March 29, 2010
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.
Author : European Movement UK