Jul 11 2011
Em 6 de Dezembro último escrevi este texto, destinado a uma publicação internacional, mas que, na altura, acabou por não consegui ser publicado. Deixo-o aqui por memória, uma vez que o tema parece não ter perdido actualidade :
In 1995, the Exchange Rate Mechanism (ERM) was at the brink of collapse. Market pressure was forcing some countries to raise interest rates to domestically unbearable levels. A succession of devaluations – or even withdraws from the Mechanism – have failed to calm down the markets. And so have the orthodox set of instruments contemplated by the Mechanism.
Collapse was eventually avoided by a bold adoption of a very unorthodox response. Fluctuation margins – set at 2.25% from the central parities – were then allowed to widen to 15%, which, in practice, meant that the Mechanism was suspended in favor of a temporary regime of floating exchange rates. But the solution, unorthodox as it was, succeeded in removing from the system any possible focal point for a speculative attack. (A massive intervention by the Bundesbank in favor of the French Franc – not an orthodox procedure of the German central bank, either –, also helped do deal with the situation).
Without any focal point to polarize possible speculations, market pressures eventually abated and the ERM gradually reverted to its normal rules. Moreover, the nominal convergence required to start the European Monetary Union (EMU) was able to pursue and the euro was created on schedule.
The EMU is now living another exceptional circumstance that can only be properly addressed by getting out of the orthodox framework and resorting to an unorthodox solution.
A group of countries, from the so-called EMU periphery, are now facing an unsustainable financial situation – not only on their public finances, but also on their whole economy –, which is virtually shutting them down from the capital markets. The more unsustainable their situation is perceived, the more their debt yields increase. And the more yields increase, the more unsustainable the situation becomes, replicating the same vicious circle, and self- fulfilling prophecy, faced by the ERM by the mid 90s.
If not contained in time, such a vicious circle will easily spiral and soon most of the system could be driven into its vortex. A cascade of likely sovereign defaults – its end known to none – can then be easily triggered.
Under the present circumstances, and like in 1995, such a vortex can only be stopped if all possible focal points for speculative attacks are removed from the system. And such a purpose can only be achieved by pooling all government financial needs for the next 12-36 months into a single entity, while domestic adjustment programs are given time to work and convince the markets of a reverse of the situation.
For that purpose, a European Fund, guaranteed by all the EMU governments, should be allowed to issue debt on behalf of the European Union up to a very large amount (v.g. €2 trillion). Governments that so wish, and subject to the meeting of certain goals of medium term macroeconomic adjustment programs – previously agreed upon with the European authorities –, could draw quarterly on the Fund to serve their current needs. Failing to meet the goals on time, and until they were met, would disqualify the Government for drawing on the Fund and eventually lead to its “invitation” to restructure their debts. Fund financing should be granted at rates not seen as merely compounding the unsustainability of the underlying situation.
Given such possibility, the number of countries actually resorting to the Fund would end up being relatively limited, turning the Fund’s financial needs much smaller than its authorized borrowing limits. But the destructive vortex could be contained without spreading out of the periphery, the peripheral countries would be allowed time to “clean up” their financial situation and the European authorities would have the time and the peace to prepare a more resilient institutional architecture for the future.
12 Comentários para “A POSSIBLE UNORTHODOX SOLUTION”