by Cullen Roche
FT Alphaville has an excellent piece out today discussing several recent comments on the likelihood of a fiscal union in Europe. They cite George Soros and several analyst reports that discuss the matter. Soros is one of the few who has had the Euro pegged from its inception. Like many of my MMT colleagues, he saw the Euro for what it was. An incomplete currency union. FT Alphaville cites his recent comments:
“But the euro was an incomplete currency: it had a central bank but no treasury. Its architects were fully aware of this deficiency, but believed that when the need arose, the political will could be summoned to take the next step forward.
…Generating the political will would require a plan B for the EU itself. The European elite needs to revert to the principles that guided the union’s creation, recognising that our understanding of reality is inherently imperfect, and that perceptions are bound to be biased and institutions flawed. An open society does not treat prevailing arrangements as sacrosanct; it allows for alternatives when those arrangements fail. It should be possible to mobilise a pro-European silent majority behind the idea that when the status quo becomes untenable, we should look for a European solution rather than national ones. “True Europeans” ought to outnumber true Finns and other anti-Europeans in Germany and elsewhere.”
I know this isn’t necessarily the popular view across Europe, but I am afraid there there might not be any other choice. The brutal reality of the situation is that Europeans have invested an enormous amount of time and effort into creating this currency union. Unfortunately, the lack of a fiscal union results in inherent imbalances. As I explained the other day:
“the great flaw in the Euro is that it results in trade imbalances where the core’s current account surplus results in an ever expanding current account deficit for the periphery. Because there is no floating exchange ratebetween the nations (as a result of the single currency system) there is no mechanism by which trade can balance itself. The result is the world you see today where the periphery nations are forced to counter their current account deficits via large budget deficits. Obviously, there is a limit to how much these revenue constrained nations can borrow. This leads to the solvency concerns we are currently seeing across the region.”
So there are only two options if we are to eliminate the inherent flaw in this system. First, you have to create an autonomous state, but that can only be achieved via dissolution of the Euro or via a fiscal union. Given the amount of time and energy invested in the Euro project I find it impossible to believe that we are going back to the days when European nations had their own single currencies. And that means we move forward towards fiscal union. Now, the trillion dollar question is with regards to the size of that union. Will it include Greece and these other periphery nations? I cannot and do not know the answer to that question. But I think Europeans would be wise to come to this realization sooner rather than later. The longer they wait the greater the near-term turmoil will become. And dissolution might become a self fulfilling event rather than a controlled event.
The great question now is whether Europeans can truly unite or whether they will allow thousands of years of turmoil come between them. A united Europe would be a force to be reckoned with. It would almost certainly equal the United States in terms of economic prowess and would give the growing Chinese economy a run for its money. But I am not sure if egos and history can be put aside at this time. America was able to do this over 100 years ago when New Yorkers looked at Virginians and shook hands and carried the same flag. Sure, the scars between them were not nearly as deep as the scars that exist between Europeans, but it turned out pretty well in the case of America. As a proud American I view our melting pot as one of humanities great achievements. Europeans might benefit, not from looking at what they’ve had, but what they can be. And I see no reason why the Europe 100 years from now would be too different from the great achievements of the United States of America.
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