J. Dijsselbloem on the Eurogroup
On Tuesday 12th Feburary, the Franz Palmer lecture hall was teeming with people, from students to Maastricht citizens, wearing classic or yellow vests, as well as the Diplomat delegation. Everyone gathered to hear the presentation of a former Dutch politician (PvdA) and late president of the Eurogroup; Jeroen Dijsselbloem. As a finance expert, Mr. Dijsselbloem came to Maastricht that night to talk about the crisis that has shattered the world since 2008, and, more precisely, about the past, the present and the future of the financial world of Europe.
Deciding to create a unique currency for the union was not an easy choice and even if it presented a lot of advantages in terms of unity and easiness, it also implied certain sacrifices, such as the impossibility for the banks to manipulate their currencies in accordance to the others on the continent. Since the monetary union was created, other tools of the governments had to be used more efficiently to strengthen the European countries’ economy.
As we all know, in 2008, the financial crisis affected the entire world. Dijsselbloem pointed out three major problems in the analysis of the crisis at the time, which slowed down the whole saving process. First, European politicians and bankers displayed the crisis as being an American problem, which wasn’t actually the case as American finances were regulated by strong established institutions. The Europeans, on the other hand, did not have the ability to compensate the hole created by the credit boom. The financial institution that could have helped to sort things out was the central bank, but it was much too young and weak at the time to resolve the issue.
The second mistake that Dijsselbloem explained was the fact that countries claimed that the crisis was a national issue and individualized it, rather than seeing it in its globality. Debts were therefore considered as national rather than European, going against the whole united European sentiment. Certain countries argued that one of the paragraphs in the Maastricht Treaty stipulates that countries should not provide help to other members which may be in need.
The third issue was that there was no real European regulation for finance and too few institutions to support the banks which were drowning in debts. As Dijsselbloem noted, the European Union did not anticipate that this would happen so soon. It took four years before politicians realized how bad the situation was and started to build up a strong defense against the crisis.
The financial sector did not believe in the bail out of the countries, so the Eurogroup forced EU politicians that a monetary union should be built on trust so that it shouldn’t collapse. The Eurogroup then came up with a plan to “bail in” the countries which were affected by the global crisis. A “bail in” is an arrangement in which creditors of a failing financial institution are required to cancel some of its debts as part of a plan to save it from collapse. This was first done with the Netherlands, which as Dijsselbloem said, was not all mighty and financially safe, since there were many bank complications at the time, aka money laundering. Saving the banks would mean protecting the investors on the back of the little contributors. By bailing them in, the investors would be getting involved in the saving of the bank, therefore, losing part of their money. This would mean that with the investors losing a little, smaller investors would not lose a lot, making it a win-win situation. This process eventually worked for the Netherlands but caused a global uproar when it was implemented on the tiny island of Cyprus.
Jeroen Dijsselbloem continued talking about the financial steps the Eurogroup had to take in order to save the financially stricken countries, such as Greece and Italy, when all of a sudden, a yellow vested gentleman started shouting in Dutch. As most people were international students, Mr. Dijsselbloem was kind enough to translate what the gentleman had said. The gentleman talked about how the Eurogroup implemented these rules on the expense of people’s financial stability, stating the over 50% unemployment rate in Greece and how people like him should just go to jail. Mr. Dijsselbloem, even if he stated that he is not a politician anymore, handled this verbal attack with a sneaky politician’s finesse. He agreed with the gentleman and noted that mistakes were made and that there is a long way ahead for the European Union and the Eurogroup to learn how to deal with these kinds of situations.
Hopefully, all these institutions do learn how to deal with everything that comes their way, especially since they plan on having a united European front.
By Stella Theocharidou & Charlotte Pion