Contraste de los resultados de la evaluación de entrada y salida

the Sovereign Debt Crisis

The eurozone sovereign debt crisis is one of the consequences as well as an evolution of the 2008 global financial crisis originating from the US, and to solve the collective national debt crisis is the EU’s most dominant task during the post-2008 crisis era. The financial crisis this time, which is generally regarded as the worst one since the Great Depression in the 1930s, has affected the EU economy in two prominent ways: first, it causes the EU’s economic recession in the context of the global economic downturn; second, it triggers the euro area sovereign debt crisis, which first started in Greece in 2009 and then spread to Ireland in 2010 and to Portugal 2011, with potential contagious spreading to other euro countries (e.g. Hosli et al. 2011a, 2011b; Pan et al. 2011; Shi et al. 2011a, 2012; Yurtsever 2011). According to the EU website (see “European Financial Stabilisation Mechanism”, European Union), three negative impacts have been exerted by the global financial crisis on the economies of EU countries: (1) “the destabilisation of financial markets”, (2) “the downturn in economic growth”, and (3) “the deterioration in the budget deficits and debt positions of the Member States”. Obviously, the economic recession and the eurozone sovereign debt crisis are interwoven with each other and mutually reinforcing. Against such a background, two thematic topics dominate the EU’s economic governance after the effectiveness of the Lisbon Treaty: (1) keeping financial stability across the EU and EMU against external and internal financial shocks, and (2) carrying out fiscal and economic reforms to correct national government excessive budget and deficit situations and to realize economic recovery and growth. Naturally, the issue of the euro countries’ sovereign debt crisis must be addressed in both the external and internal contexts.

The eurozone sovereign debt crisis after the 2008 financial crisis has exposed the disadvantages of the euro system and EU economic governance as a whole, and accordingly, the EU and its member states are making efforts to address the revealed problems so as to solve the crisis and to improve EU economic governance. Based on the information provided by EU institutions’ official websites (the Commission’s

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website in particular) and inspired by Hosli et al. (2011b) and Yurtsever (2011), an overview of the EU’s and its member states’ efforts to deal with the post-2008 crisis situation, mainly about combating the euro area sovereign debt crisis, is conducted as follows:

Table 1.2 The EU’s New Measures to Solve the Eurozone Sovereign Debt Crisis

Factors contributing to the crisis, being classified into three related aspects I, II, and III

Exposed

problems New measures adopted by the EU and its member states

Other suggestions and opinions

I Fiscal and economic aspects (A) Member states’

high budget deficit and debt rates, much above 3% and 60% of Gross Domestic Product (GDP) respectively, the criteria prescribed by the Stability and Growth Pact (SGP) (see Appendix 1);

Member states’ excessive and unsustainable deficits and debts as well as the general global economic recession;

(1) To meet the fiscal criteria laid down by the SGP, member states need to make budget cuts and take austerity measures, and meanwhile to carry out domestic reforms to realize economic growth and employment creation;

(2) The EU and its member states set up economic strategies and priorities, such as Europe 2020 and the Euro Plus Pact; (see Appendix 1)

a) To establish new institutions specialized in monitoring and disciplining member state fiscal behavior and dealing with the sovereign debt issue, such as a European Finance Ministry (EFM), European Debt Agency (EDA), and European Monetary Fund (EMF); b) Worries are expressed about the probability of the disintegration of EMU and even the EU. (B) The general

economic recession across EU countries and worldwide after the global financial crisis of 2008 originating from the US;

(C) The SGP rules have not been strictly enforced: an excessive deficit may ultimately result in a fine of as much as 0.5 percent of a member state’s GDP, but the EU has never imposed such financial sanctions against the euro states who have violated the SGP Powerless fiscal supervision and a watered-down punishment mechanism;

(3) New rules and regulations on the effective enforcement of budgetary surveillance in the euro area entered into force on 13 December 2011 (i.e. the so-called “six-pack”), composed of four main components: (a) stronger preventive and corrective action through a reinforced SGP and deeper fiscal coordination; (b) minimum requirements for national budgetary frameworks; (c) preventing and correcting macroeconomic and competitiveness imbalances; (d) enforcement of sanctions strengthened by the expanded use of “reverse qualified majority voting” (RQMV)22

;

