Instead of last-minute, short-term fixes, all eurozone members, including Germany, must abide by – and enforce – the rules
The decisions taken in the past week over Cyprus by eurozone finance ministers, the IMF and European Central Bank have caused a fundamental breach in public trust, which if not properly addressed could cause the whole financial framework of the EU to unravel. The belated decision to exempt small savings in Cypriot accounts from the bank levy is to be welcomed, but the genie is now out of the bottle. The proposal to seize money from depositors with less than €100,000 flouted the EU's deposit guarantee principles, and the fact it was even put forward has shaken the faith of citizens in the system as a whole.
It often seems as if eurozone leaders have failed to learn from the lessons of the past. The sovereign-debt crisis may have been triggered by the global financial collapse of 2007, but its roots lie in years of unwillingness to uphold fiscal discipline across the single currency and to stick to supposedly binding rules. In 2003 both Germany and France failed to meet the agreed 3% limit on budget deficits outlined in the stability and growth pact, but eurozone finance ministers voted not to take action – setting a dangerous precedent.
Over the following years most eurozone members repeatedly flouted the rules. This lax enforcement allowed the debts of smaller countries such as Greece to spiral out of control, but as long as economic growth was sustained this was conveniently swept under the carpet. Indeed, it was German money in search of higher returns that stoked the problem. Meanwhile, the new EU countries of eastern Europe were sternly warned that they could not join the euro unless they met the official deficit and debt requirements.
In the present day we can see these same double standards at work. Cyprus has been criticised for its reliance on a supposedly crooked banking sector, with alleged money laundering and tax avoidance. Yet no one has answered the obvious question that this raises: why are the EU's anti-money laundering regulations not being enforced adequately?
This is not just a Cypriot problem. A report from the Financial Action Task Force found that Germany has a worse record on money laundering than Cyprus, ranking 14th out of the 17 eurozone countries in full compliance (Cyprus is seventh). Cyprus was also labelled as greedy and was punished for investing in Greek bonds, but nobody punished Germany for investing in Irish banks. Meanwhile, Luxembourg has a financial sector 23 times greater than its GDP, and along with the Netherlands and Ireland serves as a tax haven for some of the world's largest companies.
New rules have been proposed in order to address existing loopholes in the EU's anti-money laundering legislation. But unless these are fully applied by member states and enforced by the European commission, no real progress will be made. Similarly, new EU laws on corporate transparency should prevent extractive industries and banks from minimising their tax burden by shifting profits around the different countries in which they operate. Country-by-country reporting will shed some light on the accounting behaviour of these industries – which may or may not make for good reading. But we must ensure that, despite EU countries' reticence to adhere to these rules, they are applied properly when they come into effect.
If the EU and eurozone are to survive intact, it is essential to put in place the mechanisms required for agreed regulations to be properly enforced. Instead of last-minute, short-term fixes – hammered out in secret by ministers in the early hours of the morning – we need a strong, stable and accountable form of decision-making that upholds the rules of the single market and ensures that all member states are treated equally. This is no longer just a question of restoring market confidence, or preventing credit ratings from being downgraded. It is about restoring the faith of ordinary citizens in Europe and its institutions.
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