BRUSSELS (Reuters) - Darwinian principles should apply in the euro zone and the rule of survival of the fittest prevail, with the strongest economies having the leading say in how the bloc is run, Finland’s Europe Minister Alex Stubb said on Thursday.
Setting out his argument for the euro zone’s six triple-A rated countries to have more influence in the region’s economic management, Stubb said the 13-year-old currency needed to look to its strongest members to secure the future.
“We’ve been looking at the whole debate from the wrong end, we’ve been looking at countries that we need to save and help all the time,” he told Reuters in an interview.
“For me, the euro is a Darwinist system, it is the survival of the fittest. The markets take care of that, and I think that’s the best way we can keep up market pressure,” said Stubb, who is himself a fitness fanatic and frequently completing Ironman triathlons.
Finland’s former foreign minister, who wrote his doctoral thesis on differentiated integration in the euro zone, said the triple-A stamp granted by credit rating agencies to those countries with the best public finances was the benchmark all countries in the euro zone should be aiming for.
Only a combination of intense market pressure and internal political pressure could ensure that the 11 non triple-A countries using the euro met their obligations by trimming their budget deficits and reducing their debts.
“It should be the triple-A countries that basically, not dictate the rules, but at least have a strong say, because why would we listen to countries that are not taking care of their own public finances?” he asked.
“I’m not saying that the markets are flawless, but I’m saying that we need a combination of market rules and political rules. Let the markets put the peer pressure on countries that are not triple-A rated.
“It should be in the vested interests of each and every EU member state, whether in the euro or outside the euro, to be a triple-A country.”
WHAT’S MY RATING?
Of the 17 euro zone countries, only Germany, France, Austria, the Netherlands, Luxembourg and Finland have a top rating from all three major rating agencies.
France’s rating is, however, under pressure, with concerns that it could be downgraded by at least one of the agencies in the coming months if its finances do not improve.
Having the highest rating generally means countries are able to raise funds on international markets more cheaply, having to offer lower interest rates to raise capital.
Stubb said he was not advocating any country having to leave the euro zone if it could not achieve a triple-A rating, but said he wanted to see a reappraisal of what it takes to keep the currency union strong.
“The aim is to try to prevent this situation from ever happening again,” he said. “You need both carrots and sticks, and I think the carrots need to be market driven.
“You can always talk about the political core of Europe, but to be quite honest it’s a lot of hot air. The real core is usually formed by those countries who in this particular case are triple-A rated and are in the euro, so it’s a market driven core.”
As part of a push for deeper integration among euro zone member states, some EU officials have mentioned the possibility of the triple-A rated countries pooling their risk and jointly issuing debt as euro zone bonds.
The European Commission is due to present proposals later this month on euro zone bonds, including how feasible it would be to issue such debt given the wide economic disparities that exist among the 17 member states.
Stubb said he wasn’t advocating that only the triple-A countries should be able to issue euro area bonds, but did not dismiss it. Because the triple-A countries can raise funds relatively cheaply in financial markets, it is unclear why they would want or have to issue jointly underwritten debt.
The main aim, Stubb said, was to make it clear that there is a core group within the euro zone that has a better economic management reputation that the rest, and that everyone should aspire to belong to the better group.
“The whole idea of a core, or an economic core or triple-A core is centrifugal. It’s a like a magnet, it pulls you along,” he said.
Referring to his thesis, which examined a paper put forward by two German finance officials in 1994, Stubb hinted that the euro zone might have been much smaller if those ideas had been pursued.
“You know the euro in the beginning, in the Schaeuble-Lamers paper when they proposed a core of the euro, it was five countries in the beginning. They left Italy out.”
Reporting by Luke Baker and Julien Toyer; Writing by Luke Baker; editing by Ron Askew
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