August 03, 2015


The debate we will have

Normally, the summer lull in the eurozone begins mid-July - not this year though. But it has now started, which is why we think it is a good for us to take our annual break as of today. Given the ongoing negotiations in Greece, we will post occasional updates throughout the month, before resuming a daily schedule at some point during the week of August 17.

We have only a few stories and comments we would like to bring to your attention today. Very little of substance is happening in our field. Unusually for us, we would like to start with an interesting comment by Philippe Legrain. It is interesting not in the sense that we agree with him (we don't), but in the sense that this will be the kind of debate we will be having in the second half of the year. Should the eurozone move towards a political union? Legrain thinks not. But his argument is a different one from that of anti-integration. We would call it the Keynesian case against political integration. Here is the core of his argument:

"The conceit in Paris is that a eurozone government would be shaped by France. But why would it be? Berlin rules the roost in the eurozone, so it is scarcely going to subordinate itself to a Franco-European institution in Brussels. When German officials talk about fiscal union, what they have in mind is not the Keynesian eurozone treasury that France would like, but a supranational fiscal enforcer that could rewrite national budgets at will. That would entail an extension of German power, not a reclaiming of French influence."

He then goes on to explain some recent outrages of German imperial overstretch, and urges the French and the Italians "to take a step back and think things through". If the eurozone were to move to political union, it will be of the German ordoliberal kind, which cannot work as a governing principle for a currency union with different intellectual traditions and diverging economies. Nor would it be viable globally.

What he is proposing instead is a sovereign debt restructuring mechanism, instead of a bailout mechanism, in return for more fiscal flexibility at national level. Since a French-style political union is a pipe dream, what is left are the choice of a more flexible union and of course a breakup.

Our other stories

Today our other coverage looks at where inflation is headed; the latest developments in Greece; and Rajoy’s pre-election strategy.

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