Sorry, this entry is only available in Français.
This post was prompted by an exchange on Twitter with Libération correspondent in Brussels and prominent Euro-Federalist Jean Quatremer. Whereas Quatremer likes to write and tweet that the euro crisis is “over,” an attitude I find incomprehensible given the persistence (and worsening) of Depression-like levels of unemployment in certain countries. (In this Quatremer is in line with similar statements by Barroso, Van Rompuy and Hollande.) Quatremer and I recently had the following exchange:
Translation: “@craigjwilly the unemployment rate was the same in 1996 in Spain. The country is paying the price of corruption and the property bubble.”
This kind of information provided during Twitter debate is exactly why I love the service. So I decided to explore the data: Is the euro crisis then nothing exceptional? Just a “return to normalcy” for the peripheral countries which, in the cases of Italy, Ireland, Spain, Portugal and Greece, are all traditionally famous for economic failure and emigration? Or are things fundamentally worse than before?
Here is Eurostat data back to 1990:
Sorry, this entry is only available in Français.
I recently finished David Marsh’s The Euro: The Battle for the New Global Currency. While Angela Merkel and Nicolas Sarkozy are the cover, it’s in fact a (pre)history of European monetary policy, albeit informed by the current debate. As a Eurowonk, it’s a joy to read for that simple truth of the value of history: You cannot hope to know where you are going without knowing where you are coming from.
It’s also a joy for another one of history’s uses: exploding essentialist stereotypes (e.g. economically-useless southerners, euro crisis as Protestant vs. Catholic Kulturkampf). The actual facts are always more complicated than the caricatures and mythologies that we remember.
Marsh notably reminds us that from the Nineteenth Century to the Second World War, it was the French who were the monetary puritans, largely because of their attachment to gold. The Third Republic’s monetary policy was far more stable than that of Otto von Bismarck’s new German Reich and as a result according to Marsh: “The Banque de France – with a near-unblemished track record of monetary rectitude – was a financial role model for the Germans.”
superstate (suːpəsteɪt), noun, a large and powerful state formed from a federation or union of nations: “We are not advocates of a European superstate.” – Oxford Dictionaires.
Victor Hugo famously spoke of the “United States of Europe” at the 1849 International Peace Congress. Almost 100 years later, just after Second World War, George Orwell spoke of the same thing, adding however that these United States should also be “Socialist”. These calls have always been abstract in the extreme. For Europe, holding the bulk of the world’s industrial and war-making ability, division, meaning war, had apocalyptic overtones. The rhetoric of unity, the very phrase “ever closer union” inscribed in the Treaty of Rome, has often had an almost theological quality.
But today European unity is a very real thing. Whether we like or not, the quiet (and not so quiet) work of diplomats, businessmen, politicians, activists and civil servants over six decades is bearing fruit. A number of “game-changer” factors, I believe, will come into play in the coming years, contributing to the creation of something actually like the European Superstate of federalists’ dreams and nationalists’ nightmares. Continue reading
UPDATE: The original version of this post was lost following a hacking attempt on this website. New security and daily backups are in place so with any luck this will no longer be a problem in the future. It has been republished with some modifications. Reactions to the original piece have been lost.
…we have not been able to find any US economist making a strong case for the euro prior to its birth.
This is perhaps the most striking find in a fascinating survey by the European Commission of U.S. economists’ assessments of the coming of the euro, as expressed in some 170 publications. The document is enlightening in two respects: first as an intellectual history of American economic thought on the euro, an “American interpretation” which in fact still predominates, and second as an X-ray into the “Eurocratic mind” and its attempts to explain away criticism of the euro. Every self-styled EU-expert should probably read it or, failing that, this post, which summarizes and provides extracts of its 50-odd pages. Continue reading
UPDATE: This post was originally published on 19/07/2012. It has been republished as the original was lost following a hacking attempt on this website. New security and daily backups are in place so with any luck this will no longer be a problem in the future. Reactions to the original piece have been lost.
This post was prompted by a little debate I had on Twitter with my fellow euro-bloggers Ronny Patz and Jon Worth. The question being: What is the most powerful EU institution?
In particular, I had criticized Der Spiegel for suggesting in a profile piece on European Commission President José Manuel Barroso that he “has been the head of the most powerful EU institution for eight years.” The statement, I felt, was deeply misleading. In my experience, both the European Council (representing national governments) and the European Central Bank are infinitely more powerful. It prompted these exchanges with Jon and Ronny:
“French Socialist economics” may seem like a contradiction in terms. But even the more radical in the Socialist Party are promoting a very concrete mix of Krugmanite Keynesianism and realist mercantilism that practically addresses people’s concerns about recession, offshoring, the banksters and cuts to public services. Whether or not one agrees with it, it deserves to be taken seriously.
