The euro is a scapegoat for the blunders of politicians

Martin Sandbu writes on the tension between “greater integration” and “less integration” among member countries here.

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41 thoughts on “The euro is a scapegoat for the blunders of politicians”

  1. The “community method” (sic; it should read “Community method”, a reference back to the EEC) is, as the description implies, a method; not a result. The description of how it works is totally erroneous, something which the author, a leader writer for the FT on a sabbatical, ought to know.

    The UK has been the major proponent of the concept of “variable geometry” that he describes, and the major practitioner of it, the most notable example being its opt-out in respect of the euro. But you cannot combine a system of achieving mutual agreement according to a set system of rules with dining a la carte under them.

    The resulting contradiction in which the UK now finds itself in its relations with the rest of the EU is epitomised in its dealings with the framework within which the steps to correct the faults in the euro are taking place.
    The legislative actions involved are, for the most part, being taken – by way of Regulation (i.e. directly transposed into the legal order of the Member States, including the UK) – under Article 14 TFEU; and the Community method!

    http://ec.europa.eu/economy_finance/articles/governance/2012-03-14_six_pack_en.htm

    Having one’s cake and eating it is a difficult art.

    Otherwise, the article is pretty spot on. How a currency can be a scapegoat, however, is not quite clear. A more apt description might lie in the old proverb that “a bad workman always blames his tools”.

  2. Correction! The reference to Article 14 should be to Article 114 TFEU and it refers to Banking Union, not the steps being taken in respect of budgetary supervision and discipline, being adopted under a variety of legal bases, some of which include the UK and some which do not.

  3. “The euro is a scapegoat for the blunders of politicians”

    or maybe alternatively:

    “The euro is a testament to the blunders of politicians”

  4. @unfeasiblycharming
    +1

    How can the euro be a scapegoat for the blunders of politicians when it is a blunder of politicians?

  5. @docm
    Did politicians decide that the Euro would go commando without a LOLR, deposit insurance, bank recap rules etc?

  6. @ seafóid

    Who else negotiated the agreements establishing it? That is leaving aside the question of the list of desiderata that you mention; which may, or may not, be necessary for running a single currency successfully.

    Or may or may not be necessary but are, one way or the other, politically not feasible.

    The author of the article under discussion concedes that fiscal union, by way of example, which is politically IMHO not feasible, may not be necessary in the light of the progress made in respect of Banking Union.

    “The policy errors have been partially righted. Much progress has been made on making it easier to write down the debt of insolvent sovereigns or to place the burden of losses in private banks on to their investors rather than taxpayers. Indeed institutions for debt restructuring (for both sovereigns and banks) are now far more developed than the supposedly necessary fiscal and political union.

    What is lagging is the recognition that the former make the latter unnecessary. When debts can be safely written down, the case for cross-border fiscal transfers to redeem them evaporates. Moreover, when losses fall where they belong – on investors who gamble and lose – overindebtedness is less likely to build up again.”

    In inviting politicians not to be duplicitous, however, he seems to me to be simply naive.

  7. Francis

    Der Spiegel this week
    Leitartikel
    Wir Super Optimisten
    Wohlstand und Wachstum sind prekaer

    And there is a very depressing article about how many Auschwitz SS men were sentenced by the courts in Germany. 29 out of 6500 BRD and maybe 20 DDR.

  8. @ DOCM

    “This is all the politicians’ fault” is a load of crap .

    The euro is a political economy issue par excellence. It isn’t just politicians who have power. The financial sector just sat back and awaited the news, did it? Why is the crisis structure of the euro still so precarious ?
    And the economists who signed it off ? Nothing to do with them? that ridiculous smets wouters model- anyone responsible for that at all ?

    http://www.pedz.uni-mannheim.de/daten/edz-ki/ezb/02/w-paper/ecbwp171.pdf

    Some general equilibrium would be a wonderful idea.

    Weidmann and Co- all the responsibility of Angela ?

