Category Archives: European Union

Death of the Euro: Thinking the Unthinkable

Impakter Magazine just published my latest article, here it is:

BOOK REVIEW “THE EURO: HOW A COMMON CURRENCY THREATENS THE FUTURE OF EUROPE” BY JOSEPH. E. STIGLITZ (PUBLISHED BY W.W. NORTON & CO, AUGUST 16, 2016)

Nobel laureate Joseph Stiglitz’s latest literary effort, a new book about the travails of the Euro and Europe, published in August with the apt title “The Euro: How a Common Currency Threatens the Future of Europe” couldn’t land in the muddy European political waters at a more appropriate time.

The summer of 2016 was a turning point for the so-called “European Project” – Europe’s long-run attempt to build a United States of Europe that began with the 1957 Treaty of Rome setting up the European Economic Community (EEC) with six founding members (Germany, France, Italy, Belgium, the Netherlands and Luxemburg), and continued in 1993, with the Maastricht Treaty, the European Union (EU) with (up to now) 28 member countries.

 

Problems have piled up this summer, relentlessly.

The opening salvo came in June with the UK referendum that unexpectedly led to “Brexit”, the decision to leave the European Union with 17.4 million Brits voting in favor. For the first time since its foundation, the EU is expected not to expand but to contract, down to 27 members – probably by 2019, when UK exit negotiations will be completed.

 

The most recent problem came in October with another referendum, this time in Hungary, calling on the population to disregard EU policies on refugees and reject quota obligation to accommodate asylum seekers. The referendum did not break the 50% threshold and the result was therefore declared illegal, but it did demonstrate that once again, a hefty minority, 3.6 million Hungarians (43% of voters), supported their government’s continuing opposition to Brussels.

 
Against this background, Joseph Stiglitz’s book has special resonance.
 
As he convincingly argues, the Euro was supposed to bring the European project forward but it has done nothing of the kind – if anything, the European Project has suffered setbacks just as much outside as within the countries of the Eurozone, the 19 EU members who use the Euro as a common currency. Incidentally, this is not a minor currency: The 19 European countries together account for roughly 14 percent of world GNP, making it the third largest economy in the world, after the United States (20 percent) and China (18 percent).
 
Do not delude yourself into thinking this is not important for the rest of the world: should the Euro collapse, the shock would shake the whole world.
 
It could even start another Great Depression.

A SLOW DEATH

Stiglitz minces no words in roundly chastising European leaders for “muddling through” a succession of Euro crises, ever since the first Greek debt scandal broke out in 2010. The book is a convincing diagnosis of what went wrong and why successive “bailouts” of Greece (three so far) have failed miserably, leaving the country six years later with an inexorably rising debt and a Gross Domestic Product diminished by a quarter, while the exceptionally high unemployment (a mind-boggling 50% for the young) won’t budge – really as bad as a war. Stiglitz’ detailed description of the Greek case is harrowing. A must read for anyone who hasn’t followed the drama closely.

And he is equally convincing in arguing that Ireland, often promoted (mostly by Germans) as the “poster child” of the success of Europe’s monetary and austerity policies is no such thing. EU-imposed austerity measures “helped ensure that Ireland’s unemployment rate remained in double digits for five years, until the beginning of 2015, causing untold suffering for the Irish people and a world of lost opportunities that can never be regained.”

Tough words that apply equally well to the other “crisis countries” of the Eurozone. For example, Portugal, also promoted by the IMF as a “success”, is far from that: The facts are that “the government might be borrowing with more ease, but the Portuguese people never experienced a real recovery.” Indeed, across Europe, excessive reliance on austerity and monetary policy “has resulted in even greater inequality: the big winners are the wealthy, who own stocks and other assets […]; the big losers are the elderly who put their money in government bonds, only to see the interest rates generated virtually disappear.”

 

The reason for such a deplorable state of affairs?  

First, a misplaced belief in what another famous economist, Paul Krugman, calls the “confidence fairy”: the idea that with austerity and a balanced budget, business confidence will be restored, which overlooks the simple fact that when consumer demand is depressed, business has no incentive to invest. In a recession, the confidence fairy, as Krugman says, becomes a zombie.

 

To read the rest, click here

NOTE TO MY READERS: Stiglitz’s advice on how to fix the Euro is truly excellent, and I sincerely hope our political leaders will read this book and act on it. I’ve tried to focus on the policy measures that are really doable among the many ideas Stiglitz presents. Eminently practical, they would take VERY LITTLE EFFORT… if only Germany would stop focusing on stupid austerity policies that are destroying Europe!

