Blog Post

Europe’s integration overdrive

May 10 is the fifth anniversary of the bailout of Greece. Set almost exactly 60 years apart from the Schuman Declaration, the events triggered by the Greek bailout have unleashed a daunting challenge to European cooperation and harmony.

By: Date: May 19, 2015 Topic: European Macroeconomics & Governance

Sixty-five years ago on May 9, French Foreign Minister Robert Schuman read a
Declaration, triggering the birth of the European Union. Still in the shadow of
World War II, Europeans began to create, historian Tony Judt writes, “a new
and stable system of inter-state relations.” Put simply, Europeans learned
once again to work with and talk to each other. It was a magnificent
achievement.

Europeans have lost the ability to talk to each other.

May 10 is the fifth anniversary of the bailout of Greece.  Set almost exactly 60
years apart from the Schuman Declaration, the events triggered by the Greek
bailout have unleashed a daunting challenge to European cooperation and
harmony. Above all, Europeans have lost the ability to talk to each other.
For some, this is not a European problem—it is a Greek problem. Greece, so
this view goes, is sui generis, and once it is brought back into the fold, the
systems of cooperation will return to normal functioning.

That is a mistaken view. The Greek problem will not go away. But the bigger
problem is that the euro placed European integration into an unmanageable
overdrive.

The policy package proposed by Greece’s creditors, requires further austerity
and reduction of wages and social benefits. Those measures will help down
the road, but the deflationary contraction will work faster. Debt will become
harder to repay.  A debt-deflation spiral could overwhelm Greece quickly.
German Chancellor Angela Merkel has blamed her predecessor Gerhard
Schroeder for allowing Greece to enter the Eurozone.  Indeed, Greece should
never have been in the Eurozone. But the real problem lay in the construction
of the Eurozone itself.

Greece should never have been in the Eurozone.

Schuman had said: “Europe will not be made all at once, or according to a
single plan. It will be built through concrete achievements which first create a
de facto solidarity.” That philosophy was admirably embodied in the Treaty of
Rome in 1957, when European nations opened their borders to each other.
Numerous commercial relationships sprouted among the European
businesses and citizens.  Empathy for the trading partners generated a sense
of European identity. Citizens’ trust in European institutions followed the
share of intra-European trade. The Treaty of Rome succeeded because it
aligned national interests—nations and their citizens all gained through
enhanced commerce.

With the euro, national interests collided. A common monetary policy is more
favorable for some than for others. And crucially, the euro created the ever-
present risk that one nation would have to pay the bills for another. The
Treaty of Rome created a “level playing field,” in which nations participated as
equals. In the euro area, some nations are inevitably “more equal than others.”
Greece must play by the rules of its creditors—even when these are evidently
dysfunctional. Proponents insist that this will discourage others from
deviating, and fidelity to the rules will ensure a stable Eurozone. But that
equilibrium will, at best, be fragile. The problems will worsen in Greece and,
will inevitably, arise elsewhere.

The economic and political costs of breaking the Eurozone are so horrendous
that the imperfect monetary union will be held together. Instead, the cost of
the ill-judged rush to the euro and mismanagement of Greece will eventually
be a substantial forgiveness of Greek debt.

This is a good moment to step back and loosen European ties.

But this is a good moment to step back and loosen European ties. As Schuman
said, “Europe will not be built according to one plan.” The task is to create a de
facto solidarity—not to force a fragile embrace.  A new architecture should
scale back the corrosive power relationships of centralized economic
surveillance. Let nations manage their affairs according to their priorities. And
put on notice private creditors that they will bear losses for reckless lending.
The European fabric—held together by commercial ties—is fraying as
European businesses seek faster growing markets elsewhere. That fabric
could tear if political discord and economic woes persist. History and
Schuman will be watching.

This piece was also published in Handelsblatt.

Read more from Ashoka Mody:

The IMF’s big Greek mistake

Greece and the André Szasz axiom

A Schuman compact for the euro area


Republishing and referencing

Bruegel considers itself a public good and takes no institutional standpoint. Anyone is free to republish and/or quote this post without prior consent. Please provide a full reference, clearly stating Bruegel and the relevant author as the source, and include a prominent hyperlink to the original post.

Read article More on this topic
 

Blog Post

How have the European Central Bank’s negative rates been passed on?

