What if Greece won the eurozone argument after all?

Maybe Greece had a point. That seems to be the subtext of many high-profile pronouncements made by European politicians and technocrats in recent days.

   Perhaps this shouldn’t come as such a surprise. There have always been two broad theories about how the eurozone should work. On one side stands Germany, the European Central Bank (which is modelled on the Bundesbank) and northern European countries like Finland and the Netherlands. On the other is France, the Francophile European Commission and the continent’s Mediterranean states.

   These alliances are fluid. At times this year it looked like the whole of Europe was ranged against Greece. But this was more a product of the extreme negotiating stance adopted by Athens and the survival instincts of southern European governments (who didn’t want to provide succour to anti-austerity movements in their own countries). Deep-seated convictions were temporarily held in abeyance.

   But, in the brief pause between Greece agreeing fresh terms with its creditors and holding elections, the two sides are once again coalescing around the separate solutions they believe will strengthen the eurozone.

   This is not about being pro or anti-austerity; that gross over-simplification was always a red herring. It is about ensuring that countries don’t reap the benefits of the currency union while shirking their shared responsibilities. The difference of opinion lies in identifying where the benefits accrue and defining what the responsibilities should be. Both factions have a case.  One answer is that the eurozone is a currency union of economically independent nations whose stability can only be maintained by the strict adherence to a number of hard and fast rules. Among the most important of these proscribes permanent fiscal transfers between member states. That’s because, so the argument goes, such subsidies blur the lines between sovereign nations and introduce political union via the backdoor.

   Critics of this argument say the rules are too harsh. They result in the richer nations enjoying the benefits of a currency union (like, for example, an artificially depressed currency that boosts the competitiveness of their exports), while the poorer nations are denied the tools to rebalance their economies if crisis hits. On this reading the rich nations enjoy most of the benefits of the currency union in the good times and the poor nations suffer most of the drawbacks when the weather turns. The only way to redress this balance is through fiscal transfers.

   It is hard to tell which view is in the ascendancy. On the one hand, Greece clearly caved in to its creditors’ demands and agreed to institute a raft of economic reforms, including exacting primary surplus targets. This can be seen as a victory for those who champion the European Union’s strict debt and deficit rules. On the other hand, by agreeing to lessen Greece’s debt burden, the other member states are taking the first step towards turning the eurozone into a transfer union.

   A eurozone defined by strict rules has the merits of being what all the various countries signed up to. On the downside, it could be argued that, with the bloc’s youth unemployment at 21.9pc in July, it is an imperfect set-up. A transfer union might work better (though there are plenty of people living in the north of England who will argue against it being a panacea) but would necessitate a far greater degree of fiscal and political integration.

   That is exactly what so many European politicians have been falling over themselves to argue for in recent days. First, Italy’s finance minister, Pier Carlo Padoan, called for a full political union. Then Emmanuel Macron, the French economy minister, writing in Germany’s Süddeustche Zeitung newspaper over the weekend, called for a full fiscal union and a new “Euro Parliament”. He said: “The eurozone needs new institutions to which national governments transfer sovereignty: a strong European economic government with its own budget.”

   It is not hard to imagine how all of this is going down in Berlin. In recent months Wolfgang Schaeuble, the German finance minister, has been agitating in the opposite direction, arguing that what he sees as an increasingly-partisan European Commission should be stripped of some of its powers.

   German politicians are unlikely to be surprised by their French and Italian counterparts calling for the strengthening of European institutions. Arguably, it will have been last week’s speech by Benoît Cœuré - a Frenchman, yes, but also a member of the European Central Bank’s executive board - that caused more consternation.

   He argued for the creation of a finance ministry for the eurozone, saying: “I want to make this clear: we cannot advocate a Europe of solidarity while believing that the economic policies of each euro area country are the business of that country’s parliament alone. The crisis has fully exposed that contradiction.”

   So, poor, defeated Greece may in fact end up getting what it was demanding. There is, of course, a further paradox here. The Greek government argued that the January election and July referendum gave it a democratic mandate to reject the terms of the country’s bailout.

   In so doing, it was implicitly arguing that the eurozone should become a transfer union in which the richer countries help subsidise poorer regions. If that argument wins out, it will end up diminishing the individual sovereignty of the eurozone member states and hence their democratic mandates. It’s like turkeys voting to be disenfranchised.

Πηγή: telegraph.co.uk