Can Europe finally admit it?
After frantic eleventh-hour negotiations and continent-wide hand-wringing, eurozone authorities and Greece’s new left-wing government have reached a deal. If you’re surprised, you shouldn’t be. A deal was in the cards from the beginning for one simple reason: Ultimately, neither the Greek government nor Germany and other euro member states could risk triggering a financial crisis by cutting off Greek banks.
Financial stability in the 19-country currency area has been preserved – at least for now. But patching up the situation has not removed the key question of where to go from here. There is a lot of “austerity fatigue” in Europe right now. That’s understandable, but it shouldn’t be allowed to distort the debate and allow Europe to dodge the much-needed thorough assessment of the entire euro project: Does it still make sense, given its constraints and limits? What should be the way forward? And was it even a good idea to begin with?
Europe’s monetary union has been based on bad economics from the start. As German economist Rudiger Dornbusch wrote in Foreign Affairs in 1996, “If there was ever a bad idea, EMU is it.” The eurozone does not have the features of what economists call an “optimal currency area.” According to the standard definition, an optimal currency area is characterized by perfect labor mobility, perfect wage flexibility, and a risk-sharing system, such as fiscal transfers when a region — or a member country — is affected by an economic or financial shock.
Lees dit artikel van Paola Subacchi verder op Foreign Policy