22

Firstly suggested by the Task Force Report (21 October 2010), RQMV is introduced to strengthen the enforcement of the SGP. It means that when imposing sanctions, “a Commission proposal will be considered adopted unless the Council overturns it by a qualified majority”, see “A New EU Economic Governance-A Comprehensive Commission Package of Proposals” (European Commission). The article of Van Aken and Artige (2013) reflects a history of the practice of reverse voting modes: reverse consensus was introduced in the dispute settlement system of the World Trade Organization (WTO) in 1995; reverse simple majority was introduced in the EU’s antidumping policy

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limits; (4) On 23 November 2011, the Commission proposes another two new Regulations to further strengthen budgetary surveillance in the euro area (i.e. COM(2011) 821 Final and COM(2011) 819 Final); later, the so-called “two-pack” became effective as of 30 May 2013;

(5) On 20 June 2012, Communication on Common Principles for National Fiscal Correction Mechanisms (COM(2012) 342 Final) suggested seven common principles for the contracting parties of the TSCG (Treaty on Stability, Coordination and Governance) in EMU to design automatically-triggered national fiscal correction mechanisms;

(6) The European Semester, a new mechanism of coordinating national economic and fiscal policies, started from 1 January 2011, the implementation of which requires and implies the convergence of public accounting systems, forecasting methods, and numerical fiscal rules and transparency;

(7) The TSCG (also popularly known as the “Fiscal Compact”) entered into force on 1 January 2013, aiming at strengthening fiscal discipline in the euro area by the “balanced budget rule” and the automatic correction mechanism.

(D) The euro system encompasses common monetary policy conducted by the ECB, while lacking corresponding unified fiscal policy;

Institutional disadvantage of EMU;

(E) EMU, as its name suggests, should be built on two pillars: the economic pillar and the monetary pillar. The function of the Monetary pillar (i.e. to keep price stability in the euro area) is fulfilled by the ECB, but the economic pillar, composed of three parts: the fiscal regime enshrined in the SGP, national frameworks of economic

policy-making, and the system of mutual surveillance, is lamed, and thus the EU/EMU has failed to implement sound and sustainable fiscal policy for the euro area.

Poor economic functions of EMU and feeble EU economic surveillance and coordination, which are caused by member states’ unsound fiscal policies, inappropriate macroeconomic policies, and an inadequate system of surveillance.

II Financial supervision aspects (F) The eurozone

sovereign debt crisis is triggered by the 2008 global financial crisis originating from the US; Loopholes in financial market regulation and lacking EU-wide financial supervision and a risk prevention network;

(8) The EU established the ESRB for macro-prudential oversight and three European Supervisory Authorities (ESAs: the EBA, the EIOPA and the ESMA, which superseded three existing supervisory committees: the CEBS, the CEIOPS and the CESR, respectively) for micro-prudential oversight of the EU financial system; the ESRB and the three ESAs entered into force from 1 January 2011; (see section 1.3.4) (9) The EU tightened existing rules and

in 2004, and reverse qualified majority voting (RQMV) was introduced in the “six-pack” in 2011 (i.e. the sanction mechanism of the Excessive Deficit Procedure (EDP) of the SGP’s corrective arm) and the new Fiscal Compact contained in the Treaty on Stability, Coordination and Governance (TSCG), which, binding to all euro member states plus 8 other EU member states (without the UK and the Czech Republic), entered into force on 1 January 2013 and “introduces RQMV in all the key steps of the EDP procedure under strict deadlines” (Van Aken and Artige 2013, 31; see also Appendix 1). According to the database used by Van Aken and Artige, the EU’s practice of reverse majority voting can be traced back to 2002 (2013, 5).

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established new regulations on financial services (e.g. banking, insurance, and securities) to reduce short-term financial risks;

(10) Bank stress tests were carried out to overhaul the financial resistance ability of the major banks across the EU;

(11) In September 2012, the Commission put forward proposals on a single supervisory mechanism (SSM) for all eurozone banks, making the first step towards the establishment of an integrated “bank union” lead by the ECB; (G) The world’s

three big credit rating agencies (CRAs) — Moody’s, Fitch, and Standard & Poor’s — all are American companies. They are criticized for their failures to predict the US subprime mortgage crisis in 2007 which in turn causes the global financial crisis in 2008, and they are also blamed for adding oil onto the fire of the European sovereign debt crisis.

The role of the CRAs during the financial and the sovereign debt crisis.

(12) Stricter EU rules on CRAs are on the way of formulation. On 16 January 2013, the EP approved new rules prescribing when and how CRAs may rate sovereign debts and private firms’ financial health, and meanwhile private investors were enabled to sue CRAs for their negligence; (13) On 14 March 2013, the European Council reached Conclusions on the ongoing work to build a sounder structure for EMU, including developing (a) common banking supervision (i.e. the SSM) with stricter rules on capital requirements for banks, (b) bank resolution and deposit guarantee schemes, (c) single resolution mechanism, and (d) Euro Summit rules of procedure; it was agreed that to establish the banking union is “the most pressing priority”.

