January 17, 2008
Strengthening The Eurozone - Why Not?
When I lived in Vienna in 1983, my apartment was next to a gay bar with scrubbed-out windows and an English-language name: Why Not.
I find myself asking the same question as the 10th anniversary of the euro approaches and a cosy atmosphere of self-congratulation in Brussels warms up. Why not? Why shouldn’t the European Union pat itself on the back?
After all, the euro is at present the strongest of the world’s major currencies. It underpins steady economic growth and a very high average standard of living for 318m people in 15 countries.
And if you live in Spain, I hear those purple 500-euro banknotes come in very handy.
But a new report by the Bruegel think-tank, a Brussels-based institute that specialises in economic issues, dispels any complacency about the longer-term future of Europe’s monetary union.
Here is a taste: “Almost 10 years into EMU, some of the basic tenets of participation in a currency union seem not to have permeated policymaking in some of the member-countries.
“Too often, budgetary policies combine a disregard for long-term constraints with perversely pro-cyclical short-run behaviour; economic reforms that have the potential to improve the functioning of the euro area are postponed; and contradictory statements undermine the credibility of the common exchange rate policy.”
Bruegel, which was set up three years, is partly funded by EU member-states. It has the ear of influential European policymakers. So its recommendations make interesting reading, too.
To strengthen the eurozone’s governance and improve its competitiveness, Bruegel makes several proposals. One is that the European Central Bank should revise its monetary policy strategy by adopting a clear inflation target – 2 per cent a year – and dropping its emphasis on money supply growth as an indicator of future inflationary trends.
A second, more significant proposal is that the eurogroup – the 15-member group of eurozone finance ministers, currently headed by Jean-Claude Juncker of Luxembourg – should play a much more prominent role in policymaking for the area.
Bruegel wants the eurogroup’s president to supervise home-grown fiscal reforms in the 15 countries sharing the euro and, if necessary, devise common fiscal guidelines for the eurozone.
Bruegel also wants the eurogroup to consider issuing formal recommendations to any country whose failure to introduce structural reforms represents a threat to the sustainability of monetary union.
Finally, Bruegel wants to enhance the external representation of the eurozone by creating a single euro chair at the International Monetary Fund, and by making the eurogroup’s president the person with whom foreign governments talk about exchange rate issues.
Eurozone heads of state and government ought to be able to hold their own summits, just as the EU’s 27 national leaders do now, according to Bruegel.
These suggestions would shape an identity and role for the eurozone that would be distinctly different from that of the larger EU of which it is part. Non-euro countries may not like them. However, they are intelligent ideas that strike me as the obvious way forward for the eurozone under present circumstances.
The original dream of Helmut Kohl and other creators of the euro was a fully fledged European political and monetary union. That now seems beyond reach. But the system Europe operates at the moment is unsatisfactory in many respects.
In particular, the euro – contrary to expectations – has not automatically accelerated the pace of economic reforms. In Italy, for example, reforms have seemed less urgent because the euro has protected the country from the sort of economic crises it once used to experience regularly.
The Bruegel report makes this and many other trenchant points.
And now for the question I know you’re all dying to ask. Did I go into Why Not? If so, what happened?
All I can say is: to you, Vienna may mean Sachertorte and Wittgenstein. To me, it’s a whole different world out there.
I think that in the last 10 years the FED / US monetary policies have been a more dramatic “event” than the establishment of the EUR itself. If I were Breugel I would not recommend the ECB “a revision of its monetary policy” (read American style) and it is very unfortunate to make such recommendations just now that the consequences of the FED policies (and mistakes) over the last 10 years finally become apparent. Also, looking at monetary growth in the EUR zone over the last 10 years, I do not think that the ECB has stuck to its monetary growth targets, one could rather say that the ECB was “forced” to follow the FED policies of monetary expansion or face serious economic contraction in the EUR zone. Anyway, as the US role model will soon be in shatters, fewer people will refer to it and take it as an example.
