2013 m. balandžio 1 d., pirmadienis

Munchau apie euro ateiti

It is a question that I have been asking myself for a while: at what point does it become economically rational for a country to leave the eurozone? There are two things to consider. The first is whether the country’s banking system is viable in the presence of an imperfect banking union – one that will not share any risks in the foreseeable future. The second is whether public and private sector debts are sustainable, given the country’s present and expected future growth rates. For Cyprus, the answers to both questions are no. The decision to bail in shareholders, bondholders and uninsured depositors would have been logical if the eurozone had a full banking union. There would be no bank run as all banks would be reinsured centrally. In this parallel universe, one could have wound down Cyprus’s second-largest bank without collateral damage to the wider banking system, or to the Cypriot economy. The US shows how this works: if the Federal Deposit Insurance Corporation raids a bank in San Francisco, and bails in uninsured depositors, there is no bank run on neighbouring banks as California is not liable for the banking system. Instead the US has a federal resolution authority and deposit insurance system. But as each eurozone country remains responsible for their banking systems, Cyprus had no choice but to impose capital controls after the bail-in. Despite official protestations, these controls will persist for a very long time. The authorities have in effect launched a new parallel currency convertible to the standard euro at an exchange rate of one to one, but only up to €5,000, the monthly transfer limit. It is not hard to imagine that exit from the eurozone would have been more traumatic to the population, but it would have brought the benefit of a devalued exchange rate. And that answers the second question. Cyprus is more likely to return to debt sustainability outside the eurozone, because a lower exchange rate would reduce net debt, and because of a faster resumption of economic growth. The same is ultimately true of Spain as well. Jeroen Dijsselbloem, Dutch finance minister and president of the eurogroup of eurozone finance ministers, unwittingly answered that question when – in an interview with the Financial Times – he shocked the world by telling the truth. It is now the stated policy of the creditor countries to solve the problem of a debt overhang in the banking sector in the peripheral countries through the bail-in of bondholders and depositors. Just think this one through. Minus its two largest banks – BBVA and Santander – Spain’s banking system is broke, even after recently agreed small recapitalisations. The housing bubble is no longer the main problem, but the ongoing depression is likely to last for most of the decade, given current policies. The logical consequence of Mr Dijsselbloem’s dictum and the reality of austerity and a deficient banking union is a future bail-in of Spanish bank bondholders and depositors. The problem is that even insured deposits will then not be protected. Look at what happens in Cyprus, where capital controls affect small and large deposits alike. I would expect that to happen in Spain as well. Given the stated policy, it is logically irrational for any Spanish saver to keep even small amounts of savings in the Spanish banking system. There is no way that the Spanish state can guarantee the system without defaulting itself. The consequence is that for Spain, too, it will eventually become economically rational to leave the eurozone. The best moment would be the time when the country achieves a fiscal balance before the payment of interest on debt. The same is also true of Greece, where economic growth keeps undershooting the underlying assumptions in the official debt sustainability analysis. In the absence of a willingness by the creditor countries to agree another debt rollover programme, the same routine beckons – more bail-ins, including of Greek bank depositors. And Italy? Its public sector debt, approaching 130 per cent of gross domestic product, is sustainable if the country manages to return to economic growth rates of 2 per cent. With growth just a little over zero for the past 15 years, it is unclear what a government can do to bring this change about. It would require big downward wage adjustments in the private sector, and efficiency gains in the public sector. Italy’s next government would have to confront vested interests on lines similar to what happened in the UK in the early 1980s. If the political gridlock could not be resolved to achieve this effect, Italian society would be heading for a straight choice between a default inside the eurozone, or exit. The first of these choices would be really toxic, especially for depositors. If you believe Mr Dijsselbloem, as I do, then it would be rational for every southern European to take their money out of the country and deposit it outside the eurozone. In an environment in which the creditor countries refuse a genuine banking union, the hurdle for an economic case in favour of leaving the eurozone is shockingly low. Of course, economics may not be the main criterion in a country’s decision. In the short term, politics may trump economics. But in the long run, you cannot operate a monetary union in the face of economic logic.