Europes Deadlock: How the Euro Crisis Could Be Solved — And Why It Won’t Happen

Europe's Deadlock: How the Euro Crisis Could Be Solved and Why It Won't Happen

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In most democracies, willingness to put up with difficult and unpopular economic reforms is low enough at the best of times, and can result in the electorate's rejection of the government that proposed or implemented them. When, despite the outward appearance of solidarity in a monetary union, there is no overall agreement on burden-sharing at a higher European level, and when planned European structures seem to lack sufficient democratic control, then the readiness to carry out appropriate policies will decrease still further.

The European family will probably remain unhappy.

A vital part in the many-sided politics of the euro is played by the pivotal politician in Europe: the curiously inscrutable figure of German Chancellor Angela Merkel, in office since At the centre of an array of conflicting strains and tensions, she is pulled in different directions by opposing influences. She conveys the impression of rock-like stability, but in fact only a slight change in the balance of forces could cause her to be blown away in the wind. There is a strong streak of opportunism running through Merkel's record as a frequently ruthless political survivor.

How the Euro Crisis Could Be Solved — And Why It Won’t Happen

Outlasting her enemies was a skill she first honed in the clandestine and cutthroat world of communist East Germany. The German leader wields carrot and stick like a conductor's baton: a trace of European solidarity here, a whiff of sound money there; a stern hand on the tiller combined with a shove in the direction of the life raft for those who fall overboard; a modicum of support if deserved for France and Italy, a stab of school-matronly admonition for the Greeks and Spaniards; espousal of self-help for errant countries and rejection of bailouts; respect for the anti-inflation credo of the politically independent central banks that are supposed to be running the show, combined with wearisome regret that sometimes they do not see the larger picture.

ISBN 13: 9780300220308

Such is the juxtaposition of contrasting forces that Merkel's Law of Permanent Disappointment is persistently on display. According to the familiar pattern of euro politics, Germany's critics habitually call for concessions, which the Germans reject as contravening the euro bloc's tough conditions and invoking the Weimar ghosts of hyperinflation and totalitarianism a plaintive yet exaggerated contention. Each time, as the pressure builds, the Germans give in; each time, in an increasingly irksome display of brinkmanship, this capitulation comes at a later stage.

Yet it is always only a partial surrender that leaves no one satisfied and nothing resolved. The German cave-in is never complete enough to resolve the euro's problems or to win more than grudging acknowledgement from supplicant states pleading poverty.

But it nearly always goes too far for Merkel's many critics in Germany, who say she has strayed too far in toning down Germany's rules on monetary stability or in propping up profligate, ungrateful southerners with German taxpayers' money. One point is clear, although it hardly makes resolution easier: the pain felt by the peripheral euro states is overwhelmingly their own fault. In Greece, Ireland, Portugal, Spain and Italy, harsh corrective action has been necessary to overcome serious policy mistakes in the euro's early years.

Countries used the easier conditions of the single currency to do what people, banks and institutions always do when interest rates are precipitously lowered and then kept low — to live beyond their means. Many euro members built up unsustainable debt in the public or private sectors or both that was used to finance speculative economic booms, rather than to generate productive capital investment and lay down foundations for the future.

A subsequent switch towards righting economic imbalances has been necessary and inevitable. But there are three principal difficulties with the outcome. First, sharp falls in domestic demand and rising unemployment in crisis countries have deepened economic downturns and resulted in ever-worsening deflation that, by lowering tax revenues and weakening public finances, have further reduced the ability of states to pay back their debt — a self-perpetuating vicious circle.

Second, in normal cases around the world, where imprudent states incur excess debt that leads to economic overheating, policy rethinking normally leads to a devaluation of the national currency, as part of a bid to achieve greater competitiveness. This is then a component of an overall package of measures to rebuild growth, for example, under the tutelage of the International Monetary Fund IMF. Under the conditions of monetary union, the path of devaluation is blocked, unless the euro as a whole becomes chronically weak on currency markets which would probably then further damage confidence or unless the country concerned takes the ultimate step for many, still wholly unthinkable of leaving the monetary union.

This is one major reason why the sense of crisis in Europe has been deeper than during comparable episodes in the past, and why it is lingering longer. The various euro rescue packages offer hard-hit states and their populations only very long and stony pathways to recovery. Third, in the case of those euro members where earlier rapid expansion ran aground, there are grave question marks about the governance arrangements that led later to a breakdown in well-being and stability.

The economic imbalances in the early years occurred as an intrinsic part of a monetary regime that allowed member states access to easier financing with few questions asked about the outcomes. No one paid sufficient attention to the problems building up below the surface. What appeared to be a supremely benign experience went hideously wrong.

Furthermore, nearly everyone bore some responsibility, and this is making attempts to clear up the tangle all the more onerous. Germany, overall, appeared to benefit. The euro countries that embarked on debt-fuelled expansion absorbed great volumes of German exports. Additionally, throughout the period Germany's currency was kept lower than it would otherwise have been, providing a competitive exchange rate that allowed German companies to prosper thanks to the much-increased exports to the rest of the world.

Europe's deadlock how the euro crisis could be solved-- and why it won't happen

Price competitiveness, together with big increases in Germany's economic flexibility following structural reforms by government and industry, gave fresh impetus to Germany's decades-old capacity to manufacture products that the world wants to buy. As the euro area's largest economy and most important creditor, Germany stands more or less alone in Europe in having circumvented with apparent ease the world financial crisis of —08 and the subsequent downturn.

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The Germans therefore face trenchant complaints from debtor countries for allegedly inflicting vindictive deflation on indebted peripheral states, whose earlier behaviour helped and continue to help support German jobs and prosperity. In the eyes of disaffected euro members, Germany not only refuses to take overall responsibility for the skewed state of monetary union, but also adopts an unfair moralising tone in criticising ill-doings of partner countries whose actions it earlier tacitly condoned.

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One of the euro's objectives was to promote European peace and fraternity. Yet, under the conditions that have emerged, in several southern euro members monetary union has produced defamatory anti-German campaigns of a ferocity not seen since the Second World War. Angela Merkel has the longest experience and the most solid credibility of current European leaders. Europe's deadlock how the euro crisis could be solved-- and why it won't happen.

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Marsh, David. Publication Information:. Physical Description:. Subject Term:.

Financial crises -- European Union countries. Monetary policy -- European Union countries.

Geographic Term:. European Union countries -- Economic conditions. Electronic books. Added Corporate Author:. ProQuest Firm. Electronic Access:. Staff View. Yavapai Library Network. Summary This short, fiercely argued book explains how five years of continuous crisis management not only have failed to resolve the Eurozone's problems but have actually made things worse.

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