Here is a translation of an in-depth interview on these themes with Arnaud Montebourg, the Socialists’ “most successful radical,” proponent of “deglobalization” and now a minister in François Hollande’s government.
French Socialism is now something that has to be understood and dealt with because, if nothing else, a self-styled Socialist now works in the Élysée and France, along with Germany, co-leads the flawed currency union whose contradictions could well drag the entire global economy into crisis.
I came across a December 1998 article in Fortune magazine by the indomitable Liberal economist and Nobel prize winner in which he takes a critical look at the monetary union the Europeans were creating. It’s quite amazing how much has not changed in the concerns he raises, whether it’s on Germany vs. the rest, EU central bankers’ insensitivity to economic performance in favor of “hard money”, or the efforts of “subtle Europeans” to come up with dense, unclear and loop-holey texts so as to have something that can pass for “agreement”.
Most impressive of all is how Krugman describes the weaknesses of the emerging euro system as one that not only jammed together disparate economies but set its core institution, the European Central Bank, on an “autopilot” hostile to both growth and jobs. I can do no better than to quote him at length:
But come actual monetary union, this subtlety [hiding German preferences/predominance behind inscrutable bruxellois] will no longer work, because a truly unified currency must have someone – a European Central Bank – explicitly in charge. How could this institution be set up to give each country an equal voice, yet satisfy the German demand for assured monetary rectitude?
The answer was to put the new system on autopilot, pre-programming it to do what the Germans would have done if they were still in charge.
Krugman then notes the characteristics for maintaining “autopilot”, including the ECB’s independence, it’s “very narrow mandate: price stability, period – no responsibility at all for squishy things like employment or growth”, and appointing the monetary über-hawk, Dutch central banker and bouffant enthusiast Wim Duisenberg as the first ECB president.
He goes on to lament that despite falling inflation, double-digit unemployment and the rise of pro-stimulus centre-left governments across Europe (including France, Germany, Italy an the U.K.), there was no sign that the Bundesbank/the embryonic clique of eurobankers might favor a looser monetary policy:
Instead of an “asymmetric” economy, in which some countries want tight money while others want a boost … and all of the major governments agree that the central bankers should emulate (EMUlate?) that wild and crazy guy Alan Greesnpan, and loosen up. So there is, in the end, no conflict of interest. Indeed, EMU could get off to a rousing start by cutting interest rates and making everyone happy.
But EMU wasn’t designed to make everyone happy. It was designed to keep Germany happy – to provide the kind of stern anti-inflationary discipline that everyone knew Germany had always wanted and would always want in future. So what if the Germans have changed their mind [under social democrat Gerhard Schröder], and realized that they – along with all the other major governments – are more worried about deflation than inflation, that they would very much like the central bankers to print some more money? Sorry, too late: the system is already on autopilot, and no course changes are permitted.
To say yes, to give the politicians what they want even if what they want is entirely reasonable, feels like a betrayal. In fact, the more the politicians demand action, the more the central bankers dig in their heels.
The latter, incidentally, is probably why Nicolas Sarkozy, even as he has been pushing for a more interventionist ECB, has relegated his efforts to private lobbying rather than public exhortation, lest he offend the technocratic priesthood in Frankfurt.
Krugman’s account is a good explanation as to why the ECB, by its very structure, failed to manage the sovereign debt crisis of 2009-201?. The bank was unfazed by the damage a $1.40-€1 exchange rate was having on exports, had no mandate to guarantee low interest rates on government borrowing by buying up bonds (thus avoiding self-fulfilling debt-spiral in the periphery-minus-Greece), and indeed had no inclination to encourage business by lowering its main interest rate below 1%.
In short, the ECB’s “autopilot” meant it behaved in the exact opposite manner of other central banks, including the Fed, the Bank of England, and the Bank of Japan, which all engaged in rock-bottom interest rates and guarantees of low interest rates for government borrowing. So, now, Europe alone has a double-dip recession, rising unemployment and an exponentially worsening debt outlook. Oh, and according to the World Bank, the Old Continent is likely, in due course, to drag everyone else down with it.
