Wednesday, May 21, 2014

The single currency was a very badly conceived project

Analysis by Eunice Goes Associate Professor in Politics and Communications at Richmond University and Salvatore Dimaggio, Corporate Advisor, Founder and Head of Meet the Manager.

S.D.: The crisis has revealed that the decision-making processes of the European Union are extremely slow and intricate. With 28 member countries that have very different interests and needs, every action is weighed down by compromise and mediation long and sometimes crippling. 
Even the European election campaign is stingy of projects and programs: the European political parties do not deal with issues related to poverty and corruption of the southern countries of the union. De facto in the European political scene there is not a debate on how to deal with these issues.

E.G.: As you say the process of decision-making in the EU is highly problematic. It is opaque, unaccountable and it raises important questions of democratic legitimacy. But complex and questionable processes of decision-making are not the main reason that explains a general disenchantment with the European project. The most fundamental problem has to so with the directions and aims of the European Union. For many, the the European project was a cosmopolitan project based on the values of democracy, solidarity, peace and human rights. But since 2010 it became clear that we were naïf. The only thing that matters is the viability of banks and the financial system. Philip Legrain, who advised the president of the EC, Jose Manuel Durao Barroso, said precisely that last week. The EU decided to sacrifice the people of Southern Europe in order to save a few German other words, a very badly conceived single currency has been fetishised to the exclusion of everything else.
Southern Europe has problems - and by the way, corruption also exists in Northern Europe - but the way the EU has dealt with the Eurozone crisis has made things worse. 

S.D.: You're right. The immorality of this choice is likely to undermine the positive impact that the European Union is able to have. Take for example the case of Poland.
Marcin Piatkowski in "Poland’s New Golden Age Shifting from Europe’s Periphery to Its Center" say that Poland’s income gap with Western Europe today is smaller than it has been at any point since the year 1500. 
In 1989, Poland and Ukraine had approximately the same standard of living. Now, Poles are three times richer. 

E.G.: Poland is benefiting from being a member of the European single market. Moreover, in 1989 Poland's economic situation was really dire.. More importantly, Poland is not part of the single currency. Let's see if Poland's economic data will be as impressive once they have to comply with the stringency of the Stability and Growth Pact... The Polish government does not seem to be in a hurry to join the euro.

S.D.: Paul Krugman wrote in 1999 that adopting the euro, Italy has been reduced to the status of a Third World nation that has to borrow a foreign currency, with all the damage that this implies. 
The euro has many detractors, it is now clear that it is a wrong project, which prevents countries to manage its monetary policy, and this has destructive effects on the countries of the south. 
What worries me is that there is not a real debate on this issue: the European authorities automatically defend this state of affairs clearly malicious, and political parties, do not have any serious proposal in this regard.

E.G.: I agree that it is a very sorry state of affairs. It is baffling that Europe just plans to muddle through this crisis without stopping to think about what when wrong and why it went wrong.  Shockingly, European social democracy has accepted austerity and offers no alternatives to it...
The single currency was a very badly conceived project. It was advocated by leaders like Mitterrand and Kohl who had very little understanding of economics. It was also project conceived for ideologues of the night watchman state, that is, a minimal state, and who do nut care about democracy. 
This is not a project that the citizens of Europe support or desire. The problem is that there is no easy fix. The solutions are either further economic and political integration (and there's little appetite for more Europe) or the implosion of the euro which would have very dramatic consequences across Europe. Another possibility is to radically revise the stability and growth pact and possibly the convergence criteria. But Germany will never support that.