Opinions - 20.07.2015 - 00:00 

Lessons from the debt crisis

The tug of war about Greece has laid bare Europe’s weak points, writes economist Markus A. Will: a currency union with acute design faults, fundamental differences of opinion between northern and southern Europeans – and the EU’s lack of democratic legitimation.<br/>
Source: HSG Newsroom


20 July 2015. Someone deserves thanks to whom no one in the European Union and the Eurozone is likely to want to really say thank you these days: Alexis Tsipras! The Greek showed the EU and the euro what the real problems are: firstly, a currency union with acute design faults in the Eurozone; secondly, fundamental differences of opinion between northern and southern Europeans; and thirdly, the European Union’s lack of democratic legitimation. If this is not worked on after the Greek spectacle, it will end in a veritable tragedy for Europe.

Firstly, about Greece itself: the result is not a solution. The country will continue to cause problems because it is unwilling to accept the rules of the Eurozone. You may like these rules or you may not, but they are accepted by all the other 18 countries (as long as they are not adversely affected, that is). The Greeks must understand that they incurred the debts themselves, and the others must acknowledge their share of the blame because they gave the money without any strings attached. The debts themselves are “petty cash” in the European context.

Then, the design faults of the currency union: we need not lose any time debating that it is imperative for a currency union to have a fiscal union as a base or as a twin. Maastricht and the Fiscal Pact are no enough by a long chalk. Those who want the euro, then, will have to talk about European fiscal budget as quickly as possible. In this context, it will be less the budget that is the problem but where the money will be used and who will be able to dispose of it. That cannot be done by the national governments any longer – i.e. neither by Germany nor by France, which brings us to the second point.

Different fiscal philosophies

The Greek drama has made obvious what had already been known in principle: that the fiscal philosophies between Germany (for the North) and France (for the South) are very different indeed. Here, disciplined saving and work; there, a less disciplined treatment of household budgets and the work ethic. Both may be right in their way, but the crucial factor is that a European fiscal philosophy must reconcile the two. This, too, will no longer be a case for national treasurers, but one for a European minister of finance.

This, incidentally, is what former ECB President Trichet called for in his acceptance speech on the occasion of being awarded the 2011 Charlemagne Prize. Which brings us to the third point: the EU’s lack of democratic legitimation. Those who want the euro will have to make decisions concerning stronger political integration, for otherwise, budget authority – parliament’s most exclusive right – cannot be assigned elsewhere. The best thing would be a confederation of European states – with strong nation states but with a clearly defined and legitimised European competence.

Lessons from the debt crisis

This will be the salient point: will France and Germany and the others in the North and South be willing to surrender this competence? Will a French President be prepared to have a European minister of finance interfere with his budget? Will a German Chancellor stand by a compromise which has not been drawn up by a German hand alone? These are the questions which Alexis Tsipras asked Europe, with a fair amount of misbehaviour in the process. But that is a different national level of lesser importance.

The heads of state and government are now going on a few days’ well-earned leave in the summer, and perhaps they should use this peace and quiet to think about what lessons must be learned from the Greek disaster. Hollande and Merkel, in particular, should do so, for in two years, they will both be up for re-election. Whether Alexis Tsipras will still be in office by then is certainly uncertain. But that Greece will be a controlling issue of domestic European policy whatever happens may be regarded as certain in view of the current solution.

PS: A spot of honesty, incidentally, would not come amiss, either. Payments to Greece should be labelled as what they are: transfers rather than credit lines. In this context, the idea of a solidarity surcharge for Greece that was somewhat clumsily formulated by Euro Sinn’s successor Clemens Fuest was not all that silly, after all. The only thing that’s needed now is that somebody in the Aegean or thereabouts starts raving about pastures green.

Bild: Photocase / Savoulidis