Europe's Orphan by Sandbu Martin E

Author:Sandbu, Martin E.
Language: eng
Format: epub, pdf
Publisher: Princeton University Press
Published: 2017-07-14T16:00:00+00:00

SEVEN

If Europe Dared to Write Down Debt

RENOUNCING ‘THERE IS NO ALTERNATIVE’

THIS BOOK STARTED WITH SPINELLI’S call for the abolition of the nation state and observed that the euro constituted the ultimate test of his belief that only a federal Europe could secure progress, peace and prosperity throughout the continent. Confusingly, two conflicting lessons have been drawn from the sovereign debt crisis that nearly tore apart Europe’s economic and political fabric. One is that the euro has proved Spinelli fatally wrong: abolishing national sovereignty in monetary affairs has caused political disintegration instead of unity. The other is that it has proved him ineluctably right: monetary integration makes full national sovereignty untenable in other domains of policy. The common premise is that the euro as designed was deeply flawed and a prime cause of its economic troubles and, therefore, its political ones.

According to the revisionist history I have told in the previous chapters, both sides are wrong, and the premise they share is a mistake. Monetary integration is not the source of the crisis. The blame for the economic stagnation and political morass which submerged Europe after 2009 should be pinned largely on eurozone policymakers’ unforced policy errors – their free choice to pursue some actions rather than others, such as bail-out instead of bail-in; delay instead of resolution. The euro’s design is erroneously blamed for ruling out any alternatives to the toxic bargain of financial transfers traded for contractionary policies. What really constrained policymakers’ freedom of manoeuvre was not the euro but their reluctance to be honest with electorates about the inevitability of losses once the credit bubble burst, and to settle politically where those losses were going to fall. Because of this neglect, serious losses grew into devastating ones. Because the euro was scapegoated for it, the single currency is at risk of unravelling, which would make things worse still.

To say that it was not the euro but bad policy choices that were responsible for Europe’s predicament is to assert that other choices would have led to better outcomes. This chapter aims to justify that assertion with an argument about what those outcomes could have been.

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