The dire straits of European economy have made the necessity of major financial reforms blatantly obvious. Measures that a few months ago were taboo are now unabashedly aired. These days it is not unusual to find heretic ideas – such as the possibility of suspending a country’s participation in the euro – in the columns of leading European newspapers. What other suggestions are surfacing in the wake of the Greek tragedy?
Giving the EU financial regulatory powers would essentially curtail the power of national parliaments in budgetary matters and have therefore been viewed suspiciously by the member states. Nevertheless, such measures have now been proposed by finance commissioner Olli Rehn, and have as of yet not been met with howls of anger. Rehn’s proposal would likely have met with a tremendous outcry from national parliaments, if it had not been for the financial crisis.
Another idea, although not as controversial as Rehn’s proposal, followed in the wake of the 2008 financial turmoil: A European rating agency that utilizes more transparent criteria than the three major (American) agencies, Standard & Poor’s, Moody’s and Fitch. These agencies have had an inordinate influence on European economy. European onlookers have expressed surprise and dismay at the speed with which Portugal and Greece’s rating was downgraded.
Commenting on the rapid deterioration of the Greek rating, Michel Barnier – EU internal market commissioner who has responsibility for the financial services sector – has pointed out that “we need more competition and diversity in rating agencies.” Although the exact guidelines for such agencies will not be available until December, it is clear that the EU rules will require rating agencies seeking to operate in Europe to register and be supervised for the first time.
Some analyst have pointed out that Greece in some ways would be better of without the euro. If this was the case, Greece could simply devaluate their currency and strengthen their competitiveness. This is not an option. This situation would probably not be to bad if the EU had adequate mechanisms to counter the financial troubles of euro zone members. The sluggish response (and the necessity to involve he IMF) has proven that this is far from the case.
The eurozone countries have “sat between two chairs”, i.e. they have adopted a common currency, but have simultaneously attempted to safeguard national fiscal autonomy. This has meant that European institutions have not been provided with tools that could have ensured that currency guidelines were followed. The wakeup call has been brutal, but perhaps only an event of this magnitude can jolt the EU into action.
