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Book suggests only radical steps will save euro
Source: Agencies |
November 15, 2011, Tuesday
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Print Edition
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"TELL me how this ends," United States General David Petraeus asked memorably of the 2003 invasion of Iraq.
Political leaders and economists in the eurozone are searching frantically for answers to the same question as a bond market rout of European sovereign debt accelerates, putting the future of the single currency in jeopardy.
Until a few weeks ago, the most likely outcome appeared to be that the 17-nation currency area would muddle through. The eurozone would bail out a few highly indebted small peripheral states, patch up its rickety fiscal governance and avoid either a break-up or a major shift toward federal integration.
That was then. Now it seems that without a radical game-changing initiative within weeks, the crisis may no longer be controllable.
Efforts to construct a financial firewall to protect Italy, Spain and potentially France are running behind the curve, shackled by legal and political obstacles to using the European Central Bank or issuing joint eurozone bonds.
"This summer, I thought the "muddling through" scenario had a 50 percent chance of success. Now it's clearly less," said Jean Pisani-Ferry, director of the Brussels-based Bruegel economic think-tank and an adviser to the French government and the European Commission.
"Leaders everywhere are now aware of the very high risk if they let things run out of control, that it can lead to a financial catastrophe for Europe," he said. "We are much more likely to see bold decisions to save the euro project than the opposite, which would be to let the constraints prevent any solution."
Pisani-Ferry sketches the outlines of a much more closely integrated "union of the euro" in a book on the crisis and how to overcome it, entitled "Le Reveil des Demons" (The Demons' Awakening).
His vision involves greater economic integration, a federal regulation of banking and finance within the eurozone, and a budgetary union combining greater discipline with "solidarity."
He also calls for a political union in which decisions would be taken by qualified majority vote instead of unanimity, which has slowed action in the two years of the crisis.
And he warns against the current drift toward a more intergovernmental zone in which Paris and Berlin call the shots while the EC and European Parliament are sidelined, saying that is a recipe for paralysis.
Because of the unanimity principle, Finnish demands for collateral on loans to Greece, and a Slovak coalition party's objections to widening the role of the eurozone bailout fund caused long weeks of delay in approving a recent rescue package, undermining investor confidence.
All this goes back to the incomplete foundations of the single currency, Pisani-Ferry argues. From the outset, European leaders settled for a "minimal utopia," refusing to give the euro the political underpinning it needed, and systematically doing too little, too late, once it started to get into trouble.
"Europe has to start behaving as if it accepts the responsibilities of having a common currency," he said.
His vision of a much more deeply integrated eurozone would require an overhaul of the European Union's governing treaty that is bound to meet resistance from non-euro EU states such as Britain and Sweden. It also faces objections from eastern EU members such as Poland who aim to join the currency eventually and do not want to see the entry bar raised higher.
Pisani-Ferry is at least as critical of his own country, France, as of Germany, often blamed for impeding a solution to the crisis through excessive caution and dogmatism.
If France was ready to accept a loss of budget sovereignty with greater European intrusion to ensure EU fiscal rules are respected, Germany might be willing to drop its opposition to issuing common eurozone bonds, he argues.
Such a new deal would inevitably take months to negotiate and years to enshrine in an amended EU treaty, or a separate pact among eurozone countries. So even if it offers a more solid longer-term basis for running a currency union, it is no quick-fix for today. In the short term, Pisani-Ferry says, only the ECB can arrest the crisis by finding a way of providing unlimited support to restore confidence in eurozone debt.
Political leaders and economists in the eurozone are searching frantically for answers to the same question as a bond market rout of European sovereign debt accelerates, putting the future of the single currency in jeopardy.
Until a few weeks ago, the most likely outcome appeared to be that the 17-nation currency area would muddle through. The eurozone would bail out a few highly indebted small peripheral states, patch up its rickety fiscal governance and avoid either a break-up or a major shift toward federal integration.
That was then. Now it seems that without a radical game-changing initiative within weeks, the crisis may no longer be controllable.
Efforts to construct a financial firewall to protect Italy, Spain and potentially France are running behind the curve, shackled by legal and political obstacles to using the European Central Bank or issuing joint eurozone bonds.
"This summer, I thought the "muddling through" scenario had a 50 percent chance of success. Now it's clearly less," said Jean Pisani-Ferry, director of the Brussels-based Bruegel economic think-tank and an adviser to the French government and the European Commission.
"Leaders everywhere are now aware of the very high risk if they let things run out of control, that it can lead to a financial catastrophe for Europe," he said. "We are much more likely to see bold decisions to save the euro project than the opposite, which would be to let the constraints prevent any solution."
Pisani-Ferry sketches the outlines of a much more closely integrated "union of the euro" in a book on the crisis and how to overcome it, entitled "Le Reveil des Demons" (The Demons' Awakening).
His vision involves greater economic integration, a federal regulation of banking and finance within the eurozone, and a budgetary union combining greater discipline with "solidarity."
He also calls for a political union in which decisions would be taken by qualified majority vote instead of unanimity, which has slowed action in the two years of the crisis.
And he warns against the current drift toward a more intergovernmental zone in which Paris and Berlin call the shots while the EC and European Parliament are sidelined, saying that is a recipe for paralysis.
Because of the unanimity principle, Finnish demands for collateral on loans to Greece, and a Slovak coalition party's objections to widening the role of the eurozone bailout fund caused long weeks of delay in approving a recent rescue package, undermining investor confidence.
All this goes back to the incomplete foundations of the single currency, Pisani-Ferry argues. From the outset, European leaders settled for a "minimal utopia," refusing to give the euro the political underpinning it needed, and systematically doing too little, too late, once it started to get into trouble.
"Europe has to start behaving as if it accepts the responsibilities of having a common currency," he said.
His vision of a much more deeply integrated eurozone would require an overhaul of the European Union's governing treaty that is bound to meet resistance from non-euro EU states such as Britain and Sweden. It also faces objections from eastern EU members such as Poland who aim to join the currency eventually and do not want to see the entry bar raised higher.
Pisani-Ferry is at least as critical of his own country, France, as of Germany, often blamed for impeding a solution to the crisis through excessive caution and dogmatism.
If France was ready to accept a loss of budget sovereignty with greater European intrusion to ensure EU fiscal rules are respected, Germany might be willing to drop its opposition to issuing common eurozone bonds, he argues.
Such a new deal would inevitably take months to negotiate and years to enshrine in an amended EU treaty, or a separate pact among eurozone countries. So even if it offers a more solid longer-term basis for running a currency union, it is no quick-fix for today. In the short term, Pisani-Ferry says, only the ECB can arrest the crisis by finding a way of providing unlimited support to restore confidence in eurozone debt.
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