of issuing so-called junior debt (i.e., with higher interest rates) that would be automatically restructured if the country later needed assistance from the ESM.<\/p>\n

The third reform, which may prove the most controversial, would be to implement an overt legal mechanism for insolvent countries to restructure their debt \u2014 to avoid a repeat of the wasted time and improvisation that have marked successive episodes of the Greek debt drama since 2010.<\/p>\n

The other three reforms suggested by the Franco-German economists are the creation of a fund that would help member countries deal with the most severe crises; the definition of a class of \u201csafe assets\u201d to allow banks to replace sovereign debt in their balance sheets; and a reform of eurozone institutions, to Read More \u2013 Source<\/strong><\/a>
\n[contf]
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\n <\/p>\n

<\/a><\/h5>\n","protected":false},"excerpt":{"rendered":"

PARIS \u2014 Governments talk a lot about eurozone reform but cant get their act together. So its time fo..<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[43],"tags":[],"class_list":["post-119450","post","type-post","status-publish","format-standard","hentry","category-business"],"yoast_head":"\nFrance and Germany agree on eurozone reform - Business News Report<\/title>\n<meta name=\"description\" content=\"PARIS \u2014 Governments talk a lot about eurozone reform but cant get their act together. 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