Can the Euro Be Repaired?

Jul 31, 2015 Jean Pisani-Ferry

When Wolfgang Schäuble, Germany’s finance minister, recently tabled the option of a Greek exit from the euro, he wanted to signal that no member country could abstain from the monetary union's rules. But his initiative triggered a much broader discussion of the euro’s governance and the very rationale for its existence.

PARIS – When Wolfgang Schäuble, Germany’s finance minister, recently tabled the option of a Greek exit from the euro, he wanted to signal that no member could abstain from the monetary union’s strict disciplines. In fact, his initiative triggered a much broader discussion of the principles underpinning the euro, its governance, and the very rationale for its existence.

Only a fortnight before Schäuble’s proposal, Europe’s leaders had barely paid attention to a report on the euro’s future prepared by European Commission President Jean-Claude Juncker and his colleagues from the other European Union institutions. But the new dispute over Greece has convinced many policymakers of the necessity to return to the drawing board. Meanwhile, citizens wonder why they share this currency, whether it makes sense, and if agreement can be reached on its future.

For currencies, as for countries, founding myths matter. The conventional wisdom is that the euro was the political price Germany paid for French acquiescence to its reunification. In fact, German reunification only provided the final impetus for a project conceived in the 1980s to resolve a longstanding dilemma. European governments were both strongly averse to floating exchange rates, which they assumed would be incompatible with a single market, and unwilling to perpetuate a Bundesbank-dominated monetary regime. A truly European currency built on German principles appeared to be the best way forward.

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Stamatis Kavvadias Aug 6, 2015

Unless EU/EZ allow the parallel existence of alternative mindsets, expectations and behaviours, as I describe bellow, It cannot and should not be saved. It has taken an irreversibly undemocratic course, where political institutions are secondary to oligarchic financial institutions.

One reason is because the informal authorities like the "eurogroup", taking life in the beginning of the crisis, were allowed to endure, after or even because of the nature of undemocratic institution formulated to address the sovereign debt crisis: the ESM. A mix of elected government officials (finance ministers) --especially in the countries where sovereignty is a matter of political establishment responsibility-- is not primarily concerned with European integration aims and decides based on national interests. This is partially admitted by Jean Pisani-Ferry for EU/EZ governments, but looking only (or deliberately) from an economic perspective, he only finds its influence before the crisis.

The ESM, allowed to follow the ECB's undemocratic structure, which does not have a parliamentary mandate, but a treaty-based mandate only, are both undermining political accountability and control (forget the fairy tales about democratic accountability) by any potential future institution in the EU/EZ. Thus, the EZ is doomed to undemocratic institutions and eventual failure.

Even federal European institutions, are doomed to remain undemocratic, because the ECB's governing council plus the treaties defining the ECB's mandate, form an undemocratic context of supremacy of currency institutions over political institutions. Not necessarily worse, but almost by accident, is the case with the structure of the ESM, which is only accountable to the German parliament --all otherwise sovereign political establishments, have surrendered their rights to accountable institutions!!!

Although the ESM is accountable to Germany's interests (and will respect at least one country's political institutions), the ECB is not and this cannot change! It is the basis of the eurozone; the most fundamental institution, working on the most fundamental treaty rules. In effect, the ECB represents national government interests --not EZ interests-- and is likely to favour either the stronger nations' interests, or a very wide consensus of governments, if such consensus can emerge in absence of any relevant institutions!

These undemocratic institutions are combined with an overwhelming number of European ruling political establishments, submitting totally to the "there is no alternative" narration, having left sovereignty and accountability claims to populists, against the inadequacy of EU/eurozone political institutions to be effectively repaired or extended and the superiority of oligarchic banking institutions and the ECB.

This is the mindset formulated behind the eurozone: surrender sovereignty and accountability to the stronger nations. It cannot be changed even by dressing it up as a federation. In the case of the Greek crisis, the ECB would still decide in the same way; Greek banks would have to close. This structure of the EZ ***cannot*** and hopefully will not be saved.
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Stamatis Kavvadias Aug 5, 2015

Can the euro be repaired?
The author states he is interested in what the *major* participants have to say. This is the mindset of the bureaucracy behind the EU as a whole. Under this oligarchic mindset, the euro cannot be saved. This would be a euro for the major participants.

