Must-Read: Kevin O’Rourke: Moving on From the Euro
Must-Read: The very sharp Kevin O’Rourke concludes that it is time to throw in the towel on the eurozone. I think it is worth one more throw of the dice: perhaps European macroeconomic stabilization regulation can be moved out of the hands of the Eurocracy in Brussels and Frankfurt and into a more general North Atlantic macroeconomic stabilization regulatory apparatus in Washington. A utopian project? Yes, but worth attempting. If that does not work–or if that is not attempted–I cannot find any holes in Kevin’s logic:
: Moving on From the Euro: “European Monetary Union was never a good idea…
…I remember my surprise when, as a young assistant professor, I realized that I was opposed to the Maastricht Treaty…. European integration is a very good thing. But the textbook economics I was teaching showed how damaging EMU could be in the absence of European fiscal and political union. Nothing that has happened since has convinced me that the textbook was excessively pessimistic. On the contrary: it was far too optimistic…. It has been obvious for some years that the “actually existing EMU” has been a costly failure, both economically and politically. Trust in European institutions has collapsed, and political parties skeptical not just of the euro, but of the entire European project, are on the rise. And yet most economists, even those who were never keen on EMU in the first place, have been reluctant to make the argument that the time has come to abandon a failed experiment….
Five years on, the eurozone still lacks a proper banking union, or even… a proper lender of last resort… a higher inflation target remains unthinkable… the German government argues that defaults on sovereign debt are illegal…. Pro-cyclical fiscal adjustment is still the order of the day. The European Central Bank’s belated embrace of quantitative easing was a welcome step forward, but policymakers’ enormously destructive decision to shut down a member state’s banking system–for what appears to be political reasons–is a far larger step backward. And no one is talking about real fiscal and political union, even though no one can imagine European Monetary Union surviving under the status quo.
Meanwhile, the political damage is ongoing: not all protest parties are as pro-European as Greece’s ruling Syriza…. For economists like me, who have balked at advocating an end to the failed euro experiment and favored reform, perhaps it is time to admit defeat and move on. If only anti-Europeans oppose EMU, the EU baby could end up being thrown out with the euro bathwater. An end to the euro would indeed provoke an immense crisis. But ask yourself this: Do you really think the euro will be around in its present form a century from now? If not it will end, and the timing of that end will never be “right.” Better, then, to get on with it before more damage is done.