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On 25-26 March the European Council took the very significant decision to guarantee that eurozone countries will, in co-operation with the IMF, come to the aid of Greece in case it faces difficulties in servicing its debt in the months ahead. This is an important development in a crisis that has exposed not just the need for further political as well as fiscal integration but also that eurosceptics’ across Europe are desperate to exploit any opportunity they get to attack the project of european integration. Some commentators have suggested that the best option Greece and the eurozone have is to part ways, an argument founded more on the hope that such a move will trigger further exodus of eurozone members and the eventual collapse of the single currency than on sound macroeconomic policy. Their thesis is, to put it mildly, short-sighted, offering a ‘solution’ that does not solve anything. The Greeks say that when your head hurts you don’t chop it off. I am afraid that those commentators that argue in favour of Greece giving up the euro as a way out of its predicament are suggesting suicide rather than treatment. The current state of Greek finances has little to do with membership of the single currency. The emergence of imbalances between Greece and its eurozone partners is mostly due to the poor management of the Greek economy over the past 10 years, a big mistake made worse by the fact that one of these partners is also one of the most efficient and successful economies in the world. But such imbalances occur in all currency unions and there are regions in Germany, Italy and the UK that have in the not so distant past suffered from a similar loss of competitiveness. To suggest that any of those regions exited the currency union they belonged to would be preposterous and the same applies to Greece. Living the eurozone will allow Greece to take ‘advantage’ of the devalued drachma to improve its competitiveness, their argument goes. But devaluing one’s currency is not all that these commentators make it to be, we only have to look at how British competiveness has actually worsened despite a 20% devaluation of the pound in the past 2 years. There is little evidence to suggest that a massively devalued drachma will in fact do Greece any good.

The real solution is to enhance common economic governance in the eurozone by pushing forward with more political and fiscal union to ensure that such imbalances do not occur or when they do they are managed appropriately. The single currency has been an unprecedented success, shielding its members (Greece included) from the worst effects of the financial crisis. What we need to do now is equip it with the institutional structures and the mechanisms necessary to weather the storms that undeniably lay ahead. The debate has started and many of the ideas on the table are good, even if they require a treaty change. The project of economic and monetary integration is a work in progress and it was always understood that further political integration was needed to guarantee its continuing success. The current debt crisis in Greece and the effect it has on the euro serve as a reminder that the time is right to move ahead with the next stage of EMU.

Europe has in the past emerged stronger when faced with challenges that occurred under compromising circumstances. There is little doubt that the process of European integration will once again come out of this crisis strengthened.


Petros Fassoulas

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  1. “This is an important development in a crisis that has exposed not just the need for further political as well as fiscal integration but also that eurosceptics’ across Europe are desperate to exploit any opportunity they get to attack the project of european integration.”

    You surely read this stuff before you post it, don’t you? I mean, you must be able to see how absurd that sentence is. A crisis in the process that you advocate is proof that said process needs to be pursued more vigorously, and shame on your opponents for thinking that the crisis casts even more doubt on that process.

    “But such imbalances occur in all currency unions and there are regions in Germany, Italy and the UK that have in the not so distant past suffered from a similar loss of competitiveness. To suggest that any of those regions exited the currency union they belonged to would be preposterous…”

    Any currency area bigger than a household and smaller than the world has characteristics of both a currency union and an independent currency. Every currency area contains areas of varying prosperity and competitiveness.

    Therefore, tax-payers’ money flows across any random line you draw on the map, whether between Mississippi and California, between towns that begin with a ‘C’ and towns that begin with a ‘D’, or between the odd- and even-numbered houses in your street. To the extent that that can happen without (much) fuss or resentment, the two sides are functioning as a nation-state. To the extent that it can’t, they aren’t. Germany and Greece do not share that degree of identity, and for one to carry the other as a burden will cause strains and resentment in both of them.

    Your enthusiasm in pursuit of your deranged dream of a super-state will, in time, serve the ends of those of us who value independence and democracy. It’s a shame that there will be so much suffering along the way.

  2. Thanks for your response Giles. We obviously see things differently, you see the crisis as an excuse to advocate a position you have already set your heart on. I see it as an opportunity to improve something that represents the most successful, voluntary, supranational project Europe has seen. If every undertaking was abandoned, the moment something went wrong, instead of improved humanity would have achieved very little indeed. It’s a very simple concept. Here is a monetary union that has been around for JUST 10 years, one that I am happy to admit lacks some of the necessary mechanisms that will underpin its long term success but has nevertheless delivered great results, especially in the last 2-3 years. Shall we just throw it in the garbage bin of history or build on its undeniable successes, learn from its failures and continue strengthening the foundations of a construction that has already served us pretty well? George Soros said last weekend that a common currency is a good idea for a common market. He is just one of many economists, businessmen and world leaders that endorsed the single currency over the last decade, and continue to do so despite the Greek debt crisis, not because they are pro-Eu but because that the project itself is worth it. The euro makes total economic sense, all we need to do is keep moving to the right direction. The 25 March European Council decision and Sunday’s announcement of the technical details of the eurozone assistance for Greece is a step to that direction and a solid sign of the kind of political solidarity that the eurozone needs.

    As for your other point, I am sure you agree that there is plenty of resentment between the Scottish and the English, the Northern and Southern Italians, the Catalonians and Castilians but the UK, Italy, Spain have continued making fiscal transfers for centuries, without sharing the necessary degree of common identity you refer to. There is always a sense of resentment between the rich and poor parts of a currency union and that is no reason for a break up. It is a very good reason, though, to pursue the necessary policies which will make sure that the imbalances that lead to divergence of income are addressed, not out of charity but because of mutual interest (a better off Greece can buy more German products the way a wealthy Sicily can buy more Fiats).

    By the way, your understanding of the notion of ‘independence’ and ‘democracy’ has no application in today’s reality. Do you really think the UK is independent? Or is 650 MPs (or a small Cabinet of Ministers) making decisions on behalf of 60 million Brits real democracy? Think about it Giles, there are no ‘independent’ nations in this world; we all depend on each other and we actually depend on some states more than others. And the last real democracy was probably in ancient Athens. I am happy to discuss with you how to make our inter-dependence, in the context of the EU and the wider world, work better for all of us and how our representative democracy in the European Union can represent the interests of all European citizens more efficiently. But accusing the EU of violating your abstract notions of ‘independence’ and ‘democracy’ and rejecting the EU project out of hand is just counter-productive.

    Last but not least, I don’t have deranged dreams of a super-state. I do believe though that we can pursue our common interests better together. I don’t share a vision of the world where ‘independent’ nation-states pursue their individual interests in constant competition with other nation-states, imposing their will (usually with force) over the will of others, the kind of arrangement that led to centuries of wars between European nations. That is not my vision of the world and I will continue advocating further European integration as the best option we have if we are to protect our common interests effectively.
    Please feel free to contact me at fassoulas7@hotmail.com if you would like to continue debating all these very interesting issues.

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