ČNB: EU move to prevent crisis via regulation ‘an illusion’

Czech central banker Miroslav Singer says the eurozone hasn’t changed, with the failure to observe fiscal rules continuing

Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act | na serveru Lidovky.cz | aktuální zprávy Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act | foto: © ČNBČeská pozice
Analysts said ČNB Governor Miroslav Singer signalled the central bank is in no hurry to act

Czech National Bank (ČNB) governor Miroslav Singer said in an interview published Friday he doesn’t expect any breakthrough on plans to resolve the eurozone debt crisis, and the problem with the common currency is not the current EU fiscal rules but the failure to observe them. The ČNB on Friday also outlined its position on the proposed EU fiscal reforms and regulations.

“I’m convinced that the problem with the eurozone isn’t bad rules but the failure to implement the rules. And that’s still happening now, and in this respect I don’t see any fundamental change in the functioning of the eurozone. Only now it suits the Germans to speak about firm rules whereas before it didn’t,” Singer said in an interview with the daily E15. 

The ČNB governor is highly skeptical that the efforts by the EU leaders will produce any tangible results soon and is concerned about responsibilities with political implications that central banks are being forced to take on:

“First and foremost, it poses a threat to their independence. Central banks are now expressing their views on fiscal policies more, and they now have responsibilities which under normal circumstances Singer says the main lesson of the financial crisis for central bankers is that in times of economic and financial stability, it is their responsibility to identify potential growth bubblesthey don’t have. They must decide whether to buy bonds from one sector or another, and thus give preference to one sector over another. This exposes them to potential criticism and this development is quite negative. On the other hand, it’s right that the central banks will have to pay more attention to the stability of the financial system,” Singer said. 

According to Singer, there are two options for attempting to resolve the Greek and Portuguese debt: Either they must be given money for three to five years to raise competitiveness or devaluate, i.e. leave the eurozone. “But these options aren’t being discussed,” he said.

Lesson in bubbles

The Czech central banker says the main lesson of the financial crisis for central bankers is that in times of economic and financial stability, it is their responsibility to identify potential growth bubbles that could cause problems and take timely steps to ensure such bubbles do not emerge.

“But in order for central banks to fulfill such expectations, they would require even more independence than they have now,” Singer said.    

As for the Czech Republic adopting the euro, the ČNB governor says the question will only reappear on the agenda with a return of economic and financial stability in the eurozone, which he says will happen in 2015 at the earliest. “But that will be towards the end of my mandate and I will leave [the post of governor] in mid-2016, therefore from this perspective it’s not an issue for me,” Singer said.

Singer has few expectations that EU heads of state will come up with any significant solutions at their summit this weekend, saying there has been much talk about greater fiscal coordination since the financial crisis in 2008, “but in reality nothing has happened.”     

“The EU functionaries will, of course, declare that now they are founding a common fiscal policy, which is fantastic and there will be no crisis. But I’m not sure that a month and half later the European Financial Stability Facility (EFSF) won’t be raised to save several member states or something of the sort. … I haven’t expected much from EU summits for quite some time already. Maybe this is because I sometimes attend them.”

Euro not a sensational idea

When asked whether in retrospect the common currency was a good idea, Singer says full liberalization of the services market in the EU would have generated growth where the euro has failed: “It would have been possible to create an open market for services, which Europe is still lacking, but that would be much less spectacular: The new common currency with banknotes you can show on television wouldn’t have emerged. I understand it, but I don’t think it was a sensational idea.”       ‘The ČNB does not support the transfer of powers of national authorities to the EU’

On Friday the ČNB published a presentation given by vice-governor Vladimír Tomšík dedicated to the proposals for greater financial regulation in the EU, namely the European Commission communication “regulating financial services for sustainable growth,” and “Driving European Recovery” from March 2009, which paved the way for the proposal for regulation on “OTC derivatives, central counterparties and trade repositories.”

Among other proposals, the ČNB opposes the obligatory use of the deposit guarantee system (DGS) for crisis management, obligation to conclude a cooperation agreement between the individual DGS, and exemptions from the guarantee of deposits up to €100,000.  

In more general terms, the ČNB is resolutely opposed to relinquishing more fiscal powers to Brussels: “The ČNB does not support the transfer of powers of national authorities to the EU and the separation of national powers from national responsibility for implementing decisions.”

“Instead of precisely defining and naming the causes of the crisis, the illusion is being created that a super-national form of supervision and regulation ‘of everything and everyone’ is a guarantee against a repeat of the crisis in the future,” the presentation of the ČNB’s position concludes.