Euro: pride of prejudice?
Since the euro had become the official currency, the enlargement of the Eurozone took place fourfold. From 2007, Poland was looking with a jealousy when Slovenian tolar, Cypriot pound, Maltese lira, Slovak koruna and Estonian kroon were replaced by euro. However, nowadays, euro is more cause for “prejudice” than “pride”.
It seems that European leaders have no idea how to solve the crisis in the Eurozone, or they are afraid to take responsibility for the future of common currency. Herman van Rompuy in his last report concerning European Monetary Union makes following proposals: establishing an integrated financial and budgetary framework, economic policy, democratic legitimacy and accountability of decision- making within EMU. Nevertheless, the Eurozone needs a concrete move instead of political promises. The subsequent bailout of 120 mld euro for stimulating the growth within the Euroland does not resolve a problem. Moreover, the crisis starts touching not only the peripheral countries, but also these which are located in the heart of the European Union (like Italy or France).
The core-sins of EMU
The media repeat a mantra about division into thrifty North and spendthrift South; therefore many people are confused about who is really responsible for euro crisis. To explain current situation in Euroland we have to go back to 1992. The Treaty of Maastricht introduced the convergence criteria regarding inflation rate, government deficit, government debt and long-term interest rates. It meant that member states of EMU lost their influence on establishing a height of interest rate. Due to internal differentiation within the EU, the common interest rates bring about different results. For example, while the interest rates were the same, Greeks were encouraged to live on credit, but Germans were prompted towards saving money. The Eurozone has never fulfilled criteria for a monetary union. In addition, the countries conduct one monetary policy but 17 completely different fiscal policies, and sooner or later, each monetary union should be linked with a budgetary and political union. The Treaty of Maastricht created criteria of accession to EMU, but it did not provide an institutional mechanism to execute these provisions of treaty and punish countries which breach of rules. To sum up, a correct functioning of EMU depends on an effective coordination of fiscal policies in 17 countries. This goal will be achieved only by advanced political cooperation within the Eurozone.
In the EU, the project of the political union has a long history. The first attempt appeared 1952, and it was very quickly blocked by France whose leaderships could not imagine cooperation in this area at supranational level. The next effort was made in the end of ’60s, and it led to establishment of the European Political Cooperation in 1970. After Treaty of Maastricht, the EPC became the “second pillar” with its intergovernmental character in a decision-making process. Despite of many changes introduced by Lisboan Treaty in area of a political cooperation, it is still difficult to achieve a consensus in economic and political matters, so real political union was not established until today.
The head of states and governments have to realize that the economy expects the Summit of European Council to undertake concrete measures which will bring more stability in far-reaching perspective to the Eurozone. They cannot count on that crisis will solve by itself. The Eurozone needs solutions like a banking union to restore confidence in banks, a fiscal union reminiscent a federal budget and political union with central authorities which will be responsible for an effective decision-making process and will protect against law infringements by member states of EMU.
One of the proposals to reanimate the Eurozone is the Eurobonds (meaning sharing public debt and emission new bonds). However, this idea is strongly rejected by Angela Merkel and is against article 125 of Treaty on the functioning of the European Union which stipulates:
“A Member State shall not be liable for or assume the commitments of central governments, regional, local or other public authorities, other bodies governed by public law, or public undertakings of another Member State, without prejudice to mutual financial guarantees for the joint execution of a specific project”.
The other option advocated by Francois Hollande is to increase the expenditures to stimulate economy. Will Berlin and Paris finally find a common ground on this issue? The third option could be a return to national currencies. However, those who try to propagate this solution forgot about its cost. On one hand, debts of Greece, Portugal or Ireland would be dominated in euro, so after devaluation obligations would increase. European politicians have to know that governments do not go bankrupt like companies. It cannot seize a country or its asses. On the other hand, mark, shilling or guilder would be rapidly appreciated, so as a result it would make the export from Germany, Austria and Netherlands completely non-viable. As we can see, a constructive and quick solution is in interest of all member states of Eurozone…
TOWARDS A GENUINE ECONOMIC AND MONETARY UNION – Report by President of the European Council Herman Van Rompuy, 26/6/2012, available on http://www.european-council.europa.eu
Treaty on the functioning of the European Union
Protocol (no 13) on the convergence criteria