Which crisis the politics of distress in a modest proposal

These cannot be used as collateral for credit or derivatives creation. To safeguard the credibility of this conversion and to provide a backstop for the ECB bonds that requires no ECB monetisation,. We propose an Investment-Led Recovery and Cohesion Programme which is fully Europeanised just like the banking sector and the Maastricht-compliant debt of member states.

Its twin tasks: to provide investments that are not backed by the taxpayers of the surplus countries and to tackle the intra-eurozone imbalances through heighted investment in the areas that need it the most. Financed fully by EIB and EIF bonds along the lines of EIB bond financing, which has a sterling track record , idle savings in Europe and, importantly, worldwide can be shifted into productive investments in the European regions where they will help provide essential public and private goods which are otherwise undersupplied , rebalance competitiveness and generate the incomes from which the most precarious debts can be repaid.

Figure 3 provides a visual summary of the proposed policy. Other than the presumption of recent austerity policies that growth comes through rigour alone, the outcome of which may be rigor mortis for the eurozone, there has been a disregard for what Europe already can do with its existing institutions and a failure to think in a global context.

Thus finance for recovery can be gained by recycling global surpluses into eurobonds. Such investment would come from the central banks of emerging economies and sovereign wealth funds.

These would not be national bonds denominated in euros but EU bonds. European recovery is vital for the BRIC countries to sustain their exports.

They also desire a more plural global reserve currency system to be able to reduce their dependence on the dollar. This not only assures opposition from many of the states, not least Germany, but also entirely neglects that bonds for project financing have been issued successfully by the EIB on its own account since , without such guarantees.

Thus debt is only one facet of the crisis. Its inverse is the mountain of European and global savings lacking investment outlets. The task is not to tax and spend within Europe but to mobilise both European savings and global surpluses into social investments which can recover growth but also enhance economic and social cohesion by being directed into the deficit regions that are currently buckling under the unbearable weight of fiscal consolidation.

The EIB is highly dependent on investments in its bonds from pension funds which are statutorily obliged to invest only in AAA-rated finance. It also has had a house rule, rather than a treaty obligation, to seek co-finance for its investments either from national governments or national partners, both of which have been compromised by reactions to the eurozone crisis since Eurobonds issued by the EIF can offset this.

The proposal was derailed in , both because of vehement resistance from the Economy and Finance Directorate of the Commission and the resistance, then as now, of Germany to EU bonds. Nonetheless, Delors managed to get the European Investment Fund established. In recent evidence provided to the Economic and Social Committee of the EU, both the Fund and the EIB confirmed that it could fulfil its original design aim to issue EU bonds without a treaty revision.

Enhanced cooperation should aim to further the objectives of the Union, protect its interests and reinforce its integration process. Such cooperation should be open at any time to all Member States. The decision authorising enhanced cooperation should be adopted by the Council as a last resort, when it has established that the objectives of such cooperation cannot be attained within a reasonable period by the Union as a whole, and provided that at least nine Member States participate in it.

The Council approval of an enhanced cooperation procedure may be unanimous or by qualified majority. Eurobonds issued by the EIF could finance a European Venture Capital Fund, which also was one of its main design aims when advocated to Delors in This was based on the recognition that interest on loan finance both deters new start-ups and then strangles many of them before they have been able to gain markets.

But the design aim was defeated by opposition from the Economy and Finance Directorate General of the Commission, and the role of the EIF was reduced so greatly that it could not even make loans to SMEs but merely offer loan guarantees.

Furthermore, it did not offer these directly but only through national financial intermediaries. The outcome was that the Fund, by , had managed to guarantee loans only equivalent to one billion ECU. This has significant implications for convergence, since Central European economies such as Germany and Austria already have excellent financing for small and medium firms through their Mittelstandspolitik.

It is the peripheral economies that need this. Eurobond financing for a European Venture Capital Fund could also overcome the constraints of the Framework programmes for science and technology. In the drafting of the Fourth Framework Programme FP4 , it was accepted based on the proposal of one of the authors of this paper that its programmes should include an institution or enterprise from a Schedule 1 underdeveloped region and gain preference for consideration if they also included a Schedule 2 depressed urban area.

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