Posted by: Philip | January 19th, 2008 at 4:02 am | Report this commentVienna may be “a different world” but, if I’m not mistaken, Austria is in the eurozone (and in the Schengen area too…)
Posted by: pampero | January 19th, 2008 at 9:54 am | Report this commentThe answer is obvious: strenghten the EUROZONE. How? The Eurogroup is just a first step but coordination of fiscal stimulous throughout the Eurozone and public spending mean a common statement from the Eurogroup should come at the first time as the common statement from the Executive Board of the E.C.B.
So Eurogroup should become an institution with an Executive Board guiding a common Government answer coordinated with the Executive Board of the European Central Bank.
When the Eurogroup´s Executive Board says that “Eurozone Governments have agreed on an economic package of Euro 80 billion….plus fiscal stimulous amounting to Euro 100 billion” Markets receive a clear message about what the EUROZONE is doing, a message as much important as the one sent by the Executive Board of the E.C.B. and much more important than the 15 separated messages from 15 Ministers of Economy from 15 different countries in different days.
A common note from the Institional Board of Eurogroup wich can advise markets about the true impact of the fiscal stimulous and additional public spending. The same day and at the same hour.
That will be complementary from the note from the Executive Board of the E.C.B.
Posted by: Enrique Costas Mira | January 22nd, 2008 at 2:35 am | Report this commentI mean “a common statement from the Insitutional Board of Eurogroup should come at the SAME time as a common statement from the Executive Board of the European Central Bank”
Posted by: Enrique Costas Mira | January 22nd, 2008 at 2:37 am | Report this commentAs Allan Sloane and many others (W.P.,Fortune) have pointed out, it was Greenspan and later his friend Bernanke the ones who repeatedly told the Financial Wall Street powerhouses to load up on derivatives and sub-primes,to go for them with no mercy, and they loaded up, and now look at the mess,so for this “Bruegel” to say: Hey ! just do what Wall Street and Washington D.C. politicians have done, give all the power to a few political appointees and advisers ( which will end up being neocons or neocon directed,of course ! ) and let’s hope they don’t burn you up ! , it’s absurd ! , who is behind and puts the money behind this Bruegel ?
Europe’s got to build public transportation with roads,trains ,light rails and electric bicycle paths from South to North and East to West, get the employment rate to 99.9 % and training while building, and in fact ,this is what USA candidate Huckabee recommends, he is the only republican with real practical solutions ( Edwards and Paul are the ones in the Democrats) ….. Europe builds rails ,light rails, roads and public transportation links and we don’t need so much “expert neocon grabbers” , this build-up and with solar homes ( every home with a solar panel and turbines) and we are set to go ! as well as a concerted policy to mine coal capturing carbon dioxide,because Poland has 12 billion tons,Germany 5 b., Czech 5 b., Greece 3.5 b., Hungary and Bulgary , 3 and 2 b. tons respectively, so they need to work to create a system to exchange engineers, workers,parts,MACHINERY , methods,markets, everything, and while the South farms solar panels and they all stick wind and water turbines everywhere, and starting to train the kids in schools into hybrid ,batteries,HYDROGEN FUEL- CELLS , FUSION AND GEOTHERMAL,that’s where Europe must hit hard,all at once and with lots of love and passion.
Posted by: blogger | January 25th, 2008 at 8:53 pm | Report this commentThe SEPA payment system in Euros have been approved and the UK is not part of the Eurozone. Soon Trade among Eurozone´s 320 million people will enjoy the SEPA payment system and that will mean another advantage to Eurozone companies plus the one we already have with access to the European Central Bank´s credits….
The UK has fallen from first to fourth importer and exporter in traditional countries of its influence like Portugal…something that has been great for Spain (where also British imports and exports have been falling since the Euro)
So time is running out and the UK is still OUT of the Eurozone, OUT of the Executive Board of the E.C.B. which is constantly adopting resolutions that affect the U.K.
