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Ajouter un commentaireTwo years later, the economic policy of the euro area lies in ruins. The debt crisis in Greece has exposed the weaknesses of a combination of monetary policy at a European level, and national fiscal policies. The divergences between European governments on common economic objectives should perhaps have been clear from the start of the euro. While the ECB has so far been able to stick to its goal of 2% inflation, national governments have not been able to follow up on the Stability and Growth Pact with the same rigour. Fiscal discipline has been abanoned in the last decade, and not just by Greece or Portugal. France and Germany rewrote the rules of the Pact at their convenience in 2002. Moreover, structural reform at national level (via the so called Lisbon Strategy) or at European level (via a deepening of the Single Market) has never been seriously considered. EU member states have often continued pursuing national interests, even in established fields of the EU.
Ten years later, the overhaul of euro policies
The agreement reached on May 16th has given just the last blow to the Brussels Frankfurt consensus in the eurozone. To defend the euro, the ECB has given up on its aim of price stability by buying up government bonds. The ECB will create inflation either by injecting liquidity in the short term, or by a recapitalisation of its increasingly weak balance sheet in the longer term. As compensation to Germany for accepting this weakening of the ECB, countries with high deficits as Spain, France or Italy are asked to cut back budgets drastically. But this is likely going to depress economic growth further, just at the moment the first signs of economic recovery started.
It is not clear yet what this new policy really means. The agreement to let the ECB buy government bonds and inject liquidity could be meant to inflate debt away. And the strong reduction in deficits asked from the most indebted countries could be a means to deflate these economies, and let them regain competitiveness. There are not only doubts about whether such a recipy could work economically, it is also doubtful if such a policy is actually workable politically.
Economic policy made at diplomatic tables is a recipe for failure
What does it mean to ask for sacrifices of Greece or Spain, in exchange for help from the ECB and other member states ? Is it politically possible to ask Greece to commit economically suicide for the next ten to twenty years ? And is it possible to maintain the solidarity within Europe with an economic policy of sacrifices ? It looks more like political bickering than economic policy. The basic question at the start of the EMU has not gone away : how long can an economic union continue without a political union ? Countries do not need to have their own currency, but there are some good reasons why there are no currencies without a state.
- European Central Bank
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´The basic question at the start of the EMU has not gone away : how long can an economic union continue without a political union ?´
Source : Flickr, U-g-g-B-o-y-(-Photograp h-World-Sense-)
A common currency imposes quite some restrictions on the economic policies that every member state can adopt. Imposing budget rigidity and economic flexibility through deflationary policies is hard in Europe. It not just means impopular policies with big political effects. It is economically damaging, and imposes an unnecessarily high cost on society. It is also contrary to the spirit of the Single Market, and the purpose of closer integration. It so undermines the belief that economic and political integration is beneficial for the EU citizens. The true challenge for the EU is political, rather than economic. In spite of the first steps taken with the Lisbon Treaty, there is no political guidance on the common good for Europe.
An answer to this question is urgent. Markets have continued to finance deficits in the last decade, partly because of the beneficial economic environment, and partly as they looked forward to a mixture of stable policies that also aimed at long-term growth. But the crisis has shaken the belief that European politicians are willing to suffer the consequences of closer integration. The political hesitations to go ahead with the Lisbon Treaty should have made it clear that Europe remains divided on its economic and political objectives. The hesitations of Angela Merkel, the inaction of Southern European governments, the continued discussions on reform, the little empowerment of the European Commission during the crisis have exposed clearly the inability of European governments to strive for more integration. No crisis package of whatever size is able to pay for this problem. It just buys time. But the question cannot be postponed forever, and political consensus in the EU cannot be bought off with ever more money borrowed from the US or China.
Bold steps to govern Europe, and avoid worse
The biggest danger for EMU is probably the faltering willingness to push ahead for political union. Unfortunately, time is running out, and there is no time now to discuss for another 20 years on another Treaty. In order to solve this issue, a breakthrough has to be made on an economic governance of the eurozone. Economic governance does not just mean tougher budget controls with independent monitoring and harder sanctions. Governance more importantly entails a policy that is able to balance economic disequilibria across Europe. This means European wide taxation, with a meaningful budget at EU level (with the possibility to issue eurobonds) as a tool to stabilise economic fluctuations. A common economic policy also requires an economic government that is not based on the sum of particular national interests, but the European common interest, preferably by the European Commission. If these steps cannot be taken, prepare for a bank run in some EU country soon, more failing banks, a plunge of the euro, political turmoil and perhaps secession of some EMU countries, or eventually the end of the euro.
Photo : Flickr, mammal
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A dieci anni dalla sua entrata in vigore : la caduta dell’euro ?
Sorgenkind Euro : Keine politische Union, nirgends
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