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Nosemonkey's EUtopia

In search of a European identity

The euro crisis

Site’s still screwed (some kind of issue in the database, by the look of things – a legacy of this place having been around too long), but thought I’d try and cobble something together, what with 2011 – with just 11 posts – being the quietest year on this blog since I started it in 2003.

Yes, the fewest posts in the *only* year I’ve been blogging on the EU that something genuinely newsworthy and interesting has been coming out of the EU… I know…

Anyway, in checking the archives to try to fix this place, it turns out there’s not much more to be said on the current euro crisis that I haven’t said already:

Me on the Euro, September 2004:

“The economics may not be “right” at the moment; they may become “right” at some point in the future – if we join then, that will be beneficial for Britain. But economic conditions fluctuate unpredictably all the time. No one predicted the Wall Street Crash.

“In other words, joining the Eurozone will ALWAYS be a risk, just as staying out will always be a risk. Economics is not predictable. So we may as well take the plunge now – we have no idea how Britain will continue to survive outside the Eurozone, we have no idea what will happen if we join.”

Me on the euro, July 2005:

“The real question, of course, is whether the euro can ever achieve all that has been claimed for it. As of yet, there is little in the way of overwhelming evidence to support claims that the euro – and, importantly, the euro alone – has been responsible for ‘price stability, low mortgage rates, easier travel, protection against exchange rate fluctuations and external shocks’

…when it comes to this sort of thing, better the devil you know is a fair enough line to take until the evidence becomes overwhelming. The evidence isn’t yet overwhelming – hence Gordon still saying his tests aren’t passed – so no one but the most fervently ideological is going to be convinced. That simple.”

Me on the Euro, July 2008:

“Everyone loves a good recession! It’s now a race to the finish line – who’s going to make it first, the UK or Eurozone? (Far more exciting than the Olympics, this…)

…the real question is longer-term. If the Eurozone enters its first recession at the same time that the EU is doing the headless chicken act over the Irish Lisbon Treaty referendum result, what will be the impact on the long-term viability of the EU as a whole? With the economy looking shaky, will the countries of Europe look to the European Central Bank in Frankfurt or to their own national banks for stabilising measures? And can the ECB – only in existence for a decade, lest we forget – handle the tough times as well as the easy? Well, some analysts think the signs point to a big fat no”

Me on the euro, October 2008:

“This whole episode is already going to prove that a single currency simply isn’t enough, that the levels of integration that the EU has so far achieved are simply not enough, that when it comes to the (credit) crunch, we all still look out for number one first, and sod the rest of the continent. Some may even take it as a sign that the old hope that the EU can provide prosperity and insulate from hardship was a false one. It’s all far too early to say… The only thing that is certain is that no one knows where this is heading. Until we do, I’m going to try and refrain from adding to the reams of inaccurate guesswork.”

Me on the Euro, November 2008:

“This recession is going to be the major test of the idea of the Euro – if it fails that test, it won’t just be the UK that gets cold feet”

Me on the Euro, June 2011:

“let’s face it, no one knows what’s going to happen and most economic predictions over the last few years have proven utterly mistaken…

here’s my ranking of the likelihood of the various “what nexts” I’ve seen mooted, in approximate order of likelihood:

1) Another Greek bailout
2) Greek default & risk of contagion
3) Greece leaves the eurozone
4) Germany leaves the eurozone
5) Dissolve the euro & start again
6) Full political integration
7) Give up and dissolve the EU
8) Britain joins the euro to boost confidence & stability

Number 1’s already happened. Other than that, has the situation really changed that much – beyond possibly the likelihood of number 6? Is there anything more that needs to be said? Has anyone actually come up with a solution? Have we got any new options?


  1. 2) has effectively happened with the Greek ‘haircut’ (partial default) and calamitously high interest rates in Spain, Italy, Ireland et al.

    As to the solution, one has been proposed repeatedly: the ECB indiscriminately buys up debt in solvent countries (particularly Spain & Italy) until interest rates on the bond markets go down (and says that it will do this).

    The Bank of England, Federal Reserve and Bank of Japan have all done this and they all borrow at lower rates of interest on the private bond markets than even Virtuous Germany. Nor is the inflation in these countries unbearable.

