Eurozonia: too big to fail, too small to succeed?

8/3/2019 Eurozonia: too big to fail, too small to succeed?

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Eurozonia: Too big to fail, too small to succeed?

Battle of Ideas debate, 29 Oct 2011Notes by Harley Richardson

Disclaimer

These are my sketchy personal notes of debates at the Battle of Ideas 2011, which I attended in a personal capacity. I thought they might be of interest to folks who weren't able to attend. They're not comprehensive – I'm a fast typer but some of the speakers were faster talkers - and any quotes I give are from memory and may not be 100% accurate. I tried to capture the main points I thought each speaker was making, but if you're one of those speakers and you feel I'vemisrepresented you, please let me know. I've flagged up the names of questioners from the audience where I know them.

Blurb

From http://www.battleofideas.org.uk/index.php/2011/session_detail/5687/

The core European Union project of unity in diversity seems to be slowly sinking as a succession of shockwaves batter the good ship Eurozonia. Whether it is l’affaire Strauss-Kahn, the debt crisis swampingGreece, Ireland, Portugal and the euro itself, customs borders going back up in Denmark, the North Africanand Libyan refugee ‘human tsunami’, or the remarkable rise of populist anti-EU parties like the True Finnsand the Dutch PVV, scarcely a day goes by without a new crisis for the captains of Europe. José ManuelBarroso, president of the European commission, may call on national governments to resist the ‘populisttemptation’ of ‘anti-European’ voices. But when Angela Merkel says people in countries like Portugal, Spainand Greece should not have more holidays, work less and retire earlier than Germans, the extent of thepolitical and cultural crisis facing the EU is clear. The sense of failure in Brussels is palpable: everyoneknows the bailouts are not working; everyone knows populist resentment to the EU is now widespread; some30% of Germans – at the heart of the project from the beginning – now want an independent Germany andtheir D-Marks back. Is it conceivable that the euro could fail? And what would this mean for the EU itself?

Some argue the very logic of the EU project, long before monetary union, was such that it invited an eventualpopulist backlash. The EU was conceived after World War II as a means of ending conflict betweenEuropean peoples – and seeing off the dangers of either Communism or Fascism. When French Planning

Commission head Jean Monnet created the European Coal and Steel Community, French and German elitesinitiated a process of increasing integration – a common industrial market, common agricultural policy,monetary union – designed to lead to political union. But all this was agreed between technocrats rather thanargued for in the public sphere. Consequently, national political leaders have long been known to use theputatively unaccountable EU as an excuse for imposing unpopular legislation on their electorates. And withthe euro in crisis, new battle lines have emerged between centralisers and decentralisers, globalists andlocalists: lines that transcend left and right allegiances.

British commentator Martin Wolf argues the only alternative to default and at least partial dissolution of theEurozone is deeper financial integration and fiscal support than anyone previously envisaged. So can thebureaucrats weather the storm, keeping populist and nationalist dissent to the margins while they do whatneeds to be done? Or can the European public be won over to the EU project just as it is faltering? Or finally,is the whole project doomed to failure?

Speakers

Philippe Legrain, advisor to President of EC; author Aftershock: reshaping the world economy after thecrisis

Simon Nixon, European editor, Wall Street Journal column Heard on the Street;ex-investment banker

Bruno Waterfield, Brussels correspondent, Daily Telegraph

Chair: Phil Mullan, economist; business transformation director, Easynet Global Services

http://www.battleofideas.org.uk/index.php/2011/session_detail/5687/







Germany and other big countries have not lost money, have made money on interest.

Bruno Waterfield

If you're in a burning building, leave.

Always been horrified by the way the EU conducts its business. Now terrified by the way they have given itits dynamic and form. Led to crash and reintroduction of force into Europe.

Rehabilitated idea of compulsion in political affairs: big countries controlling smaller.

The appeal for politicans is: the EU is a mechanism for states and politicians to insulate themselves frompublic accountability. Hence unable to deal with a real crisis. This crisis defies routine solutions.

