Nosemonkey's EUtopia

In search of a European identity

The euro crisis: What next?

Random thoughts – because, 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.

To note: I’ve always been euro-sceptic.

Yes, that was deliberately hyphenated: I’ve never been entirely convinced of the benefits of a single currency for a group of economies as diverse as those of the EU – and this even before I’d heard the term “optimum currency area“.

That’s not to say that I don’t think that a single currency would be a good thing for Europe *eventually*. But my use of “eventually” when it comes to European integration is normally looking far longer-term than pretty much any politician ever does. I’d expect pretty much everyone capable of reading this to be dead before conditions in Europe are optimal. (And that’s being optimistic…)

Anyway, lest I digress – after reading various interesting, highly contradictory articles from various self-professed soothsayers from all over Europe (and beyond) over the last few days, 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 (yes, this really has been suggested…)

Finally, a bit of random reading – I may well keep this updated as I come across more:

Just how serious is the Greek debt problem? – Deutsche Welle asks a bunch of economists what they reckon. Decidedly more restrained than much coverage, with varied viewpoints. A handy overview, and a good starting point for newcomers.

Beware Eurosceptics bearing gifts – one of the most sensible, restrained pieces I’ve seen. From, as ever, David Rennie of The Economist. Key quote: “Pretty much every option looks bad.”

Time for Plan B: How the Euro Became Europe’s Greatest Threat – the article everyone’s been talking about, from Der Spiegel. Worth a read – while also worth noting that it only mentions the word “exposure” twice in what is a *very* long article. The omissions are as important as the (sensible) key point that the way the euro was set up was based not on sound economics, but on political wishful thinking. People who only skim the section-headings (like “The Euro is a fair-weather construct“) are likely to miss the subtleties of the – decidedly German – argument. Fascinating piece, but to be read with a critical eye.

Imperial Germany – eager to bury the euro – a Greek response to that Spiegel article. A strong response – sample quote “Berlin has shown that it wants to distinguish itself through the implementation of a selfish nationalist policy that will break nations and states that are unable or unwilling to follow in its footsteps” – but worth reading.

Banks have £1.6 trillion exposure to ailing quartet of Greece, Ireland, Portugal and Spain – from the eurosceptic Telegraph, scary numbers putting Britain’s likely £1bn contribution to a second Greek bailout (via the IMF, not the EU) into some kind of context.

Greek Debt Crisis: how exposed is your bank? – handy chart showing likely impact (could do with additional ones for exposure to Irish / Portugese / Spanish debt too, in case there’s a domino effect…)

Eurozone debt crisis – to restructure or not? – from the Centre for European Reform, a normally decidedly pro-EU thinktank that’s turning decidedly hostile (justifiably so, some might say) in recent days. Key quote: “All this could poison European politics without resolving the economics”.

Hell, for that matter, *all* the Centre for European Reform’s recent publications on the euro crisis are well worth a read

Can the Eurozone be saved? – From Foreign Affairs back in April, but still worth a read – especially for explaining in simple terms just why this current crisis is unique and utterly unpredictable: “In the eyes of markets and skeptical observers, the European Union is more than an intergovernmental organization but not yet a state. When the European Union bickers and dithers, the markets have no idea what may happen.”

Wednesday additions – catching up with the blogs:

The gloom of having no good options – Conor from The European Citizen sums up: “At the moment the best option seems to be to accept the bad austerity and bail-out deal and forge ahead with reforms in Greece with at least the thin cushion of EU/IMF loans rather than no loans at all and hope that either (a) the EU gets its act together; or (b) the painful austerity will help Greece just enough so that it can partially default in a more managed way in a year or two when the prospects are better for it and the EU. Neither option is an inspiring or very sellable one.”

Euro(w)s… Democracy versus Sovereignty – A Bit More Complicated… shows how, well, it’s a bit more complicated, giving some much needed historical/theoretical context: “The question is that old point of “no taxation without representation”. In a bailout situation between states, it is not only the taxpayers of Greece who have a legitimate interest in how Greece handles its debts but the taxpayers of the countries providing the help via the IMF and the Eurozone… welcome to the complicated world we live in.”

Greece’s unnecessary crisis – could more decisive action have prevented this situation? Yes, argues George Irvin at the Social Europe Journal blog: “the real lesson of the Greek debacle is not that that peripheral countries should exit the eurozone (although that is now a distinct possibility); rather, it is that the current situation results from the increasingly rightward drift of Europe and the short-sightedness of our political class.”

Delaying tactics are only increasing the costs of the eurozone crisis – the Open Europe blog (rarely somewhere to avoid giving the EU a kicking) seems to agree.

The road to “new European reunification” runs through Greece – The German Marshall Fund blog does a superb job of putting a complex situation into some kind of context, and is worth quoting at length:

“EU Commissioner for Economic and Monetary Affairs Olli Rehn rightly stressed in late May, “There is a certain aid fatigue in all of northern Europe [and] a certain reform fatigue in southern Europe.” Nearly a month later, nothing has changed. Yet both the United States and China have upped the ante by signaling that an uncontrolled debt spiral and string of defaults in Europe could be disastrous for their own economies. So what should the EU do? And, importantly, what will be the lasting legacies of any measures it takes?

…the fear of a financial and economic chain reaction has accelerated the EU’s integration by pushing institutions and member states to quickly decide on issues of governance, accountability, and leadership; essentially to agree on the politics of European economic policy. Through this process, all involved are framing the limits of their powers and responsibilities. This week, European leaders will set the new terms of Europe’s economic union. In a year’s time, they have been asked to agree on strategic decisions they have postponed for decades. Beyond the Greek sovereign debt crisis lies the more profound issue of European political integration; Europe needs a “new reunification,” this time of the North and South. Yet with the economic and social struggles ahead, and in the face of a slow recovery, Europe also needs strong political leadership to look beyond special interests. Only tough political choices today will make the sound policies of tomorrow.

“…It is not just about the economics. Today’s struggles have a lot to do with regulating economic policy and affirming institutional power. In this sense, the “invisible Brussels” might not easily restore public trust in the EU, but profound changes are underway. Hasn’t the ECB already emerged as a central actor to any economic decision? Hasn’t the Eurogroup become the true hub of European economics? Hasn’t the European Parliament used the opportunity of reforming economic governance to promote further Commission oversight of national economies? Whatever one calls it, the EU is in a period of adjustment or transition or adaptation to a new paradigm — there will be a new equilibrium calling for new policies. Europe will be stronger because it will be different.

“…The European debt crisis and its repercussions might be this generation’s tragedy, but it might also be its opportunity to deepen the EU’s integration. It could be its New Deal, its Marshall Plan, its Reunification. European leaders owe their people a political stance — the time has come for a new Declaration, not just another Statement. EU “founding father” Jean Monnet believed that “we only have the choice between changes we are forced to make and those we wanted and were able to achieve.” This week, paradoxically, Europe will be forced to make the changes it always wanted but never dared to achieve.”

Worth reading in full, that one. One of the most interesting pieces I’ve seen on this whole mess.