EU Commission President José Manuel Barroso gave his 2011 “State of the Union” speech in front of the European Parliament yesterday, seeking to calm jittery markets and reaffirming the EU’s commitment to do “whatever it takes” to bring the long-running Eurozone crisis to an end. Do the markets really believe him, though? We spoke to Sir Nigel Wicks, chairman of the financial services company Euroclear (and a man The Independent once described as “probably the most powerful civil servant in Europe today“) and asked him what he thought about Barroso’s performance.

In his speech yesterday, President Barroso reaffirmed the EU’s support for Greece and said that it would meet its financial obligations in full and on time. This is a topic we’ve discussed recently on Debating Europe – with a lot of our commenters explaining why a Greek default might be a very bad idea. There is, however, a growing threat that Greece may now have no choice but to default, isn’t there?

Here’s what Sir Nigel had to say:

Well, that is clearly the view of most market people. If you look at the indicators relating to Greek debt, credit default swaps and interest rates – those seem to reflect that Greece is unable to pay its obligations. That is evident in the bond markets, and indeed, the agreement made in July had already moderated the original terms of Greek debt. In order for Greece to go forward, to prosper, the current situation cannot continue.

Is Europe prepared for a potential default? There are concerns, for example, about Europe’s banks.

Let me make a general point, which I think goes through a lot of the discussions on European matters at the moment. The issue you raise about the capitalisation of European banks is really a matter for national governments and national regulators. I think it’s a matter for national governments to do some scenario planning and see whether their banks are sufficiently capitalised. If they come to the conclusion that more capital is required – and that’s the conclusion the British government came to with two of its bank – then the quicker that action takes place, the better.

My general point, however, is I think we tend to rely too much on Europe and not enough on member-states. Both for actions and for reactions, I sometimes think we try to shuffle off decisions that are really a matter for the member-states. We expect “Europe” to carry the burden.

In his speech, President Barroso argues that the crisis is now too big to be faced individually and moving too fast for the “intergovernmental” approach. Can member-states cope?

The finance of the European Union is no more than the sum of the financial power of the member-states. The EU doesn’t have a hidden pot of gold to draw upon just because it is the EU – the gold comes from the member-states. So, I don’t buy that argument. Whether they do it collectively or independently, it is a matter for the member-states.

Nevertheless, a Greek default would be a shock for all of Europe. Perhaps the closest comparison in recent times is the 2008 collapse of Lehman Brothers in the US. In hindsight, was the decision to allow Lehman to go under the right one?

I would not argue that this wasn’t the right decision. What I think may have been the wrong decision was the way it was managed. I’m not sure we’re in the same situation with Greece, however. Lehman brothers… I won’t say it came out of the blue, because for some weeks there were warning signs around, but it was only a few weeks. Today, however, we’ve been talking about Greek financing problems for months and months – and markets have a good capacity to deal with shocks if they’re well-signalled. I don’t think the analogy with Lehman is neccessary or a good one, because I think markets will have time to position themselves.

Another point raised in Barroso’s speech was the Commission’s proposal for a Financial Transactions Tax (FTT). Barroso argued that not just taxpayers but also the financial sector should “make a contribution back to society” in the interest of “fairness”, and suggested an FTT might raise revenues of 55 billion per year. We’ve been discussing this issue on Debating Europe, and the question of who ultimately pays the tax has come up.

I have not read the details of the tax. But just one or two points on that: it’s probably that, as is usual with taxes, they will fall on the financial sector but what the financial sector will do is pass those taxes on. So it will actually be a tax on the users of the financial sector – the pension funds, the ordinary investors, etc. So I don’t see any way of making it stick. The financial sector will do its best to pass it on.

The second point is that capital business is very liquid in the world. If there is a financial tax and it is burdensome, then financial services will go to New York. I cannot see the US congress passing a tax like this, so they will go to New York, Singapore or Hong Kong. Indeed, I also wonder whether the amount of money raised from such a tax would actually exceed the cost of the tax in terms of lost output. I approach this from a certain scepticism.

This is certainly a pretty grim picture we’ve been painting for the future of Europe. Are there reasons to be hopeful?

I don’t think we make enough of the undoubted assets we have in the European Union. I don’t just mean physical assets, in terms of companies and infrastructure; I mean human assets in terms of a highly educated and disciplined workforce; I mean our soft assets in terms of our legal systems and forms of government. We spend too much time on discussing institutional issues and not enough time looking at the real assets we have in the member states, the real achievements we’ve made in the last thirty or forty years. Not long ago, half of Europe was living under a semi-dictatorship.

The choice that is given to consumers today, the great range of choice, the fact it is so much easier and cheaper to travel around Europe with airplanes – we would not have had that cheapness without the EU. The fact you can bring goods through member-states which you couldn’t before – we would not have had that without the EU. Despite the great strides we’ve made, it is a great pity that we don’t always acknowledge what we have achieved. Admittedly we have problems, but we have to realise the assets we’ve got and the progress we’ve made.

What did YOU think of President Barroso’s State of the Union speech? Do you think a financial transactions tax is a way to make the financial sector more responsible? Or will they just pass on the burden? Do you believe Barroso when he argues we won’t see a Greek default? Or is it now inevitable? Let us know in the form below and we’ll show your comments to experts and policy-makers for their reaction.

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