What needs to be understood is that the real need for globalisation is restricted by the inability to accept diverging explanations and behaviour. Although economics are used as the motivation, inability to accept diversity of mindsets will break any effort for globalization.

This is the same for eurozone. Although the case of Greece has not *yet* indicated that it is impossible to compromise cultural and political differences, it has shown it cannot be done on the grounds adhering to "major participants" dictates. The question of euro sustainability proves it.

The internal market motivation, the self-sufficiency it would support, under economics is not a sufficient motivation. The real benefit is that of monetary policy independence of appreciation or depreciation of the currency (as is the case with the US raising rates this year), which can only apply if there is a single currency.

But managing a single currency cannot be done on multiple principles at once; they have to be done on the principles of the main participants. At the same time, giving up sovereignty for a common market or currency, for the rest of the non-major participants, is too much. And without them, there is not much of self-sufficiency.

The eurozone has to accept multiple parallel sovereign currencies to the euro, in euro-participants and reversibility of common market principles and treaties' terms. Only then can there be acceptance of diversity and enough space and time to handle economic and financial tensions, by finding and establishing the proper motivation for sovereigns to retain membership.

The current structure of hard limits to participation and the mindset around the euro and EU are making it unsustainable and will lead to a disaster. Only accepting diversity and making room for it, will make EU, eurozone, and globalization work. It will not be as "efficient" as economists anticipate, but it will be largely resilient and prosperous.
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William Wallace Aug 3, 2015

The EU makes sense only in light of late 19th and 20th century conflicts, and the need to ensure they do not happen again. The solution was felt to be to tie countries closer together economically while avoiding hyper-competitive behavior. What we got in the Greek crisis was a huge dose of reality: hyper-competitive reasoning and winner-take-all triumphed completely. Does Europe need to kill millions every other generation just to stay sane? Beginning to look like it, what with the rise of the hard-right across the continent. Merkel and her provincial home-economy mindset have dealt a crippling blow to the entire project, while other national leaders all wanted to ensure Greece was punished as a warning to the new parties on the rise on the left which question austerity. Sure enough, support for these parties has dropped in the wake of the big public spanking Greece got.
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Diego Orlandi Aug 3, 2015

it wsa created to assure stability and somehow it seems to have provoked it. seems like the key stands at taking solidarity measures seriously, both on the part of whos giving and on the part of whos receiving
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Robbie Jena Aug 2, 2015

YES, Euro can be repaired...but that needs a special global group to make it so, in the next 10 years. After that you are on your own.
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Jan Malek Aug 1, 2015

I actually think that the issue is much more fundamental than that, namely, what is the purpose of the EU in 2015? The EU, not the Euro, the latter just being a mechanism to achieve something. The fundamental issue today is that the EU lacks a purpose and an identity that the people of Euro support.
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Walter Gingery Aug 1, 2015

The sole lasting basis whereon to reconstruct the Euro is economic reality, not political wishes and magical thinking.

And the reality is that no single monetary or fiscal policy, no single currency, can possibly work equally well for a collection of economies such as Europe. Currency theorists talk about "asymmetric shocks;" what they're getting at is that every economy is different from every other and accordingly requires individually-tailored policies. Paris is not Barcelona, nor is Munich's economy the same as Athens'.

Europe could attempt to replicate the US system, but even that leaves a lot to be desired. People seem to have forgotten, for example, how the agricultural economy of the Midwest and South was devastated in the early '80's.

Farmers, taking advantage of favorable exchange rates, had borrowed to the hilt in order to invest in slaughtering facilities. They planned to feed grain grown on their own land to their cattle, slaughter them, and sell the meat abroad.

They were ruined when the Fed raised interest rates drastically and the concomitant increase in the value of the dollar made their exports unprofitable.

Federal transfer policies had no affect on cushioning the blow or reconstructing the economy. In fact, it was only when agribusiness moved in, responding to commodity price increases brought on by Chinese development, that the region regained some economic vitality.

By then, of course, it was too late, both for the American family farm and the farmers themselves.