In addition, both the European models of integration and of social protection have been tarnished as a result. The latter is particularly vexing as U.S. Republicans and other opponents of the welfare state can quite reasonably point to Europe as “proof” that it is synonymous with economic disaster – spending beyond one’s means, etc. – even as eurozone countries’ actual debts and deficits are no worse, and sometimes better, than other developed countries’.
Krugman concludes by saying “These Europeans, they are a subtle race. And this time they may have subtled themselves into a very tight corner.” Indeed, nowhere is this “tight corner” clearer than in looking at France and the U.K., comparable in terms of economy and budget. But because one is shackled to the euro and has ceded the responsibility for choosing the right economic policy to whims of Frankfurt, it is France alone which pays higher interest rates and has lost its triple A rating.
The ”European subtlety” of hiding differences and (in)action behind verbose bruxellois has been at the heart of integration since the beginning. It may be fine for ever-so-slowly breaking down trade barriers, adopting product standards, and so on. But it is fatal when decisive and reactive leadership is necessary (which is indeed why “Europe” has failed whenever there was a crisis, notably in foreign policy, see Iraq, Yugoslavia…).
The non-discourse and remorseless, inscrutable and/or imaginary consensus of “subtlety” continues: We will have the Necessary fiscal compact even if the Luxembourgish foreign minister says it’s a “waste of time”, the ECB will not print money (lest the Germans protest) but will engage in stealth quantitative easing by making €489.2 billion (sic) in loans to banks, and all PMs and presidents (minus the Brits) are in total agreement on the direction Europe is going even as national politicians voice dissent, are cowed and vow to renegotiate the new treaty.
The result is no one really – be it professional observers, markets or, least of all, public opinion – has any idea what’s going on. Perhaps the European ruling class, multinational as it is, must necessarily articulate its thoughts in the habitual diplomatic subterfuge and techno-bureaucratic platitudes. I just hope they don’t doom a generation, mine, to perpetual unemployment and a ruined welfare state as a result. That wouldn’t be very subtle.
We’ve reached a new stage in EU history: the most significant exercise in federalism – the euro – has in its current form caused a double-dip recession. This is a tragedy and a perfectly avoidable one at that. This slow-motion train wreck – to not speak of economic suicide – is worth documenting and understanding however, both given the devastation it will cause my generation in particular (youth unemployment, at 20% now, will also rise) and the shame it represents for all convinced Europeans.
So, in honor of Tom Ricks (author of Fiasco on the Iraq War, another avoidable tragedy of higher order), I’m launching this series of posts. I am, sadly, very confident there will be lots, lots more bad news to cover in the coming months (years?).
Eurozone and U.S. unemployment had largely run parallel one another during the first stage of the economic crisis, with both stabilizing around 10%. Now, the U.S. rate is rapidly dropping, reaching 8.6% last month, while the eurozone’s, after a modest decline, rose to its highest-ever figure of 10.3% in October. Deutsche Bank and Barclays are now predicting the eurozone economy will shrink 0.3-0.5% in 2012.
These are the consequences of 18 months of dithering, indecisiveness and denial by European leaders, and in particular those of Germany and the European Central Bank.
There is no indication the existing medicine of austerity, ECB inaction and attempts as social engineering entire nations into “competitiveness” via apatride bureaucrats (the IMF and Commission) will succeed now, any more than it did with Greece.
Nor is there any evidence of a coming change of policy: The Germans have now restated their rejection of ECB intervention, even in the event of a good fiscal union deal. Mario Draghi has already made this fairly clear even before the latest “last chance summit” (which I had the honor of liveblogging into the wee hours of the morn). Paul Krugman’s skepticism towards the optimists’ speculation (including my own) of “ECB intervention for fiscal union deal” was then fully justified.
Ironically, Berlin and Frankfurt’s ham-fisted approach to debt reduction and hard money is unlikely to achieve either objective. I don’t need to emphasize the devastating effect shrinking economies and higher deficits resulting from unemployment will have on overall debt levels.
Economies like Italy, Spain, Ireland and Portugal – already on the verge of paying interest rates on debt so high it makes repayment a mathematical impossibility – will come even closer to defaults which would wreck the European financial system and wider economy. The debt-death spiral is already resuming after the (increasingly brief) post-summit calm: Italian yields are rising and the euro is now rapidly losing value.
There is no telling where this ends. What is clear is that existing trends are unsustainable and likely to get worse. Means there will be plenty to blog about and many more sleepless Council summits.
UPDATE: Talk of the devil, Eurostat has just come out with its estimate that employment shrank by 0.1% point in Q3 of this year in both the eurozone and EU27. It has likely gotten worse still in Q4.