Margareta Pagano: Candid truths on the euro crisis from a man who knows his facts
Midweek View: Issing fears that giving more power to Brussels and Frankfurt and sharing financial risk will lead to a backlash
Margareta Pagano is a former business editor of the Independent on Sunday who now writes columns and business interviews for a range of publications, including the Independent, Independent on Sunday and London Evening Standard.
Wednesday 03 October 2012
If you have the chance, watch the BBC's Hardtalk interview with Otmar Issing, the former chief economist at the European Central Bank who was one of the midwives to the euro. It's riveting stuff: Mr Issing is candid about the failures of the grand project, admitting that the bigger countries, such as Germany and France, were able to break the stability pact, yet the smaller ones were punished for doing so.
He also admits that the quality of economic information provided by individual countries applying to join, and presented by Eurostat to the ECB, was "lousy" – at times "inadequate, incomplete and maybe false" – while nearly all the countries showed "creative accounting".
When asked why the ECB didn't challenge these numbers at the time, Mr Issing replies, rather bleakly: "Should I have taken a plane to Athens?" Well, yes, if you look today at what is happening on the streets of Greece and now Spain.
Even more gripping than the ECB's mea culpa is Mr Issing's warning that the present drive for "more Europe" and political union is dangerous, if not fatal, to the peoples of Europe.
It's on this issue that he differs most with Germany's Chancellor Angela Merkel, whom he advised until earlier this year, and where a gulf seems to be opening up between those who now claim that greater political union is the way out of this mess and those who don't – including most German taxpayers.
It's also a vindication for Mr Issing, who predicted potential problems with the euro, arguing that political union ought to precede a shared currency to ensure its long-term stability.
Now, though, he fears that centralising power in Brussels and Frankfurt (and indeed sharing financial risk) could provoke a public backlash, as we are seeing vividly in the hardest-hit countries in Europe.
As he puts it: "This belly-cry that we need more Europe is the wrong conclusion – we have already gone too far", suggesting that if those who want political union were to put it to the test with new treaties and referendums asking the public for union, they will fail. It's a "fancy idea, a dangerous one, fatal for the identification of the peoples of Europe".
What he is implacably against now is the ECB's latest promise to provide unlimited support to defend the euro by buying the bonds of those nations most hurt. With €200bn of bonds already on its books, this promise takes the ECB beyond its mandate, he claims. Indeed, if the ECB does go on to create Eurobonds – and the mutualisation of sovereign debt – then he warns that Germany's long-term interest rates will rise while those in other countries will decline, a step which would transfer money from the German taxpayer to other countries without any democratic legitimacy. "This would be a violation of the principle of no taxation without representation."
You can't say it clearer than that, and he's right.
Yet despite all this, Mr Issing still rejects the idea that Germany should leave the euro – "a foolish idea" – and predicts that it will never leave.
He also believes that the euro should and can be saved, a view outlined in his latest book, Wie wir den Euro retten und Europa stärken (How we save the euro and strengthen Europe). But if it is to be saved there will have to be reforms, and some countries will be forced to leave. He doesn't name Greece explicitly, but makes the point that countries either abide by the rules – as Portugal has done with its spending plan – or they don't, in which case they may have to leave to sort out their debt problems.
Quoting Mario Monti, the Italian Prime Minister, he says politicians have been too polite to each other in the past, but must now face up to the problem to find new resolutions that don't lead to further pain – or bloodshed.
Sounds like he's learnt lessons from the early days when the politicians, backed by their economists, were dishing out the fairy-tale numbers to get them into the club, and which went unchallenged by the ECB.
Why this fascinating interview was hidden away on the BBC's World Service, and first run at 4am on Monday morning, is bizarre, as it's just the sort of reporting which should be primetime if we are to learn from the past. As one of the founders, Mr Issing has much to offer today's policy-makers sorting out the mess. As he warns, the ECB is a central bank that is lender of last resort to the banking system, but not an institution that rescues governments threatened by bankruptcy. Or shouldn't be.
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