from Dirk Ehnts, Econoblog101
The French president’s speech in Athens last September did not contain concrete proposals, but it did contain this (my highlighting):
But the other choice, which I am going to propose to you this evening, it to rebuild Europe, because our generation can choose to rebuild Europe today, now, by radically criticizing it because we would be wrong to leave the criticizing solely to those who hate Europe! Those who love Europe should be able to criticize Europe to rebuild it, correct it, improve it, rebuild it!
But with this same energy, same desire, not figures, not technicalities, not bureaucracy, no! We must bring back the primary force of hope which led certain individuals in Europe, despite the divisions of the post-war period, to desire a bigger story, more beautiful than themselves.
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This might sound inconspicuous, but given the record of European institutions of killing the messenger with the bad news it is potentially game-changing. All those US economists that said the euro would not work, all those UK economists that said the same – all too often criticism that has been wiped out or ignored because it was politically convenient. It is time now to openly discuss what is wrong and why. After all, prescient economists have warned long ago that the euro would not work. Here is Wynne Godley in 1992 (!):
What happens if a whole country – a potential ‘region’ in a fully integrated community – suffers a structural setback? So long as it is a sovereign state, it can devalue its currency. It can then trade successfully at full employment provided its people accept the necessary cut in their real incomes. With an economic and monetary union, this recourse is obviously barred, and its prospect is grave indeed unless federal budgeting arrangements are made which fulfil a redistributive role. As was clearly recognised in the MacDougall Report which was published in 1977, there has to be a quid pro quo for giving up the devaluation option in the form of fiscal redistribution. Some writers (such as Samuel Brittan and Sir Douglas Hague) have seriously suggested that EMU, by abolishing the balance of payments problem in its present form, would indeed abolish the problem, where it exists, of persistent failure to compete successfully in world markets. But as Professor Martin Feldstein pointed out in a major article in the Economist (13 June), this argument is very dangerously mistaken. If a country or region has no power to devalue, and if it is not the beneficiary of a system of fiscal equalisation, then there is nothing to stop it suffering a process of cumulative and terminal decline leading, in the end, to emigration as the only alternative to poverty or starvation. I sympathise with the position of those (like Margaret Thatcher) who, faced with the loss of sovereignty, wish to get off the EMU train altogether. I also sympathise with those who seek integration under the jurisdiction of some kind of federal constitution with a federal budget very much larger than that of the Community budget. What I find totally baffling is the position of those who are aiming for economic and monetary union without the creation of new political institutions (apart from a new central bank), and who raise their hands in horror at the words ‘federal’ or ‘federalism’. This is the position currently adopted by the Government and by most of those who take part in the public discussion.
The consequence is to change the euro or abolish it. Whether we want more integration or less, or a United States of Europe is another question altogether.
