It’s a good sign when a top bank manager like Commerzbank’s Martin Blessing enters the debate on how to solve the euro zone crisis. Leaders in Germany’s financial industry have refrained far too long from offering concrete solutions. Previously when bankers spoke up after the global financial crisis, they mostly only criticized what they considered bad regulation.
Now, with his call for euro bonds, Mr. Blessing is reviving a discussion that seemed to be all over. German Chancellor Angela Merkel has been so blunt and unequivocal about her opposition to “the communization of government debt” that, for a long time, no one with any weight in Europe dared address the issue.
So there is a certain chutzpah when Mr. Blessing, whose bank is still being kept afloat with government money, ignores the chancellor’s “not-over-my-dead-body” decree on euro bonds. Mr. Blessing’s proposal, it must be said, is not a hasty reaction and merits serious discussion. But his call for euro bonds to replace a portion of national debts would contravene current laws.
The Stability and Growth Pact is based on the fundamental concept of budgetary responsibility. Through regulations that govern debts, narrow limits are imposed on nations borrowing money. In order to help achieve sustainable government financing, founders of the euro currency union excluded a reciprocal liability for national debts. At the same time, the mandate of the European Central Bank was limited to preserving price stability. A monetary financing of national debts of euro countries is explicitly forbidden.
Mr. Blessing now wants to annul both of those principles. The justification he cites, namely that the financial crisis has already damaged these cornerstones of the euro zone, cannot be left undisputed. The European Stability Mechanism – which loaned money to highly indebted countries, guaranteed by other currency union members – was set up only to provide aid in an emergency situation. And this assistance is awarded only in return for accepting tough stipulations.
This is something entirely different from Mr. Blessing’s idea of using euro bonds to finance one-fourth of a country’s national debt in relation to its gross national product. This would mean that joint liability for national debts is no longer an exception but the norm.
Mr. Blessing also seeks to normalize the controversial purchase of state securities by the European Central Bank (ECB). According to his model, the bank should be granted permission to buy the new euro bonds. The promise by ECB President Mario Draghi to buy government bonds applies only to over-indebted euro zone countries that have enacted austerity measures. So Mr. Draghi can’t unconditionally purchase government securities.