    This is more or less the position of a many countries in and out the eurozone, not to mention innumerable top tier economists (Roubini, Eichengreen, Krugman, Sachs…).

    Had the ECB done this last year we would not be facing a lonely recession right now. The EU’s unemployment rate had been closely shadowing the US’s over the course of the economic crisis until European Council leaders and the ECB bungled the sovereign debt crisis. Interest payments would be low and growth would have resumed, giving an opportunity for eurozone countries to start reducing their debt-to-GDP ratios (as had been the case for heavily-endebted Italy and Belgium before the recession).

    In short, we’d be no worse off than the rest of developed countries with major currencies (UK, US, Japan), which all are significantly worse off in terms of overall debt & deficits than the eurozone average.

    Instead, the euro structure itself caused an unnecessary double-dip recession. Historians will have fun arguing about the causes for decades to come. For my part, I ascribe it to a combination of the incredible power and ideological nature of the ECB, German opposition to any common liability for eurozone debts, and the liberum veto of the European Council.

    • “The Bank of England, Federal Reserve and Bank of Japan have all done this and they all borrow at lower rates of interest on the private bond markets than even Virtuous Germany. Nor is the inflation in these countries unbearable.”

      but they aren’t healthier economies for that matter.

      since the crux of the problem is economic competitiveness, of which state fiscal responsability is one of the component ( but not thje only one ofc), socialising EU peripheral economies debt provides breathing room (or time), but doesn’t solve the underlying market rigidities that prevent real growth.

      even now, when one talk of EU peripheral countries in depression, it’s actually quite misleading because it’s a matter of sector and regions.
      Ireland domestic economy is in the doldrum, but international investment is booming again. Businesses related to the construction sectors and DIY, have been decimated. Retail is still down compared to 2007.
      Yet international hubs in Galway, Cork, Dublin and elsewhere keep going.

      look at Spain, and you’ll see that the central government budget position is decent, but it’s the regional administrations that went full red. Especially so in regions that are rather de-industrialised, and with a different party in power than at Central (PP vs PSOE until last election).
      even the famed 22%+ spanish unemployment is both a giant billboard of everything that is wrong in the administrative management of the spanish economy (ie: too rigid), AND an over-exaggeration of the actual severity of unemployment on the population.
      If the government were to try to narrow the conditions for eligibility of the dole while increasing the surveillance mechanisms, just to be on par with UK (or Irish or Dutch) criteria, you’d realize that a significant portion of “unemployed” would prefer to keep working in the black economy rather than to be subject to fines.

      Italy is almost a basket-case of a northern industrious half, that keep exporting (and very successfully) despite being saddled by a corruptly inefficient state administration and an (almost) indigent southern half.

      These structual problems won’t be solved by eurobonds or money printing. The best you can say, is that it’ll tempiorarily alleviate the pain, but only to make it come back a few years later.
      Remember that many of the advanced economies current financial problems can directly be traced, not only to the wave of deregulations of late 90′, but also to the gush of money to “assuage” the effects of the 2000-20001 crisis

      In Ireland, there wasn’t much of a property bubble pre-euro, though they did rise greatly.
      Nor did prices significantly accelerate post-euro introduction, yet at this point they reach unsustaibnable price/income ratio.
      However, credit financing rules were relaxed and mostly left unsupervised by central banks, a handful of property barons and financial tycoons were purchasing their business from a political class, that was all too happy to deliver Polyanna speeches about the state of the economy so as long as the buck was passed to the next administration.

      And this is the crux of the “problem” : how to reform European economies, so that while open and flexible, regulation provide a stable environment for growth and investment.
      The current “teutonic” strategy might be crude and self-serving, but IF it was genuinely implemented by latin countries, it’d go a long way to achieve it.
      Now, would national politicians (some of them are nothing more than party stooges) supersede the common good and national interest above their own carreer, that is indeed a good question ?

      Best regards,

      • Thierry,

        I don’t know in what you mean by “healthy” economically. All I would say is all other industrialized regions are returning to growth and falling unemployment, while the eurozone has rising unemployment and a double-dip recession. As a result, not only has the EU failed in the one area people care most about (economic security) but its dithering is leading to significantly worse debt-to-GDP ratios.

