The Economist is holding a “web debate” on the future of the Euro. On the federalist side is Guy Verhofstadt, a nasty piece of work even by the demanding standards of the Belgian political establishment. That said, these comments by him are true enough:
The real reason for the euro crisis is the fact that the euro zone is a monetary union that is not supported by an economic and political union. This is a unique situation. Nowhere in the world will you find a common currency system that is based on 17 independent governments, 17 different economic policies and 17 bond markets. The result is that, despite the existence of a stability pact (which is too weak in its current form), the divergence between the euro countries (their competitiveness and their effectiveness) increases, rather than decreases. This has led to a decrease in the cohesion of the euro zone and hence to the current euro crisis (mainly in the form of increasing “spreads”). For almost a decade, decision-makers have claimed that “peer pressure” and “best practices” (the so-called Lisbon Strategy) would strengthen the cohesion of the euro. They claimed that member states would not have to give away any of their decision-making power or sovereignty. They were wrong and the crisis has revealed that this idea is an illusion. In reality the contrary has happened: the cohesion within the euro zone, for example the distance between the German and the Greek economies, has diminished not increased. We are now dealing with the consequences of this development.
But the reason that there was no economic and political union was that the peoples of the EU didn’t want it. And they still don’t. A Eurocrat pur et dur, Verhofstadt simply doesn’t care:
The question is not whether our single currency should be abolished or not. The question is whether our leaders dare to take bold measures or not. If they continue to come up with half-hearted measures as they have done over the past 18 months, it will lead to the end of the euro. That is obvious. However, if they show courage and transfer additional powers to Europe, like Helmut Kohl and François Mitterrand did in their time, a viable European economy and a euro that can take over the dominant role of the dollar are within reach.
“Bold measures” will not, evidently, include consulting the voters.
On the other side of the debate is Hans-Olaf Henkel, an academic and a former head of Germany’s Business Federation.. He begins by saying that his early support of the euro was the ”biggest professional mistake” he has ever made. There will be joy tonight in heaven. Henkel goes on to list the familiar problems of the one-size-fits-all/one-size-fits-none currency, noting incidentally that the stresses it has increased national frictions: “Students in Athens, the unemployed in Lisbon and protesters in Madrid not only complain about national austerity measures, they also protest against Angela Merkel.” Indeed they do. Henkel concludes with an examination of three possible solutions:
Plan A: “Defend the euro at all costs”, as pronounced by José Manuel Barroso, president of the European Commission. He could have added “to the Germans, the Dutch, the Finns”. The end result will, however, be detrimental to all. Various rescue packages have led the euro zone on the slippery path towards the organised irresponsibility of a transfer union. If everybody is responsible for everybody’s debts, no one is. Competition between politicians in the euro zone will focus on who gets most at the expense of the others. Harmonisation will replace diversity. The result is clear: more debts, higher inflation, lower standards of living, but—and that will please a lot of politicians—whatever is left of will be more evenly distributed. The competitiveness of the euro zone is bound to fall behind that of other regions of the world and, by the way, will over time also fall behind those European countries which refuse to be part of it.
George Soros’s Plan B: a Greek default or its departure from the euro zone. This implies risks too high to take. First in Athens, then in Lisbon, Madrid and perhaps Rome, people will storm the banks as soon as word gets out. A “haircut” would not improve the country’s competitiveness either. Soon, the Greeks will have to go the barber again.
Plan C: Austria, Finland, Germany and the Netherlands get out of the euro zone and create a new currency leaving the euro where it is. If planned and executed carefully, this could do the trick: a lower-valued euro would improve the competitiveness of the remaining countries and encourage their growth. In contrast, exports from the northern states would be affected but they would enjoy less inflation and be spared having to look after the southern states forever. Some non-euro countries would be likely to join this second monetary union. Depending on actual performance, a flexible membership between the two should be possible.
Na ja, he’s another “Northern Euro” fan. It’s the right thing to do. It’s the logical thing to do. In Brussels, of course, that’ll make no difference.