The lesson to Europhiles is this: under a single currency, the system favors the "haves." Over time, the strong get stronger; the weak get pushed to the wall.
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jagjeet sinha Aug 1, 2015

Single currency requires a federal republic - seems to be the single message from the episode in Athens.
Weaknesses that embroiled small economics - results in the desire to pursue Size, that seems to lead to Single currency.
Collective pooling to achieve common goals, though does not have to lead to Single currency necessarily.
NATO achieved common goals - with multiple currencies.
The Anglosphere achieved Single Language - with multiple currencies.
Single Language bestows free migration and full mobility - and perhaps achieves Size that smaller European markets need.
Unless the integration that Single Language brings is abhorrent, the pursuit of Single Language may answer Europe's prayers.
Of course, if a Federal Republic can be created with a Single Currency - without a Single Language - history can still be made.
- jagjeet sinha Aug 4, 2015
  
  Given that the proclivity for small European states to belong to Size, the foremost need seems Size.
  Size that allows economics to work for the individuals who pursue their personal uplifts.
  Movement to achieve Size takes them beyond borders - frozen by centuries of language boundaries.
  America Australia Canada - The Anglosphere - enabled that need to be met.
  Europe is unable to achieve One Language - its history replete with animus over language.
  India suffers from the same language boundaries - hence the adoption of English that enables Size.
  China created Urban Size - The Mandarin MegaCities - that is its equivalent of The Anglosphere.
  For Size to be Real for all, One Language perhaps paramount, not necessarily One Currency.
  The Anglosphere operates with multiple currencies - all four are now IMF hard currencies.
  One Currency requires EITHER Investment Equalization OR Perfect Migration n Mobility - that enables Size to become Real.
  Otherwise the result is Germanys n Greeces - not Aucklands Brisbanes Chicagos which bestows Size n Mobility.
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- Zsolt Hermann Aug 3, 2015
  
  I fully agree with you.
  You cannot build a stable structure without foundations.
  Trying to establish a single currency first or even keeping common markets, common financial institutions without deeper integration is futile.
  
  Moreover we need to establish a deeper reason why we want to create unions, collaborations. The present reason of maximizing profits, expanding exclusive global competition is not a valid purpose.
  
  Although we try denying it we exist in a vast natural system we evolved from and we are still part of.
  And this natural system is fully integrated and its survival depends on balance and homeostasis that is safeguarded by the mutually complementing cooperation of its parts.
  Humanity - in order to survive and establish a more predictable, sustainable development - needs to adapt to this system by taking on similar form: a fully integrated, mutually complementing global human society.
  
  And such fundamental paradigm changes can only be initiated and performed through positive motivation. Coercion, misleading propaganda would lead to the same results as any other changes in our history: terror, crisis, revolutions and wars.
  
  So we need to find ways of helping people understand that only full integration and mutual responsibility, cooperation can offer a safer, better life and solutions to our problems.
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Tomas Kurian Jul 31, 2015

Reintroducing trade barriers to a certain degree might not be so bad idea at all.

Limits needed in international trade
http://www.genomofcapitalism.com/index.php/8-limits-needed-in-international-trade

Alternative, which we are facing now is exactly the reason of their absence. Austerity and unpayable debts are the consequence.
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Per Kurowski Jul 31, 2015

Indeed, one should not fall into the temptation of assuming that the current problems of the Eurozone have necessarily to do with the euro.

http://subprimeregulations.blogspot.com/2011/11/who-did-eurozone-in.html
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Curtis Carpenter Jul 31, 2015

If I were in a position to suggest a framework for repairing the Euro, I would advance John Rawls' theory of distributive justice. Without such a shared framework, it seems to me that the EU will continue its accelerating turn to the right, which in the end must destroy both the euro and the entire European project generally.

The problem of the euro is subsidiary, I think, to the problem of whether or not Europeans can agree on a common concept of social justice. And that concept needs to escape from the mythologies of a national meritocracy and the idea that all problems can be solved if only the right utilitarian calculus can be brought to bear.
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M M Jul 31, 2015

The main culprit is cultural. How can one accommodate the mind-set of 28+ cultures into one?
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LAXMIDHAR N BHOLA Jul 31, 2015

EU can work as a block.Unified /single currency needs a different creative approach (highly sophisticated approach) 'whereby each EU state exhibit openness while providing monetary data'-any kind of mismatch can ruin a 'state's economy' mercilessly.

But yes, if one sticks to EU policy framework, and EU supports at the time of any crisis, not bad.but again drastic measures should be taken to 'take real valuation and bring reform wherever required'. Otherwise, add on burden on EURO will not be sustainable.

Greece is a practical scenario.
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https://prosyn.org/8Mm8SK1

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