        As to the theories of what will bring “growth” in the periphery, I am convinced no one in Frankfurt, Brussels or the IMF has any real idea how it is done. The idea that foreign apatride bankers can induce growth by socially engineering other societies with neoliberal economic reforms strikes me as… unadulterated fantasy. It is absurd on its face and the track record of the IMF is hardly encouraging in this respect. (And all this doesn’t even begin to address the question of democracy, such reforms should be spontaneously reached by national governments, not imposed by Berlin-Frankfurt-Brussels.)

        The problem is not primarily “competitiveness”, notwithstanding the apatride bureaucrats’ longstanding fixation on the subject (http://www.ucema.edu.ar/u/agaletto/krugman_competitiveness.pdf).

        All peripheral EU economies are being devastated by Berlin-Frankfurt-Brussels. They are all facing recession, rising unemployment and massive emigration.

        You cite a number of problems in each country (Italian south, Spanish regions…) and not “this won’t be solved by eurobonds or money printing.”

        All countries have good and bad regions, weaknesses and strengths. What you forget is that *on average* the eurozone’s fiscal situation is significantly better than of the USA, UK and Japan. In addition, Spain and Italy had declining debt before the financial crisis. So whatever Europe’s regional problems, they weren’t so bad as to drag the whole thing down (and, believe me, there are plenty of depressed and basket-case areas in the USA/UK).

        But, although the overall eurozone situation is better than that of other regions, it alone faces recession, dropping revenue and rising unemployment, because of the failures of Berlin-Frankfurt. This will dramatically accelerate the expansion of European debt and make repayment much less likely. These are the economic consequences of Angela Merkel.

        “Now, would national politicians (some of them are nothing more than party stooges) supersede the common good and national interest above their own carreer, that is indeed a good question ?”

        Implicit in your question is the assumption that neoliberal reforms, imposed by foreign governments and bureaucrats, automatically leads to growth. You even go further: Opposing these foreign-imposed reforms is evidence of careerist opportunism and failure to serve one’s nation. Suffice to say I think both assertions are self-evidently absurd and, besides, are disproved by the track record of the IMF in developing countries and the history of economic growth in Europe and elsewhere.

  2. While option 7) may not be your cup of tea it is thankfully the inevitable outcome. Unfortunately I think we probably have to suffer both 2, 3, or possibly 4 and 5, or 6 before that comes to pass. I just hope the rate with which these phases occur is as rapid as the transition from utopia to 1).

  3. Pingback: The euro crisis | Nosemonkey's EUtopia | The Euro Crisis

  4. I have in the past concluded that the most sensible result would be for Germany to leave the eurozone, allowing the rump-euro area to depreciate and boost their competitiveness.

    Germany needs to understand that if it wants a common currency then it needs to consider its neighbours as family, including the less fortunate, and act appropriately.

    If it cannot see past Holland, Austria, & Benelux to recognise the virtues of the olive belt then it should exit the Euro now, before joining in marriage with these countries via a fiscal/political union.

    That said, the EU has no common Demos capable of giving real legitimacy to a common Kratos, as such governance can not be both representative and accountable on an EU wide basis. Such powers are utterly incompatible with its limited mandate.

    I am constantly amazed at the determination to keep the ever-closer-union project alive, even to the point of instituting utterly undemocratic governance in member states, I thought they would have walked long since.

    As Hannan terms it; the EU’s “hideous strength”.
    Welcome to the Sanjaks 2.0. Or should that be Satrapy 3.0.
    Either way, it’s just another word for a subservient possession of empire, good luck to Greece and Portugal for they will need it!

    • I agree wholly with this: the exclusion of Germany and other “ordoliberals’, if practically impossible, would resolve the crisis if it allowed the ECB to act like a normal functioning central bank which does sacrifice growth and employment for 2% inflation.

      I’ve been stunned with the extent that many supposedly progressive and open-minded pro-Europeans are utterly unmoved by the democratic deficit, especially as regards the completely unaccountable power of the ECB (seen in a systematically and disastrously anti-growth monetary policy and the toppling of the Italian government).