With the euro-zone economy again looking sickly, a group of Nobel Prize winners attended a recent forum to discuss the outlook. Not pretty, seems to have been the conclusion, but I was struck by this (as reported by the Daily Telegraph’s Ambrose Evans-Pritchard):
Professor Christopher Sims, a US expert on monetary policy, said EMU policy makers had not sorted out the basic design flaws in monetary union, and are driving Club Med nations into deeper trouble by imposing pro-cyclical austerity.
”If I were advising Greece, Portugal or even Spain, I would tell them to prepare contingency plans to leave the euro. There is no point being in EMU if all that happens when you are hit with a shock is that the shock gets worse,” he said.
”It would be very costly to leave the euro, a form of default, but staying in the euro is also very costly for these countries. The Europeans have created a system that is worse than the Gold Standard. Countries are in the same position as Latin American states that borrowed in dollars,” he said.
Well yes, but it’s good to see the acknowledgement that withdrawal from the euro should be somewhere on the agenda.
Meanwhile, Angela Merkel was present at the same gathering and seemed not altogether pleased that some of the euro-zone member countries are using what remains of their sovereignty as a device to slow down their own immolation.
German Chancellor Angela Merkel told the forum that it was hard to manage a currency for 18 states, when sovereign parliaments refuse to follow polices agreed by the EU institutions.
Meanwhile over at the Financial Times, Trevor Greetham echoes the Nobelists’ call for a more growth-oriented policy, but then takes a step back:
In the long run, a single currency needs a single government with democratic accountability and the authority to make fiscal transfers [in this context, the euphemism for transfers from richer to poorer region] . It was 85 years from the formation of the US until full fiscal and monetary union . . .
Europe is starting from the other end, with the single currency coming first. Political and fiscal union remain unfinished business.
True enough, but the reason for that has been the absence of popular consent for political and fiscal union: the votes for it were simply not there. Those steering the Brussels project took a currency union as the best that they could get at the time. That put the cart before the horse, and the best was not what they ended up getting. It isn’t hard to understand why they could not win the support for the sort of political union that might have given the euro a better shot at success. This was not 1776. And nor was it 1787.
A large percentage of those in the 13 colonies originally considered themselves to be British — their disagreement with London was rooted in the belief that they were being denied the rights that were theirs as Britons. They had then gone through the shared experience of fighting against the mother country they believed had let them down, a shared experience that had crystallized the notion that they had once belonged to one nation and now belonged to another.
By contrast Europeans see themselves as French, German and Dutch and so on: their core identities are rooted not in a shared heritage but in distinct and different nationalities. Their experience of war is of fighting not alongside each other but against each other. That’s not to argue that they don’t have some sense of themselves as Europeans. And that’s not to deny that that sense has deepened over the decades of “ever closer union.” But to suggest that a European identity has supplanted their feeling of being French, say, or German or Dutch to a degree that would make the people of those countries (their political classes may be a different matter) accept the “single government” (or something close to it) that the euro needs if it has to have any chance of moving beyond permanent crisis management is the stuff of madness not democracy.
And that’s far too steep a price to pay to keep this vampire currency alive.