Euro or no Euro

Interviewed on the topic of his new book, Joseph Stiglitz argues that the Euro was flawed from the start, because it took away from states two key adjustment mechanisms: exchange rate and interest rate, without putting something else in place. Instead of acknowledging this, the cause of the crisis was attributed to debt and this produced a “cure” that strengthened the disease. This underlying problem of the Euro has two solutions: either more Europe or less Europe. More Europe requires either to set up mechanisms to increase prices in surplus countries or decrease it in deficit countries. Since downward price movements are more difficult and dangerous than upward price movements, a tax on surplus countries should be imposed and the redistribution should go to deficit countries. However, since this is politically impossible, the only conclusion is to have less Europe, Stiglitz argues, and break up from the Euro while leaving the common market intact.  directly responds to Stiglitz by arguing that the Euro was an attempt to break away from neo-liberal monetary dumping, which along with current tax dumping and social dumping exacerbates tensions among states. Due to this, it is very naïve to believe that the European Union could survive the end of the Euro in the long term, even if it were to survive the immediate shock. Moreover, Stiglitz is basing his analysis on Mundell’s theory of “optimum currency areas”, but not even the US at their beginning satisfied all its criteria, and Mundell himself was in favour of the Euro. Finally, from his perspective, Stiglitz underestimates the importance of changes which are already made: since November 2014, a banking union is in place, even if it remains untested; the “Six Packs” of 2011 rules to limit trade surpluses, although the Commission lacked the courage to implement it against Germany; finally, Eurobonds are de facto already there, even if the name remains taboo given the massive acquisition of national debts on part of the ECB. In order to stabilize Europe through a fiscal union, Maria Demertzsis and Guntram B. Wolff put forward a policy paper suggesting three progressive steps for strengthening the fiscal framework at the euro-area level. They argue for less interference in national fiscal policymaking thanks to a no-bailout clause, increased risk sharing and different degrees of provision of euro-area-wide public goods and fiscal stabilisation.

After Brexit

Benjamin Fox argues that there is still no strategy on how to address Brexit, and we are stuck with nothing deeper than the “Brexit means brexit” platitude. The editorial board of the economist laments the loss of prestige and international presence of the UK, testified by its absence at the Bratislava meeting. Nick Cohen adds that Brexiters are to be deluded if they expect the EU to seek appeasement. And indeed it seems that difficult issues lie on the road to the negotiations, as it is possible to read in Nick Clegg’s paper. Contrary to this idea, Garvan Walshe argues that negotiations are more like sex than football. They are not competitions between winners and losers, but cooperative agreements in which both parties get what they want and can’t achieve on their own. Roger Bootle observes that there is no reason why Britain can’t be like any other countries in the world, trading with the EU from the outside. Membership to the EU single market, trade tariffs, financial pass-porting rights are important, but not overwhelmingly so and can be easily outweighed by other factors, which the UK is free to channel outside the EU. Peter Kellner suggests that, though the main explicit reason for Brexit seems immigration, things are more complicated. Those who can be called “rejectionist politicians” are channelling the popular perception (and maybe the reality) that the rich are gaining at the expense of the poor—and that governments are simultaneously reinforcing these trends rather than offsetting them. In this sense, the rejection of free movement is to be seen as a rejection of one aspect of this general trend.

The future of the Left after Brexit

Yanis Varoufakis discusses three options for Europe’s Left after Brexit in order to solve the democratic deficit of the EU and its political crisis. First, Euro-reformism, which defends the idea of more democracy and more Europe. This option, usually defended by social democrats, is fallacious because EU institutions are incapable of being reformed in the right direction by intergovernmental treaty change. Second, Lexit, which amounts to the idea of leaving the EU through referenda. This path is also problematic insofar as it may be unfeasible and risky by incentivizing the resurgence of a dangerous nationalistic far-right movement. A third and better option, endorsed by Varoufakis’s DiEM25 movement, is a pan-European movement of civil and governmental disobedience apt to bring on a surge of democratic opposition to the way European elites do business at the local, national and supranational levels.

This Ideas Monitor is by Giulia Bistagnino and Carlo Burelli

Photo Credits CC: Matt Gibson

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