A new deal for the euro must go far beyond QE

29/12/2014

A certain tribe of eurozone watchers has long maintained that the euro’s fortunes hang in the balance on January 22, when the European Central Bank is expected to decide whether to engage in quantitative easing — large-scale asset purchases of sovereign bonds.

QE is surely important. But the Greek government’s failure on Monday to stave off early elections is just the latest proof that more ambitious political decisions are required from the eurozone’s leaders. Mere technical policy improvements will no longer suffice.

Matteo Renzi, Italy’s prime minister, has called for a “new deal”. Vague references to FDR do not easily translate to Europe. Nor has Mr Renzi the political heft to push such grand visions, even in the best-case scenario of successful reforms at home. The sentiment, however, is right. 2015 must be the year when the eurozone’s most influential leaders lift their eyes from technocratic fixes to the wider horizons of politics.

That does not mean fiscal or political union. If all the euro’s member states and, more importantly, their peoples, were freely willing to take such a step, this newspaper would welcome it. But the tolerance for further integration is at rock bottom. This is due in part to the antagonising politics and contractionary policies with which the eurozone chose to confront the crisis. It is also because of the overdone claim that “there is no alternative”. The reaction is evident in the electoral fortunes of fringe parties across Europe, and in the vote that just brought down Greece’s government.

What must change is the way in which nations are treated like wayward children. People not just in the periphery, but in Italy and France, the euro’s second and third countries, and the EU’s co-founders, are fed up with being dictated to. It does not help when the orders themselves are wrong-headed, as in the case of universally applied demand-destroying economic policies.

There is a deeper problem with centralisation. European countries could, like the US states, draw strength from diversity by experimenting with different policies and learning from one another. The current path instead converges on a German model, not just in fiscal matters but more critically in the nature of structural reforms. Germany’s are credited with growth and employment, but they brought under-investment, precarious jobs and wage stagnation. If the question for Europe and the advanced world is how to pursue equitable growth in a globalised economy, Germany cannot claim to have not found the answer.

Would more leeway for national governments not lead back to contagious debt crises? It might, but the eurozone’s new framework for bailing in banks has made sovereign debt writedowns safer. Can Germany ever allow deficit countries to raise borrowing again? Never say never: the strongest advocate of a “return to Maastricht” — with sovereign writedown, not bailouts — is Bundesbank chief Jens Weidmann.

More national room for manoeuvre could, paradoxically, encourage deeper integration on a voluntary basis. The greatest example could be set by Germany and France. A report by Jean Pisani-Ferry and Henrik Enderlein to the countries’ economy ministers proposes a number of actions each government can take domestically, but also a programme of “borderless sectors” they can advance through bilateral harmonisation.

Such reinvigorated national policy making should be welcomed, for the sake of democracy as well as solidarity. Europe should continue to unite — but out of mutual interest, not as a result of coercion.

Πηγή