It is time for the British Government and the British Opposition (tories) to tell the TRUTH to the British People instead of treating the British citizens like a bunch of IDIOTS.
Tell the truth.
Posted by: Enrique Costas Mira | January 29th, 2008 at 8:25 am | Report this commentWhat´s the cause of recent British worries about Spain´s economy? The UK itself.
Spain had a 2% Budget Surplus in 2007 while the UK had a 3% Budget Deficit.
Then, the Northern Rock crisis erupted and so the Subprime crisis that comes directly from the U.S. and affects first the British market which is outside of the Eurozone.
As a result, the Bank of England has to cut interest rates, but it can´t as far as the European Central Bank (E.C.B.) doesn´t cut interest rates too.
As German growth is still strong and confidence high…the British media has to hit again and again the much smaller Spanish market telling investors “hey, Spain is essential in the Eurozone so if Spain´s growth is falling, ECB has to cut interest rates…”
A similar propaganda, but for different reasons, affected Argentina and Venezuela since 2003 with The Economist advising about low growth in those nations, again and again…and again and again the reality was that Argentina and Venezuela were the highes growing economies in LatinAmerica, with an average GDP growth of 8%, almost as much as China or India and twice more than Mexico´s NAFTA.
Just political propaganda telling European and American investors to leave and trying to downgrade any statistics which talked about the confidence of Argentinian or Venezuelan consumers, about high growth, about the satisfaction (Latinbarometro) in their democratic institutions….
The propaganda against Argentina and Venezuela from British media has been really disgusting.
Now, the propaganda against Spain is not political but completely “British” as it affects essentially the interests of the UK market, economy and growth with its increasing twin deficit and without the Eurozone umbrella Spain enjoys.
Eurozone is attracting capital as a World HUB against whom the UK cannot compete. Britain just CANNOT COMPETE FOR CAPITAL against the Eurozone now that it needs it the most with the credit crunch. Capital is an increasingly scarce commodity and keeping interest rates high the E.C.B. is driving World Capital to the EUROZONE leaving the UK behind without tools.
So the UK is fighting as crazy (even using at first the stupid Sarkozy) for the ECB to cut interest rates so the UK can breathe.
At the beginning of the present recessionary period the UK had already a 3% Budget Deficit!!! so they don´t have other alternative but cutting interest rates…but, hmm, if they cut interest rates capital will leave and find a much comfortable and profitable enviroment in the much larger EUROZONE which doesn´t have a Twin Defitic like the UK.
So the British media has to attack Spain and invite investors to leave as a mean to attack the rest of the EUROZONE forcing an interest rate cut. So Spain´s Budget surplus turns to be less important than Britain´s Budget defict. So Spain´s economy is essential to the Eurozone. So Spain is the leg that should be cut until the ECB cuts interests rates…
Posted by: Enrique Costas Mira | February 8th, 2008 at 9:42 pm | Report this commentEurope has millions of immigrant low skill workers that need training in the new technologies, solar,turbines,hydrogen,hybrid,ethanol,
Posted by: blogger | February 11th, 2008 at 8:35 pm | Report this commentcoal-to-gas-to-liquid capturing carbon monoxide,organic farming and Light-Rails everywhere, if these minorities don’t get training and the economy slows down, they will go “Ghetto” and violence is next,GET THEM INTEGRATED , so smart leaders will train all the kids and minorities in smart technologies,and with the “GALILEO” up, it’s a new world of applications between gadgets on the ground and GPS grids:banking,trading,real estate,friendships and meetings,video and 3D ,games,love and money ,MEDIA and Commerce and fun, let’s hope the new European generations and all the minorities GET THE TOOLS TO DEVELOP ALL THESE NEW APPLICATIONS BETWEEN “GALILEO” AND MOBILE-PHONE-DEVICES , the new office and home on the go.
Iceland will join the EUROZONE this year…WELCOME TO ICELAND.
Posted by: Enrique | March 26th, 2008 at 6:38 pm | Report this comment