Speakers at the annual Ambrosetti forum laboured to articulate the emerging existential dilemma: Monetary union struggles without central budget control, but member nations want independence; and the imbalances that result could lead to a calamitous breakup of the euro—which no one wants either, especially since it could send the world economy into a tailspin.
Unless Europeans agree “to complete economic and monetary union… with a fiscal union, with a strong governance, with a feeling that some political decision should be adopted in common by those who are sharing the single currency, we will not succeed,” said Joaquin Almunia, the vice president of the EU commission, the closest thing to a central government in the union. While most governments bristle at this, the Spanish Finance Minister bravely concurred, saying she supported “more fiscal integration” and noting that her country was in any case deeply dependent on trade with the rest of the EU.
The current structure depends on national governments acting in concert when needed. But instead, said Italian economist Mario Monti, governments are becoming increasingly “short-termist” — preferring to pander to voters even if the result is dysfunction on the European level. The most acute example of this has been repeated dithering over rescue packages for Greece and other economies on the brink of insolvency in the past two years. The emerging pattern has been rescue packages agreed upon at the last possible moment, after prolonged hesitation and public acrimony sent European and global markets careening.
Many of the speakers singled out Germany, which as the best performing EU economy both benefits from the union and is called upon to subsidise others. Some speakers noted that the indebted nations might benefit from a return to their own currency, which they could then devalue, reducing the size of the debt, stimulating growth through exports and forcing austerity through inflation. But that is a dangerous scenario, warned New York University economist Nuriel Roubini. “The question is whether the Germans are realising the benefits of avoiding” a eurozone breakup, he said. “This is a key decision determining whether there’s going to be survival of the eurozone or not.” At the heart of the matter is the fact—made evident in figures presented at the three-day forum—that the European Union is operating at two speeds, with Germany and a few other mostly northern nations performing far better than the southern rim and even France.
• GDP growth for 2011 was forecast at 3.1 per cent for Germany, compared to 0.8 per cent for Spain and 0.9 per cent for Italy.
• Investments were seen as growing by 7 per cent in Germany on the year, compared to only 1.6 per cent in Italy.
• Unemployment in Spain is topping 20 per cent again, more than three times the figure in Germany and more than double that of France.
• The effective interest rates paid by businesses in the various countries differ greatly, with capital being far cheaper in the north.
• While industrial production has returned to pre-crisis levels, in Greece it is at only 72 per cent of the pre-2008 level and in Spain it is at 78 per cent.
Furthermore, the absence of basic elements of a union create impracticalities that fuel distrust in the European project: Despite the customs, union police continue to guard some borders; the 27 nations keep embassies widely seen as wasteful in each other’s capitals; and pensions generally cannot be transferred from nation to nation. Former Austrian Chancellor Wolfgang Schussel said that if the EU integrated its services sector, digital infrastructure and energy sector, the result would be an additional 2 per cent of GDP. Even if it did, it would not address the grander dilemmas that bedevil Europe: low fertility rates, inefficiencies that stem from the lack of a common language, an ageing population and, most damagingly, labour costs that hamper competitiveness versus the emerging economies of the east.
China’s Zhu Min, the recently minted deputy director of the International Monetary Fund, urged Europeans to start by overcoming their divisions: “At the end of the day if you don’t have a single market, you won’t have a single currency and a common growth,” he said. Schussel said the only way to do that was for leaders to appeal to public opinion despite the political risks. “The European Union cannot survive if it is only a project of elites talking to other elites and some selected journalists,” he said.