Zsolt Darvas at Bruegel has a new paper on this topic – available here.
Year: 2012
Ronan McCrea has an op-ed in today’s Irish Times that is worth debating. His proposal:
If we are to avoid an endless series of referendums in the coming years, we will have to give the Government a degree of authority to agree to treaty changes that have not yet been agreed.
This would require a more general amendment to the Constitution, giving the State the right to participate in a fiscal and banking union. Such an approach would allow the State to sign up to the numerous amendments that are likely in the coming years if the euro is to be saved.
Given the seriousness of the implications of fiscal union for our political system, it would be desirable that there would be a further referendum at the end of the process. Once a fiscal and banking union is fully in place, then voters could decide by referendum whether they would like to be in or out of such an arrangement.
Often lost in the recent referendum debate was recognition that developing the necessary fiscal and banking integration to underpin the euro is a two-way process. The countries most likely to be net contributors under strengthened risk-sharing arrangements will be reluctant to agree to those arrangements without credible assurances of mutual discipline. Given the necessity of these arrangements, it is not enough to lambast Germany for not being willing to move fast enough. The extent of the political challenge means that there is responsibility on all countries to make the necessary changes feasible.
Willem Buiter provides another incisive analysis of the euro zone crisis is this FT article.
From the article:
The endgame for the euro area, if the political will to keep it alive is strong enough, is likely to be a 16-member area, with banking union and the minimal fiscal Europe necessary to operate a monetary union when there is no full fiscal union.
Minimal fiscal Europe will consist of a larger European Stability Mechanism, the permanent liquidity fund, and a sovereign debt restructuring mechanism (SDRM). The ESM will be given eligible counterparty status for repurchase agreements with the eurosystem, subject to joint and several guarantees by the euro area member states. There will be some ex-post mutualisation of sovereign debt. Sovereign debt restructuring through the SDRM will recur.
One question is whether vulnerable euro zone countries could ever hope to regain robust creditworthiness with the SDRM hanging over them. Given the likely effects of threatened “bail ins”, it seems too early to give up on more ambitious efforts for ex-ante debt mutualisation along the lines of the German “wise men” proposal. (Gavyn Davies provides a useful analysis of the proposal here. This Bruegel blog post considers the less ambitious alternative of “eurobills”, which could be a stepping stone to more ambitious “eurobonds”.)
(This is a joint post with Donal O’Neill (NUIM) and Frank Walsh (UCD))
Because of the media storm last week about the Tol et al. paper on working costs, myself and a few colleagues (separately) decided to read the paper to see what all the fuss was about. We are all labour economists, used to using data on individuals, households and firms to address questions relevant to public policy issues. Our assessment of the paper is below.
The basic approach of the paper is as follows: it uses Household Budget Survey (HBS) data to examine the consumption patterns of different types of households. HBS data is collected at the household, rather than the individual level so the analysis distinguishes between households whose chief earner is employed and those whose chief earner is not employed. In particular, it examines the consumption patterns of these two household types under four headings: transport, childcare, heat & light, and takeaway food. To the extent that the amount spent by these households differ, the difference is designated a cost of working.
Niamh Hardiman has a post here which echoes one of the most important points George Soros made in his Trento speech: current EU policies are amplifying anti-EU sentiment, which in turn makes it more difficult politically to move towards the tighter Eurozone integration that is economically required to save the Euro project; which in turn exacerbates the economic situation, and so on.
I have two brief comments.
The first is that this sort of negative feedback loop suggests the need for a “big bang” approach to policy reform in Europe: not some temporary liquidity fix that will give the system a little more rope to hang itself with, but a fundamental shift in the policy stance, which could change both the economic and the political dynamics.
The second is that we have got to stop referring to parties which are willing to go along with the current policy mix as “pro-European”, as if a party like Syriza is anti-European or anti-EU (it is clearly not). When Mrs Thatcher set about dismantling the social contract that had defined Britain for thirty years, this did not make her anti-British, and nor was Arthur Scargill anti-British when he tried to oppose her. People disagree, often fundamentally, about policies: that is what democracy is all about, and the moment that “Europe” is defined with any one set of policies, rather than with a framework for deciding policies collectively, it is (or ought to be) finished as a political project.
I conclude that what the EU needs right now is a loyal opposition, willing to provoke an almightily row in order to promote change. Step forward Mr Fabius?