Tag: Euro

Europe Needs to Make Some Hard Choices in 2020

Image courtesy of Sara Kurfeß/Unsplash

This article was originally published in the ASPI’s The Strategist on 21 January 2020.

For the first time since 1957, Europe finds itself in a situation where three major powers—the United States, China and Russia—have an interest in weakening it. They may squeeze the European Union in very different ways, but they share an essential hostility to its governance model.

The European model, after all, is based on the principle of shared sovereignty among states in crucial areas such as market standards and trade. That liberal idea is antithetical to the American, Chinese and Russian view of sovereignty, which places the prerogative of states above global rules and norms of behaviour. Shared sovereignty is possible only among liberal states; unalloyed sovereignty is the preserve of populists and authoritarians.

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Germany, the Euro and the Euro Crisis

Merkel and Barroso
Merkel and Barroso. Photo: European People’s Party/flickr.

In a recent article, Alexander Reisenbichler and Kimberly J. Morgen argue that ‘Germany won the Euro Crisis’[i]. I doubt that any country can be the winner of a major economic crisis, especially if we are talking about an exporting nation. Of course Germany does benefit from some economic developments of the current Euro Crisis–in particular the low interest rates for German government bonds which reduce public spendings for interets payments on public debt. However, as an exporting nation, Germany depends on stable economic conditions in Europe. Thus a sluggish economic situation in several European economies has a negative impact on German exports and thereby on Germany’s real domestic product (GDP) and labour market. Hence I would argue that Germany benefits from the Euro, not from the Euro Crisis.

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Europe’s December Surprise?

A pile of Euro notes. Photo: Images Money/Flickr
A pile of Euro notes. Photo: Images of Money/Flickr (by www.TaxFix.co.uk).

Over the past year, Europe has enjoyed calm financial markets. At the core of the market’s comfort were two assumptions about policy. First, that the European governments would do just enough to keep the process of European integration moving forward. Second, that the ECB would, in the words of Mario Draghi, do “whatever it takes” to save the euro. The centerpiece of the ECB’s subsequent efforts was expanded liquidity (through long-term repurchase operations and easier collateral requirements for banks to access ECB liquidity) and a commitment to purchase government bonds to support countries return to market (the OMT program). Even many pessimists who fear that Europe is trapped on a unsustainable, low-growth trajectory remain optimistic that Europe will do what it takes to navigate the near term risks. It may be time to question that optimism.

As many have noted, there is an increasing sense of adjustment fatigue in Europe, reflected in pressure on governments and the rise of anti-austerity, anti-establishment parties across the Eurozone. In rhetorical terms, Europe has responded, and fiscal policy looks likely to be broadly neutral in the year ahead. However, an overall fiscal relaxation that is needed in the euro area as a whole looks unlikely, as peripheral countries can’t afford much additional spending, while the core countries that can spend more seem disinclined to.

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The Triumph of Politics in Europe

A European flag and a Greek flag
Will Europe's politicians save the Euro? Photo: YoungJ523/flickr

MADRID – Economics, particularly economic theories, always yield in the end to political imperatives. That is why Europe’s fast-changing political landscape, reshaped by electoral insurrections in France and Greece against German-backed fiscal austerity, is bound to affect Europe’s economic policies as well.

Such an imperative has been at work throughout Europe’s postwar history. Indeed, Europe’s shift from the modest customs union of the European Economic Community to the single market and common currency of today’s European Monetary Union was itself a fundamentally political move, one with strategic implications, of course. France wanted to tame German power by harnessing it to the European project, and Germany was prepared to sacrifice the Deutsche Mark for the sake of France’s acceptance of a united Germany, the nightmare of Europe’s recent past.

An economically robust Germany is, without doubt, vital to the European project, if only because history has shown how dangerous an unhappy Germany can be. Indeed, it was thanks to the euro – and the captive European market that goes with it – that Germany today is the world’s second-leading exporter (China surpassed it in 2009).

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Business and Finance

Niall Ferguson: Can Europe Fail and Is America Next?

Niall Ferguson
Niall Ferguson. Image: The Aspen Institute//flickr

Probably no questions are more relevant today than those Niall Ferguson considered in his lecture on Monday (30 January 2012), hosted by the Swiss Institute of International Studies, at the University of Zurich.  Fresh from the World Economic Forum (WEF) in Davos, the answers he gave were far from comforting:  Can Europe collapse? Of course it can.  Is America next?  Maybe.

But more importantly, Ferguson told us, we should have seen this coming. Ten years ago, in an article he co-authored in Foreign Affairs, he predicted that Europe’s newly minted Economic and Monetary Union (EMU) was doomed without a fiscal union to accompany it.  Indeed, Ferguson was one of the original ‘Cassandras’ of the project, warning as early as 2000 that “monetary unions can be undone by fiscal imbalances.”  This, he told us, was one of the lessons of history.  The closest precedent of the EMU, after all, was the obscure Latin Monetary Union, comprising France, Belgium, Switzerland, Italy, and Greece between 1865 and 1927.  Why is it so obscure?  Because it was destroyed by “asymmetric fiscal problems” – by the divergence between French fiscal probity, on the one hand, and Italian and Greek fiscal laxity on the other.

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