Contributed to hellasfrappe by
PS Protesilaos Stavrou Blog
According to news sources, German Chancellor Merkel and French President Sarkozy are discussing on an “intellectual level” the prospect of creating an official two-speed Europe, with the eurozone moving into greater integration while the rest of EU remaining much looser. The above story is not something new. It is not a surprise to anyone examining the situation in Europe, at least for the last few years. This idea of moving to a more integrated eurozone, with the rest of the EU states falling way behind, is the natural extension of a specific mode of thinking that is deeply rooted in the hardcore, neoliberal monetary policy that applies within the Eurozone, which is a base copy of the German model that has proven to be good for Germany and a few other nations with aggressive export policies, but a complete disaster for all the rest. This mode of thinking is the economic world-view that permeates the very architecture of the single European currency, which advocated that diverging economies, with vastly diverse economies, can form a currency union and achieve convergence only by means of aligning with a rigid, fiscally restrictive policy framework. Indeed the architects of the euro believed that the currency union could hold together without the existence of a genuine fiscal union backing it, or at least a surplus recycling mechanism that would have the capacity to balance the structural trade imbalances within the region, by channeling accumulated surpluses into deficit regions for productive investments, so as to achieve sustainable growth and convergence.
The call for a more “integrated” Eurozone that will greatly distance itself from the rest of the EU, follows the exact same reasoning. The “more Europe” goal underlined in Merkel’s statements is in fact a call for more of the same delusions that created the euro, more of the failing fiscal rules that function as a straitjacket for most states, more of the same self-defeating fiscal and monetary policies; while maintaining the same mentality that produced Maastricht Europe, whereby every state is fully responsible of its own finances, despite the inexorable fact that a large portion of state sovereignty is transferred to the European level. Maastricht and the current design of the Euro resulted in an internally perfectly partitioned eurozone, where the periphery was condemned to a structural trade and budget deficit, by means of the “beggar thy neighbor” aggressive exports of some states combined with the rigidities and institutional gaps of the single currency.
The mere fact that such an issue is discussed, even at an “intellectual level”, reveals two things: (a) Sarkozy and Merkel have not learned from – or are not willing to accept – their mistakes and obsessions or those of their predecessors, (b) a relatively limited group of states makes plans without considering the broader EU good, since a more integrated eurozone will affect everyone else, without the rest being able to have a say in its internal affairs – thus resulting in a one-way relationship that will naturally lead to a two-tier Europe, rather than “just” two-speed. What Merkel and Sarkozy are thinking of doing, is to completely put aside the principle of a unified Europe, with genuine stabilizing mechanisms in place not just stricter rules; where each state will no longer be treated as a separate entity, but as part of a greater whole; and instead reinforce the same unsuccessful regime that has driven Europe into this despicable mire of recession, where many political achievements are being threatened.
The current manifestation of this indeed narrow-sighted approach, are the demands for front-loaded “fiscal consolidation” (austerity) policies that only see public finances without even mentioning the over-leveraged European banks, while also they appear in the form of official and unofficial adoptions of purely stereotypical statements of “hard working” Northern Europeans and “lazy” Southerners. In any case the facts are against those who slanderously put the blame of the crisis on a particular group of states and their peoples. Reality is that (i) the euro architecture created and expanded trade imbalances, leading to divergence, (ii) many major banks act like black holes, since their underlying insolvency was never addressed, thus their pre-2008 over-leverage has now transformed them into black holes that absorb liquidity and retard growth, (iii) Southern Europeans are actually working more than their cousins in the North, according to official OECD data – the “productivity” narrative is related to the capital stock which is considerably higher in the core countries, (iv) the hawkish policies of the ECB, combined with the fallacy of composition of simultaneous euro-wide austerity measures, the lack of any robust growth drive and the reluctance to mobilize the European Investment Bank, are all constituents of an emblematic policy idiocy, that will go down in history as the best example for future decision-makers to avoid.
Instead of a common truly integrated Europe, Merkel and Sarkozy are clinging on to the same sort of policies, to the very mindset that have kept the eurozone partitioned and have increased imbalances between core and periphery. All that a more “integrated eurozone” will do, in the way Merkel and Sarkozy understand “integration”, is to destroy the incentives of entering that currency union, while also cutting the EU into half, with unpredictable political ramifications over stability in the area and effective decision-making. This is not how we, us Europeans, will go forward.