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Lessons from the crisis

Moring, A. (2015) “Lessons from the crisis – We Europeans face a historic choice: either we further develop Europe as a single political entity, or we recede from the limelight, The European Magazine, 30 January.

 

In her latest op-ed, The European columnist Juliane Mendelsohn rails against the “dysfunctional euro” and the flawed European project that “the market inevitably pushed us into.” She links her arguments to the call for us to consider Syriza’s election victory in Greece as a starting point for “radically transforming” the rest of Europe. While I agree with her on this point, I fundamentally disagree with her on most other points. Her argumentation is erroneous and narrow-minded.

GREECE-TRANSPORT-FEATURE

Source: The European.

Greece’s debt crisis didn’t come from nowhere

The deep crisis in Greece that has now resulted in a government led by Alex Tsipras is no bitter punishment imposed upon the country by markets, the troika or some other supposedly evil spirit. The crisis is the proof that a currency like the euro cannot function without a proper governmental structure. There can be states without their own currencies, but never a currency without its own proper state or government body. Why is the euro much more fragile and less crisis-resistant than other currencies like the dollar, the yen or the British pound that originate from currency areas with much higher debt? Because governments in theses areas do everything in their power to guarantee the survival of these currencies and the markets believe in their promises. There is no such institution that could do the same for the euro – not even the ECB.

The actions of the latter – quantitative easing for example – are nothing more than an attempt to surrogate a proper currency policy by an independent government body. Let’s not kid ourselves: such an attempt can only fail. It can never solve the inherent problem of missing confidence in the stability of the euro that only an independent government body representing the eurozone could deliver. Secondly, the money the ECB pours into rescuing the euro is mainly going to the financial and housing markets but is not invested in infrastructure or the real economy where it is badly needed. The ECB cannot decide over how its money is being spent – a supranational government body could. A crisis-struck country like Greece in need of infrastructure investment would have benefitted from that. Thirdly, the money glut of the ECB results in a situation in which national governments prefer to take out a loan rather than undertake the necessary financial reforms. This could lead to a growing debt crisis, which fuels the ongoing euro crisis.

Greece is the prime example for why the national or “sovereign” debt policy is not working. You can not have a common currency while at the same time giving states a free hand in decisions relating to their budget and debts. If the money would come from a truly sovereign supranational central bank – and not be printed at will by the ECB – there would be inherent limits to how much states can spend or borrow. Members of the eurozone are practically no longer sovereign when it comes to questions relating to their currency. It should follow from this that a constitutional step should be taken, in order to cut the power of the ECB by transferring its responsibilities and rights to a superior and independent government agency. This works for nation states, why wouldn’t it work at supranational level?

 

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