February 12, 2018
What the euro debate is really about
As the EU and its member states get down to the nitty gritty of eurozone governance reforms, with everyone vowing to make progress by June, it is easy to believe that this is a purely technical discussion and lose sight of the moral dimension that the eurozone crisis acquired at its height, and which is still implicit in much of the current debate. Erik Jones brings back into focus the conflict between what he calls the engineering and the ethical approaches to the eurozone crisis.
Jones notes that we now have two technical proposals for eurozone reform on the table: the more comprehensive one by the European Commission, and the more abbreviated one by fourteen German and French economists for the CEPR. He notes that the Franco-German proposal is more politically realistic, as it attempts explicitly to bridge the gap between French and German preferences. The Franco-German economists lean more towards intergovernmentalism than towards the community method favoured by the Commission, and place more emphasis on national responsibility and fiscal discipline enforced by the markets.
Jones notes that both the Commission and the CEPR proposals involve compromises as any good engineering solution should, but he worries that those with an ethical approach to eurozone crisis resolution will feel disinclined to make compromises, because ethics is about right and wrong, not about what works. And he notes that both the German finance ministry non-paper and the Dutch coalition agreement last year, which reject any sort of common fiscal capacity at the EU level, are rooted in an ethical view that the eurozone crisis was a failure of man, not institutions. Jones concludes that, as long as people of this persuasion are in power in places like Germany and the Netherlands, it will be difficult to make technical progress on eurozone governance.
By contrast, an example that there can be technical solutions to ethical problems is a recent piece by Maria Demertzis for Bruegel. Demertzis notes that a serious problem in the upcoming negotiations will be lack of trust, both among EU member states and lack of trust in the EU itself. To solve this problem of trust, she proposes three technocratic fixes: set annual targets for improved institutional governance; take a systemic approach to policy-making to break out of the false dichotomy between risk sharing and risk reduction; and close the gap between Brussels and the national capitals and between what the EU does and what Europeans believe it does.
We think Erik Jones is a bit too charitable to the ethical view of the eurozone crisis. It reduces the crisis to a morality play, and insists on a liquidationist policy that has caused untold human suffering, ignoring the dictum "first, do no harm". In addition, we fear the most lasting impact of the eurozone crisis will not be economic but political in that what used to be a budding European polity ten years ago has been replaced with a smoking crater. It takes five minutes for a columnist to come up with the PIIGS acronym, but that has now taken a life of its own among the people who would otherwise disparagingly refer to the European "mezzogiorno" or the "club med". The view of the eurozone crisis as a morality play having to do with national character rather than with capital flows and mercantilistic vendor finance was captured by the metaphor of the ants and the grasshoppers, and culminated in the "booze and women" episode of last year. The political damage from all this will be difficult to repair.