The European Commission takes a lot of flak for being full of highly paid, unaccountable elitists brimming with a Euro-zeal that finds no match in the European population at large. So it is a pleasure to say that the Commission’s report on 10 years of European monetary union is a model of incisive analysis and sensible recommendations.
For sure, as Jean Pisani-Ferry and André Sapir wrote in the FT, the report has its fair share of “hype”, trumpeting the euro as a “resounding success”, etc, etc. But why not? Part of the Commission’s role is to be a cheerleader.
Sometimes this relentlessly upbeat tone leads to unfortunate results. The Commission’s regular economic forecasts, for example, are invariably too optimistic and produced a bit later than those of other reputable forecasters. In 10 years of following the eurozone economy, I have yet to meet one private sector economist who awaits the Commission’s predictions with bated breath.
But the report on monetary union is a different matter. It is pretty blunt about the problem of divergence – in terms of productivity and competitiveness – between the best-performing and worst-performing eurozone economies. It recognises that some countries have had a free ride inside the eurozone, avoiding painful reforms because they have the shelter of a fixed exchange rate and common monetary policy.
It doesn’t name these countries, of course – the Commission is too polite for that. But we all know who they’re talking about – Greece and Italy, principally, with a dash of Portugal, Slovenia and Spain thrown in.
It is not the Commission’s role to speculate in public about whether the reluctance of the eurozone’s laggards to reform themselves will one day lead to the disintegration of the euro area as we know it. But one friend of mine at the Commission told me the other day that the laggards “have about 10 to 15 years” before the price for their lack of reforms becomes too expensive to pay.
In other words, one or two countries might just drop out of the eurozone.
I’m not so sure about that. It strikes me that the political commitment of the eurozone countries to stick together is extremely strong. Would Germany and the Netherlands really throw Italy and Greece to the wolves (the cost of abandoning the eurozone would be astronomically high)?
Yes, you do hear a few Germans and Dutch fume privately about Mediterranean economic incompetence, recklessness and corruption. But in the end the northerners are pussycats.
More likely, a deal will be struck under which the strong and less strong find some middle position that will keep the eurozone intact but make it less internationally competitive. That should please the rest of the world, if no one else.
Across the globe: Gideon Rachman and his FT colleagues debate international affairs on