Euro

The Irish Economy » Blog Archive » Directed technological change: 

The Irish Economy na nota referenciada acima (cujo tema não é aquele em epígrafe) remete-nos para uma intervenção na LSE de que se retiram os seguintes extractos (ver sob o nome de John Burton) - têm a ver com o processo que levou à criação do Euro e são factos históricos que importa não esquecer (se quisermos perceber minimamente o assunto):

This Delors report [1989] was even more specific than the Werner report was, in envisaging the dangers that inconsistent economic policies within the single currency area could give rise to. It warned “Monetary union without a sufficient degree of convergence of economic policies is unlikely to be durable and could be damaging to the Community. Parallel advancement in economic and monetary integration would be indispensable in order to avoid imbalances.”

It went on to predict exactly what went wrong in Ireland’s case. Recalling that financial markets are very bad at predicting crises, and go on lending long after they should have stopped, it said “Experience suggests that market perceptions do not necessarily provide strong and compelling signals and that access to a large capital market may for some time even facilitate the financing of economic imbalances. Market forces might either be too slow and weak or too sudden and disruptive. Hence countries would have to accept that sharing a common market and a single currency area imposed policy constraints. “

Unfortunately the Delors report was all too prescient. Markets, and their handmaidens the rating agencies, were initially “too weak and slow” in penalising the build up of excessive borrowing and lending in parts of the eurozone in the period from 2000 on, and when they did eventually recognise the problem, they were, exactly as Delors predicted, “sudden and disruptive” in their response

The next important step in the process of economic integration was the negotiation of the Maastricht Treaty in 1992, [...] Free Capital movements came first, in 1990, and restrictions on capital movements were explicitly forbidden in the Maastricht Treaty. The full implications of this seem not to have been envisaged at the time.

It created the conditions in which banks in EU countries could borrow freely from one another. At retail level, Europe still had national banking systems, supervised by national regulators. But, at wholesale level, free movement of capital meant that the European Union gradually developed a single European banking reality, with banks all over the EU, seeking the highest returns wherever they could find it, increasingly lending to one another, dependent on one another, and vulnerable to one another. The logic of that development should have been a common European Banking policy, with tight supervision from the centre, especially in those parts of the Union where the common interest rate was inappropriately low for local conditions.

Moving back to the narrative, one has to admit that when we came, at the Dublin EU Summit in 1996, to set up the Stability and Growth Pact to give effect to Maastricht, we again made the mistake of focussing exclusively on Government finances, and neglecting the possibility that trouble would be caused by private sector excesses, and that to avoid that, we needed tougher transnational European banking supervision. As I have said, this omission subsequently facilitated pro cyclical monetary expansion in some countries, like Ireland and Spain. Interest rates, that were suitable to Germany, as it went through the difficult post reunification phase, were too low for Ireland and Spain. When local inflation was taken into account, they were actually negative. When interest rates are negative, you create an incentive to the creation of pro cyclical bubbles in the economy. 

In putting that right now, we must not over react in the opposite direction.

- Sent using Google Toolbar"