Go over to Impakter to read about those policy measures and tell me what you think!

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Filed under Book review, Economics, European Union, politics, Uncategorized

Europe: Time to Clean Up Your Act!

Seven months ago, I blogged about the ignominious stance of Ms. Merkel’s Germany, weighing down on poor little Greece, stripping it bare so it would repay its debt – in short, dangerously rocking the Euro boat and nearly sinking it. That post was titled: “Shame on You Germany, You are Killing the European Project”.

How times have changed in just seven short months!

Now Europe is facing the twin challenge of Brexit and the refugee crisis.

Student debate held at Speak Up November 2015 (video here)

Brexit – if it actually leads to the UK’s exit from the EU and, for now, the chances that it will are about even – could open the way for other Euro-skeptical countries to leave, particularly East European countries like Poland and Hungary that seem to have forgotten how happy they once were to escape from the Soviet Empire.

The refugee crisis has seen an extraordinary change of heart in Merkel: all of a sudden, she has turned into Europe’s paladin, fighting for a generous, dignified humanitarian stand (in fact, the only one that would do justice to Europe’s values). By contrast, East and Central European countries, in a selfish, amoral and ungenerous fit, led by Hungary and Poland in this case too, are fighting Merkel and closing their borders with razor-thin walls, reminiscent of the infamous Berlin Wall.

This is a continent truly divided: on its western and eastern borders, EU members are hitting hard at the European project, while at the center, particularly in Germany, it has to valiantly grapple with the influx of over a million refugees and economic migrants.

The crisis is not longer at its doors, it’s within. Yet, in spite of the deadly urgency, the EU is still grappling in the dark, EU meeting after EU summit, for a solution.

Paralyzed.

Why? Are all our politicians stupid, don’t they realize that if they do nothing, voters at home will make them pay? Or is it the EU institutional framework that is causing paralysis? That framework was carefully constructed to preserve “sovereignty” so that no country joining the Union would lose one shred of its precious “national identity”.

Result? Political paralysis. Inability to take any decisions. Focus on irrelevant details (like the length of bananas or wrapping mozzarella cheese in paper) rather than keeping an eye on the main road.

Of all the institutional stupidities, the worst offender is the EU presidential system: here, since the Lisbon Treatycame into force in 2009, we have two “presidents” of Europe, one for the EU Council who is full time – first it was the Belgian Herman van Rompuy; now, since December 2014, it is Poland’s Donald Tusk –  and then we have a continuing six-month rolling presidency as each EU member country takes its turn at the helm. The next EU presidency falls to Slovakia.

And Slovakia in its recent elections has taken a turn away from Europe: its parties are dangerously anti-European. If you don’t believe me, read this excellent analysis in the New York Times: Slovakia’s Governing Party Loses Majority as Far Right Makes Gains.

My question is: why do we need a rotating presidency of EU member countries if we have a European President of the Council, a man who presides over the Council that consists of the heads of states or government of EU members as well as the President of the European Commission? Why is this President that comes closest to an individual selected by ALL European citizens (since he is elected by the European Parliament), why is he set aside every six months by whatever country that happens to take over the “EU presidency”?

This is a perfect recipe for political paralysis.

What kind of game are our politicians playing at? Obviously, this is a way to have more juicy positions to fill their pockets as they “rush to Brussels”. But it is at the clear expense of European citizens and tax contributors. Slovakia, once it is sitting in the presidential driving seat next July, can be counted upon to at best do nothing and leave the European machine stalled, and at worst, to promote its own anti-European agenda and force the European machine to backtrack.

Time to put a stop to this game and reform the EU institutions. Unifying Europe is a management matter: countries will need to leave behind  chauvinistic nationalism in order to rise up to the challenges and make decisions. Solutions will never be reached as long as countries cling to their antiquated national identity.

To begin with: cancel the six-month presidency turn-over game.  This is the only way to have a real European Union President. Someone we know who is dedicated to the European project. Someone who will push it forward and not stall it – as Slovakia no doubt will.

It’s only a start, but it would be a good start. Your views?

Update: Turkey is suddenly playing tough on EU demands to help it stem migrant flows – a stiff bargain that reveals how weak the EU really is. “EU Welcomes Bold Turkey Plan to Stop Migrants” is the way Reuters titled it (see here) EU “welcomes”? “Bold Turkey Plan”? In fact, the Turks simply asked for twice the money!

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Filed under European Union, politics