III Direct financial assistance and crisis management aspects (H) The increasing

yield rates of government bonds make it difficult and unsustainable for member states to finance from the markets and the troubled member states lack capital liquidity capacity;these debt-ridden countries are posed on the edge of sovereign debt default and national bankruptcy;

A typical problem for countries in a debt crisis;

(14) Strategies aiming at easing severe tensions in the euro area sovereign debt market and restoring investors’ confidence are adopted: (a) in May 2010, the financial assistance mechanisms — the EFSM (European Financial Stabilisation Mechanism) and the EFSF (European Financial Stability Facility) — were agreed to be established, and the two constituted a temporary European Stabilisation Mechanism (the temporary ESM);* (b) in October 2012, after the Treaty revision and national ratification, the permanent financial assistance mechanism to euro member states — European Stability Mechanism (ESM) — was inaugurated, replacing the temporary ESM; (c) the International Monetary Fund (IMF) also agreed to provide loans accompanying financial assistance to the euro states; (d) the ECB took initiatives to purchase national debts on secondary markets by the Covered Bond Purchase Programme (CBPP) and the Outright Monetary Transactions (OMTs) (two indirect ways to purchasing the treasury bonds of national governments); (see Appendix 2) (15) Commission Green Paper on the Feasibility of Introducing Stability Bonds (COM(2011) 818 Final) were proposed for a debateon the joint

c) The euro countries should together issue collective Eurozone bonds;

(I) When the crisis first broke out in Greece in the fall of 2009, for a long time, there were a lot of controversies on whether and how to help Greece and to deal with the on-going

Exposing a vacuum in the European integration project: even the latest Lisbon Treaty hasn’t provided the EU a specific d) More money should be put into the ESM so as to increase its financial assistance capacity.

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sovereign debt crisis in the euro states.

mechanism or tool to cope with serious financial and budgetary challenges, such as the sovereign debt crisis.

issuance of debt in the euro area;

(16) Financial assistance was granted to Greece twice: €110 billion in May 2010 (bilateral loans) and €130 billion in March 2012 (financed by the EFSF+the IMF); besides, in July 2011, the Task Force for Greece was launched by the

Commission, which consisted of EU officials and national experts with the aim of providing technical assistance to help the Greek government implement reforms and absorb different available EU funds better;

(17) With the help of the temporary financial backstop mechanisms — the EFSM+the EFSF+the IMF, Ireland (December 2010) has been granted €85 billion (i.e. €22.5 billion (the EFSM)+€22.5 billion (the EFSF+bilateral loans from the United Kingdom (UK), Denmark and Sweden)+€22.5 billion (the IMF)+€17.5 billion (Ireland)), and Portugal (May 2011) €78 billion (i.e. €26 billion each from the EFSM, the EFSF and the IMF); (18) Financial assistance for the recapitalisation of financial institutions in Spain was reached in July 2012: up to €100 billion via the EFSF which is subsequently taken over by the permanent ESM; (19) Balance-of-Payments (BoP) assistance is available for non-euro area member states to ease their external financing constraints, and three countries (Latvia, Hungary and Romania) have received financial assistance under the BoP programs;

(20) ESM financial assistance facility agreement (FFA) for Cyprus up to €10 billion was granted in May 2013 (€9 billion (the ESM) + €1 billion (the IMF));

(21) All financial assistance programs are conditioned by the beneficiary countries’ fiscal, economic and financial reform, mainly including the following promises from national governments: (a) to reduce government debts and deficits, (b) to promote growth and jobs, and (c) to keep financial stability;

(22) From 1 July 2013, the ESM becomes the sole mechanism for new financial assistance programmes to the euro countries, while the EFSF stops engaging in new financing programmes or entering into new loan facility agreements, but still remaining active in financing the ongoing programmes for Portugal, Ireland (which officially exited the EFSF programme on 8 December 2013) and Greece.

Notes: Table 1.2 only lists the main measures adopted by the EU and its member states to deal with the post-2008 crisis situation, particularly the eurozone sovereign debt crisis. Appendix 1 on the evolution of the SGP’s preventive arm provides some background information and explanations to Table 1.2, while for more details and other EU efforts and

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initiatives, please visit the official websites of EU institutions, such as the Commission’s and the ECB’s.