EU is fixated with low deficits and inflation. Always explicity undemocratic. 90% of global growth will beoutside the EU next year.

Breton Wood has been destablised by rise of BRIC.

Germany tied by Maastricht Treaty, too reliant on Eurozone as sales area.

Germnay not a productive powerhouse – switched off nuclear stations during slowdown.

Struggle between public and private is a fiction.

EU was beauracractic and secretive, now openly imposing order on Europeans.

Needs political leadership, provide growth, lift productivity.

Discussion

Phil Mullan: Why hasn't it been possible for ECB to print more money? Quantitive easing hasn't solvedproblems elsewhere. Why would it here?

Philippe Legrain: Because it will end panic.

ECL is only bank that doesn't have 'lender of last resort' mandate, should do. In a slump like this, can printas much money as you like without hyperinflation.

Without that, we're back in 19th C with common bank runs.

If the euro disappears, the ECB will be out of a job. New head is a political pragmatism, so will get involved.

Simon Nixon: Greece didn't face up to problems, just raised taxes (which no one pays). Huge civil service,early retirement age. Given all this, he has sympathy for Germany.

No trust, so very hard to put money on the table.

Phil Mullan: Hasn't the European project transformed itself many times, can't it do it again?

Bruno Waterfield: The problems are intrinsic to EU institutions so they can't take the leap. Why can

Greece, so economically insignicant, cause so much trouble? Because EU overleveraged.

Need to move away from idea that more credit will solve the problem. Towards investment. European bondsis not where the growth is, so rational to move away from them. Will require leap of imagination, collective



effort, sacrifices. (Making a sacrifice as opposed to being a sacrifice as will happen with EU in charge).

Audience member (Angus Kennedy): (To Bruno) Be realistic - collective effort won't be made. What wouldhappen is Germany will pop out, restructure own economy.

Audience member: What does it mean for countries to reform their economies? Eg Greece is a country of slackers. Cultural problem, not political.

Audience member (Daniel Ben-Ami): Amazed crisis didn't happen earlier. Fundamental structuralproblem, not just competitiveness. The EU is a mechanism for avoiding economic restructuring. All sidescolluding in extending credit, for different reasons.

Audience member (Rob Killick): Political union should precede economic union, not the other way round.

Audience member: Countries will muddle through. In 1980-82 countries were defaulting in the Americas,

took years to sort out. So Euro problems are not so bad compared with US experience.

Audience member: If the ECB printed money – wouldn't it require some kind of treaty change and thereforereferenda? Would people buy it? Doesn't it just put off the crisis, allowing people to lend when theyshouldn't?

Audience member: What effect is this all having across Britain?

Audience member (James Woudhuysen): Germany not competitive or innovative compared with China.Need a whole lot more R&D across whole of Eurozone. Too small-minded to succeed.

Audience member (Para Mullen): Wasn't purpose of EU to stop Germany becoming too powerful? We'vecome full circle.

Audience member: Germany operating with even-more rigged currency than China. Commitment to riggedcurrrency means it won't allow reform.

Philippe Legrain: This is pushing us back into recession.

No, the ECB mov doesn't require referendum.

Germany not strong and successful, been holding down wages for last 10 years. (Why make things? To payhigher wages.) Living standards same as they were a decade ago, Greece doing better on that front.

Need more investment, 100% capital allowances. Companies are sitting on cash but not investing. Make ittax deductable for next couple of years. Why no Silicone Valley in Europe?

Simon Nixon: EU at heart a single market without a single currency, can't work. We still have protectionism.Never full buy in.

ECB – means borrowing in a foreign currency. Would remove any pressure to sort out situation.

EU leaders did go behind backs of people. Need to restore faith in sovereign debts and promises.

Bruno Waterfield: There won't be a rebirth of national identity if EU breaks up. EU consists of non-countries



(Luxembourg, Belgium), countries which aren't powerful (Greece) and global powers (Germany, France, UK).Germany has to think and assert itself internationally. Germany more than any other country constitutionallybound to EU.

Documents

Eurozonia: too big to fail, too small to succeed?