AFTER THE WORDS, THE MAGIC FORMULA…, by François Leclerc

Guest post. Translated from the French by Tim Gupwell

What can you say when you are in total disagreement? You can always assert, with one voice, the need for a union! This is this perspective that the quartet composed of José Manuel Barroso, Mario Draghi, Jean-Claude Juncker and Herman Van Rompuy (in alphabetical order) continues to work on.

A new magic word has been discovered and is going to be proclaimed with all its variations, to push for the implementation of four unions: banking, fiscal, economic and political. With the fiscal union already in the pipeline, the next stage which urgently needs to be reached is that of the banking union. According to a leaked document, it is supposed to be ready in a year – reverting back to a new season of this tactic of putting out feelers to see how people react.

The pursuit and reinforcement of European integration are going to be proposed as the solution to the debt crisis, combining loss of sovereignty with the emergence of new structures. As usual, when Spain is involved, the debate has therefore been approached from the institutional perspective, and the underlying strategy has been swept aside: Europe, for whom and for what? There is of course no doubt that everyone is going to surge along behind the quartet, vying with each other fervently to rally to the cause, each having however their own particular reservations and conditions.

Pierre Moscovici, the French Finance Minister, has already declared this Monday morning that ‘structural solutions’ need to be found (not to be confused with ‘structural measures’). “It’s a question of finally providing the euro with a political backbone, and sound banking regulation, a political backbone, and the banking union which is necessary for the Euro”. End of story!

In an opinion piece published by Bloomberg, Simon Johnson – the former chief economist of the IMF who attracted a lot of attention with his descriptions of the American oligarchical system, before going on to campaign against the megabanks – has laid bare the totally unknown quantity which the financial world faces in respect of a potential implosion of the Eurozone, the reason for this being its virtually limitless impact. Using JP Morgan Chase as an example, Simon Johnson questions its capacity to withstand such an event, given the knowledge that its living will (a sort of will imposed recently on dozens of banks, designed to show that they could be shutdown in an orderly fashion without affecting the overall banking system) has recently revealed that it would not survive a loss of 50 billion dollars, in spite of the colossal size of its balance sheet. In other words, ten times more than what it has already lost during its recent adventures which hit the headlines.

No-one can foresee the dynamic which would be triggered in the heart of a highly-interconnected global banking system, above all if we take into account the very delicate subject of derivative market commitments.

Seen from the point of view of the United States, there is plenty of distance between the quartet’s hypothetical vision of the completion of the union in the Eurozone, and the dangers which this is supposed lay to rest. The renegotiation of the Greek bail-out, the implementation of the rescue package for Spanish banks (which has just been officially requested), as well as the return of tensions on the bond-market, are going to provide wholesome occupations for the authors of the next large-scale diversion operation. A headlong pursuit might be a nicer way of putting it! Because whenever it becomes necessary to look into the details, the same crippling disagreements have the same effects. We have not heard the last about the benefits of a union which supposes that the problems have been resolved. Growth, Europe, Union… It is no longer just words which are being proposed to us, but a magic formula.

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