* On 9 May 2010, the Ecofin Council adopted the temporary European Stabilization

Mechanism (ESM) with a total volume of up to € 500 billion, which consists of two parts. First, €440 billion would be provided by the euro area member states by means of a Special Purpose Vehicle (SPV), guaranteed on a pro rata basis by participating Member States, in a coordinated manner. This first part is called the European Financial Stability Facility (EFSF) and would expire after three years. Second, €60 billion would be raised by the Commission and guaranteed by the EU budget based on the relevant articles of EU Treaties (i.e. Article 122.2 TFEU), and this part is called the European Financial Stabilisation Mechanism (EFSM). Alongside the EFSF and the EFSM, the IMF would also provide up to € 250 billion, and thus through the temporary ESM, almost €750 billion could be mobilized (see Shi et al. 2011a). Sources: Own compilation on the basis of Hosli et al. (2011b), Yurtsever (2011), the websites of EU institutions (the Commission, the ECB, the European Council and the Council of the European Union) and the official websites of the EFSF, the ESM and the ESRB.

Similar to the three types of general categorization in Table 1.2, the Commission also has classified the EU’s new developments since the financial crisis into three broad categories (see Table 1.3), which actually suggests a simplified version of Table 1.2.

Table 1.3 New EU Economic Governance Evolving through the Financial Crisis “The crisis exposed fundamental problems and unsustainable trends in many European countries. It also made clear just how interdependent the EU’s economies are. Greater economic policy coordination across the EU will help us to address these problems and boost growth and job creation in future.”

New EU economic governance (based on three main blocks)

Block I Block II Block III

A reinforced economic agenda with closer EU surveillance:

 The Europe 2020

strategy;

 The Euro Plus Pact;

 The SGP Reforms via

the “six-pack” and “two-pack”;

 The Macroeconomic

Imbalance Procedure (MIP);

 The European

Action to safeguard the stability of the euro area:

 In May 2010, setting up the

temporary ESM (i.e. the EFSM and the EFSF) to help euro member states plagued by the sovereign debt crisis;

 Establishing the permanent

ESM, which entered into force in October 2012;

 Providing financial support,

closely cooperated with the IMF, with conditions on

Action to repair the financial sector:

 Establishing new rules

and agencies to detect and prevent financial problems earlier (e.g. the ESRB and the three ESAs);

 Making sure all

financial actors are under proper regulation and supervision;

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Semester. rigorous national fiscal

consolidation and economic reforms.

to block the loopholes in the financial market and system (e.g. to ensure banks across the EU possessing sufficient capital reserves to withstand future financial shocks). Main themes

Fiscal discipline and economic growth.

Establishing assistant mechanisms to provide urgent “financial blood” to the euro states while promoting national economic reforms.

Patching up the loopholes in the financial system and strengthening financial supervision.

“Emerging stronger from the crisis” and “more united than ever”: finding solutions to the crisis after 2008, the EU reinforces its economic goverance and EMU, “paving the way towards a strong political union”.

Sources: Adapted from “Economic Governance” (European Commission).

As far as the new developments of the EU during the post-2008 crisis era are concerned, several points are worth emphasizing. First, the eurozone sovereign debt crisis was so severe that the troubled nation states cannot solve it by themselves, and as the sovereign debt issue became a common challenge, seeking solutions at the supranational level became natural, necessary and unavoidable. Second, representing the overall interests of the EU, the Commission has fulfilled its functions well, actively tabling relevant proposals to deal with the crisis. Third, all the newly adopted policies and implemented measures can be divided into two kinds: (a) those totally created from scratch, and (b) those revising and strengthening the existing rules. Fourth, though the new measures mirror the development of the regional organization at the macro-level, their addressees are the various actors at the micro-level and the concrete implementation of the new rules and regulations require member states’ and the addressees’ cooperation and commitments. Fifth, the sovereign debt issue cannot be treated in isolation; rather, to solve the crisis is a complex project, demanding communication, coordination and cooperation of EU economic, fiscal and financial policies, which are interwoven with each other at both the EU and the national level. Finally, the classification of the three categories presented in Tables 1.2 and 1.3 does not mean an absolute clear-cut system, but rather, it is a way to conceptualize and grasp the social phenomena of the EU’s responses and actions to the crisis so as to facilitate our understanding and research. Needless to say, the three interconnected categories

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are mutually reinforcing and the effective solution to the euro area sovereign debt crisis must be born out of the sound coordination and cooperation among them. In short, the