Negative rate cuts are not that different from ‘standard’ rate cuts. Like them, they reduce banks’ margins, but this effect does not appear to be amplified below 0%.

By: Grégory Claeys and Lionel Guetta-Jeanrenaud Topic: European Macroeconomics & Governance Date: July 7, 2021
Read article More on this topic More by this author
 

Blog Post

Inflation!? Germany, the euro area and the European Central Bank

There is concern in Germany about rising prices, but expectations and wage data show no sign of excess pressures; German inflation should exceed 2% to support euro-area rebalancing but is unlikely to do so on sustained basis.

By: Guntram B. Wolff Topic: European Macroeconomics & Governance Date: June 9, 2021
Read article More on this topic
 

Blog Post

Emergency Liquidity Assistance: A new lease of life or kiss of death?

Use of Emergency Liquidity Assistance to prop up euro-area banks needs to be more transparent; available evidence suggests its use has not always been within the rules.

By: Francesco Papadia and Leonardo Cadamuro Topic: European Macroeconomics & Governance Date: May 28, 2021
Read article More on this topic More by this author
 

Opinion

Europe must fix its fiscal rules

The pandemic has shown that the EU’s spending framework reflects an outdated economic orthodoxy.

By: Maria Demertzis Topic: European Macroeconomics & Governance Date: May 27, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

A stronger euro comes with more responsibility

What does strategic sovereignty mean to and for Europe?

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: May 19, 2021
Read article More on this topic
 

Opinion

The ECB needs political guidance on secondary objectives

While EU Treaties clearly stipulate that the ECB “shall support the general objectives of the European Union”, it is not appropriate to simply stand by, wishing that the ECB will use its discretionary power to act on them. Political institutions of the EU should prioritise the secondary goals to legitimise the ECB’s action.

By: Pervenche Béres, Grégory Claeys, Nik de Boer, Panicos O. Demetriades, Sebastian Diessner, Stanislas Jourdan, Jens van ‘t Klooster and Vivien Schmidt Topic: European Macroeconomics & Governance Date: April 22, 2021
Read article More on this topic More by this author
 

Podcast

Podcast

The idea of Europe: more than a feeling?

What can 70 years of news(paper articles) and how we talk about 'Europe' tell us about pan-European identity? Is there even such a thing as a European public sphere?

By: The Sound of Economics Topic: European Macroeconomics & Governance Date: April 16, 2021
Read about event More on this topic
 

Past Event

Past Event

An alpine divide? Comparing economic cultures in Germany and Italy

A discussion of Italian and German macro-economic cultures and performances.

Speakers: Thomas Mayer, Patricia Mosser, Marianne Nessén, Hiroshi Nakaso, Francesco Papadia, André Sapir and Jean-Claude Trichet Topic: European Macroeconomics & Governance Date: April 13, 2021
Read article Download PDF More on this topic
 

Working Paper

Interest in European matters: a glass three-quarters full?

Everything that increases the interest of European citizens in the EU, independently of whether it has a critical or a supportive character, will serve to move the EU closer to its citizens.

By: Francesco Papadia, Enrico Bergamini, Emmanuel Mourlon-Druol and Giuseppe Porcaro Topic: European Macroeconomics & Governance Date: March 23, 2021
Read about event More on this topic
 

Past Event

Past Event

Presentation of the Euro Yearbook 2021

Join us for the launch of the eighth edition of the 'Euro Yearbook'

Speakers: Maria Demertzis, Fernando Fernández, Fiona Maharg-Bravo, Antonio Roldán and Jorge Yzaguirre Topic: European Macroeconomics & Governance Date: March 12, 2021
Read article Download PDF More on this topic More by this author
 

External Publication

When and how to unwind COVID support measures to the banking system?

Study of regulatory measures and supervisory practices that have supported public guarantee schemes and moratoria in euro-area countries prepared for the ECON committee of the European Parliament.

By: Alexander Lehmann Topic: European Macroeconomics & Governance Date: March 9, 2021
Read article Download PDF More on this topic
 

Working Paper

Talking about Europe: exploring 70 years of news archives

This paper aims to contribute to the understanding of Europe as reflected in European media.

By: Enrico Bergamini and Emmanuel Mourlon-Druol Topic: European Macroeconomics & Governance Date: March 2, 2021
Load more posts