Belgian economist Paul de Grauwe, European Political Economy Professor at the LSE/European Institute, formerly an economist at the IMF and the ECB and a teacher on things European more or less around the world, with a stint in Belgian politics and at CEPS, also with an advisory role at the European Commission (during the Barroso years to be true), has been meeting with the twists and turns of the Eurozone since its very inception. “There at the creation” as he once said in one of his presentations, he brings a balanced but always critical analysis to the aftermath of the (10-years-long) Eurozone crisis.
Recently in Athens, de Grauwe had the opportunity to reflect once more on the design failures of the Eurozone – and to indicate ways in which a redesign operation would work. Those who had the chance to follow de Grauwe’s approach in earlier decisive turns – say, in 2011-12 or in 2017 – have been able to see the consistency of his analysis: the stabilisers lost in the passage from the national level to the European one; the lack of a lender of last resort operating when the business cycle approaches crisis level at a specific economy; the dependency of economies from the appreciation of their situation by the financial markets, with liquidity withdrawn and debt rollover denied just when most needed – the reality of self-fulfilling crises.
The most interesting part of de Grauwe’s approach, as it has been maturing in the wake of – say – Emmanuel Macron’s recent reform proposals, but also the negative reflexes which have surfaced and will keep rising on the road to the May European elections, is looking at the potential areas of redesign. For him, the quest for flexibility of the lagging Eurozone economies mainly through structural reforms so as to gain competitivity is an approach that has its limits. Reform fatigue lurks around the corner, just as integration fatigue is present any time that there is talk of a fiscal and political Union as an effective pre-condition for the Eurozone to gain in cohesion.
The efforts to build institutions to provide an array of defenses when the Eurozone crisis was under way has left on its wake too many institutions, but too little in effective stabilization. The ECB/Mario Draghi may have saved the day, launching the quantative easing programmes and giving the assurance to do “whatever is needed” to save the Eurozone – but the support provided was assorted with conditionality leading to severe austerity.
Initiatives discussed, such as an unemployment benefit insurance mechanism and/or centralizing part of the budget for counter-cyclical interventions may be interesting, but nonetheless they are no more than small steps. At the end of the day, issuance of common bonds will prove a measure that cannot be avoided. Insofar in Germany the very notion of Transferunion puts a stop at any discussion, while there is reluctance to accept even the initiatives of the ECB who he saved the day, little can be done to define credible future for the Eurozone.
have raised are interesting – especially in view of the European elections ahead. But the fragility of the Eurozone cannot be addressed without the notion of a political Union being at some point part on the table. The lack in political leadership that characterizes Europe at this stage leaves little space for optimism as to the future of the Eurozone.