Disruptiveness matters

Last week, I have had the chance to interview Jean Pisani-Ferry about some of the most important topics of the moment. In this video, the Director of Bruegel discusses about the commitment of the G20 leaders to take the first steps towards the implementation of a banking union and the scope of action for renegotiation of the Greek bailout program.

Interviewer: In Los Cabos, G20 leaders focused their response to Europe’s financial crisis on stabilizing banks and implement concrete steps towards a more integrated financial architecture that would also include common banking supervision and guarantees to repay bank depositors. What exactly does this mean?

Jean Pisani-Ferry: What is striking in this G20 communiqué is the very explicit support given to the idea of a banking union in Europe. Banking Union as it is called now means moving to the European level responsibilities for supervision, deposit insurance and banking crisis resolution. It’s idea for which Bruegel has contributed extensively. It’s an idea that seemed to be quite outlandish not long ago and suddenly it has emerged as one of the key issuers for the possible agenda of next European summit. It has been endorsed by France, it has been supported from the outside strongly by the UK, provided that they don’t participate, it’s been supported by Italy and many other countries have indicated interests. Germany was reluctant but it has indicated that for larger banks they would be willing to look at the idea and now the endorsing by the G20 might mean that we are moving close. Now the question is how precise and how far the question will go.

Interviewer: After the Greek elections last Sunday, the European Union seemed confident that the newly formed government will stick to the terms of the bailout. Nevertheless, momentum for financial markets did not last for long. What do you think is needed to restore their confidence?

JPF: I think markets worry much beyond Greece. They worry about Spain, they worry about the architecture of the euro area, they worry about the degree of commitment there is from the part of the member states, and they worry about how willing they are to contemplate bold steps so I think it is much beyond Greece.

Greece could have been a sort of catastrophic event in the case that the new Greek government would have challenged participation, or questioned participation, in the monetary union. That fact that this did not happen just removes one of the risks but it does not mean that there is stability in the euro area.

Interviewer: Recently, there have been numerous discussions about the renegotiation of the Greek bailout program. How much scope is there for renegotiation?

Interviewer: Everybody now recognizes what is obvious: that the programme is off track. That the commitments entered at the time of the negotiations of the second Greek package back in February were not implemented because there was no government in charge, it was essentially a chaotic government for the time of the two elections. Now, we have to look at the situation is, the budgetary slippages, worsening economic situation, GDP is significantly below of what it is expected to be, the dire situation in a number of public services also. So there will be scope for renegotiation.

JPF: My assumption is that the scope will be very limited. Creditors want to renegotiate fundamentally the terms of the programme and make an adjustment to it. The big question beyond the adjustment of the parameters is what can be done to foster growth much more effectively that has been done so far. Greece is in the fifth year of recession. Using the structural funds as we at Bruegel had advocated in a more forceful way by frontloading them and actually spending the money that remains unspent but that is earmarked for Greece would be a good idea and there is a lot of support for it but on the ground it is facing difficulties in terms of finding good projects and good investments to use this money, beyond some initiatives that were discussed in the past like the programme for putting state assets under a holding company injecting capital so that they can gain in value and could be earmarked for later privatization is certainly something that could be revised but I think we certainly need initiatives to go beyond the parameters of the programme that is now in the card.


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