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19.02.2016.

The Euro-Rescue Policy and Brexit

The Eurozone crisis has had profound implications for the functioning of the European Union. The Greek drama is certainly its most illustrious example. After seven years of depression, the situation in Athens is now a humanitarian crisis. Yet the Greek establishment shows a strong commitment to continued membership in the Eurozone, even while a Grexit combined with a debt write-off constitute a sine qua non of recovery. EU institutions and some European governments present the crisis as a justification to pus towards more economic integration and a fiscal union.  Yet the scale of the tragedy is such tat it now has consequences far beyond Greek, and even beyond Italian, Portuguese and Spanish borders. Thee Eurozone tragedy is now bleeding into Shakespeare’s homeland, where the euro-rescue policy is slowly pushing Britain out of the EU.

At the heart of the Eurozone crisis lies the euro itself. The single currency has long been too weak for Germany and too strong for Southern Europe, including France. Moreover, the one-size-fits all monetary policy suits nobody. According to conventional wisdom in Brussels, the Eurozone needs to be backed by a transfer union in order to make the European economy work again. Any historically informed reflection on the Italian experience and the miserable effects of attempts at fiscal transfers intended to improve competitiveness of regions suffering for a strongly overvalued currency, should restrain enthusiasm about this idea. But this historical consideration does not seem to figure in the mainstream European public debate. A call for a more centralized European political union with a common treasury has no economic grounds. Even more, it is against the economic interests of European economies and undermines democracy in Europe, which work the best at national level. The only viable solution for Sothern Europe’s economies to return to the path of real economic growth is a sharp currency devaluation, which in some cases ought to be combined with debt restructuring. Obviously, a sound economic policy must follow.

The vision of ‘ever closer union’ embodied by the single currency has turned out to be a trap for Southern Europe. The political romanticism of European elites has exacted the price of major economic misery, which undermines the social fabric of many European societies, and endangers the very EU itself, breathing life into radical populist parties questioning any and all benefits of European integration. There is, however, an alternative vision of the European Union, which has at its heart the principles of subsidiarity, self-governance and strengthening the Single Market. This very vision embodied by Great Britain represents the best strategy for a prosperous and strong Europe. Tragically, the faith in ‘more Europe’ as a solution to the Eurozone’s woes is seriously diminishing the attractiveness of the European Union in the eyes of the British public. However, we should be surprised with this development.

The Eurozone is not an optimal currency union. Therefore, any solutions which are supposed to fix the crisis but fail to address the root of the problem, the euro itself, can make the situation worse. Many aspects of the new European financial legislation and the Banking Union undermine vital British interests and transfer more power to Brussels. Moreover, the Eurozone is prone to constant crisis, because any currency in a suboptimal currency area will not be subject to a rule-based regime, so promises made to the British government will be broken. Economic reality will always come with vengeance, which has become clear during recent years and the seemingly endless sequence of emergency crisis summits that demand the attention of European leaders. The most recent act of the still-unfolding Greek drama proved this point strongly, when in July 2015, EU leaders decided to use the European Financial Stabilisation Mechanism to grant a bridge loan to Greece, despite a previous promise made to the British government that it would not be used to bailout the Eurozone countries. Given this, how can anyone expect the British public to have faith in the credibility of the European Union? The continuous mismanagement of the Eurozone crisis creates a picture of the European project as a failure, and this for sure is not an argument for staying in the EU.

The euro-rescue policy, based on a blind commitment to saving the euro ‘at all costs’, largely explains why, contrary to the United States and the United Kingdom, the Eurozone has not experienced the long awaited economic recovery. European leaders have sacrificed the well-being of many millions of Europeans at the altar of the euro. Calls for more harmonization, centralization and debt socialization cannot solve the situation. This can only be accomplished by a controlled dismantling of the Eurozone. Exchange rates realignment is a must for economic recovery in Europe. The failed philosophy of ‘ever closer union’ must be rejected to reive the European project. One of the great paradoxes of the euro-rescue policy is that it pushes Britain out of the EU, when it is precisely the British vision of integration, which represents the best strategy for securing the future success of the European project. As a result, the British call for a reformed EU deserves support, but the British elites must understand that the euro is also their problem. Not being a part of the Eurozone does not make Britain immune to the consequences of its crisis.

 

Hans-Olaf Henkel is a former CEO of IBM Europe and a former head of the German Federation of Industries (BDI). He is a member of the European Parliament and Vice President of New Direction.

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