    The other thing about blaming it all on politicians is that you acknowledge that everything is ultimately at the mercy of the people.

  9. @ Francis

    I was pretty shocked that so few were convicted. Would have expected more from Adenauer. Never mind the spuds.
    Anyway the editorial is worth a read.
    And Germany might slip into deflation as well.

  10. The Euro is like a Lada. Nothing wrong with the concept. The design is shoddy the engineering terrible and the operation well short of what you would expect.

    Were it not for the pesky pols who designed, built and operated it, all,would be ok.

  11. Tull,

    the Lada was an excellent car for the rugged area it had to operate in.

    I actually bought a car recently, after 10 years of abstinence, a Dacia Dokker, a “plumber car”. The anarchist around the corner will not scratch the paint, I hope it also helps to get it not stolen, when I drive to eastern Europe, Russia.

    I can still drive 180 km/h with the Turbo Diesel, 3000 liter storage room, I also got a little emergency bed dangling from the ceiling !!, nice addon,

    It is a Renault clone built in Romania, got pretty good press for reliability, and 2 days ago I found out that it is also nearly identical to the Mercedes Citan, just that you pay for the Mercedes star on it 50 % more, and you dont get the Navi / Multimedia with it, unbelievable.

  12. Seafoid,

    I could see it, if I would buy the Abo.

    The Nazi topics come nowadays typically, when other news are coming slow, in Summer , “Saure Gurken Zeit” as we call it. Green party folks bring some food safety scare.

    Now, who should have had the most interest in prosecuting those folks, 70 years ago?

    I would say:

    a) the Jews
    b) the (Western) Allies
    c) the Russians
    d) the very small number of real German victims (not the much larger number who just claimed to be that : – )

    all denominated in that vulgar form, without detailing, which group within.

    Germany was occupied, they could do it, but didn’t.

    As far as I remember, we didn’t talk that much about all that stuff, in school that was the horrible 12 years, long enough ago by then.

    And the following, I only learned in the last few years, researching after being beaten up in blogs like here : – )

    When you read John Maynard Keynes “The economic consequences of peace” you get an understanding how that intense hatred developed. Versailles was very different (ca 300% GDP) from the French German war in 1870/71, where they had to pay 25% GDP, the same as Napoleon demanded from German states in 1806, this endlessly carefully administrated tit-for-tat, which makes for arch.enemies.

    The London debt agreement 1953 (wiki/Agreement_on_German_External_Debts 15 billion DeutschMark ) was in fact a part of a larger package deal

    The US private loan givers to Germany 1923 -1932 got their money back in the reparations. The rest (claimed to be the other 50%) was practically forgiven

    The US government got plenty of German soldiers lined up against the Russians. And you can not be “ally”, if you beat them up constantly morally. And that is the crucial point here.

    The (organized) Jews got paid off (wiki/Claims_Conference 53 billion DeutschMarks, much larger than the reparations, and not subject to any voting in Washington DC or anywhere). I read somewhere, that this was 50 % of the Israel government budget for some time.

    We Germans swept the dirt under the rug and kept it there

    @ Seafoid, all

    Now, did you ever see this story painted that way?

    For comparison, German GDP “Volkseinkommen” was 75 billion Deutschmarks in 1950 (Wilhelm Krelle, “Verteilungstheorie”, JCB Mohr, Tübingen, 1962, page 16, actually a nearly complete, quantitative, lots of equation, graphs , representation of german economic thinking at this time)

    if you divvy this up with less than 1 mio jews in palestine in 1948 and roughly 60 mio Germans at that time, just to get a very crude relation

    60 / 1 * 53/ 75 = 42 years

    Now you can start to discount those 42 years with that maybe only half of that actually went to Israel, that their population was increasing, and our GDP too, and everybody can choose his favourite years, but I think you got the message.

    For comparison, like OECD Annex 58, this wealth to income ratio for the US was in normal times (1950 – 2000) 5 years + minor explanations, if you take out a life insurance above 6 times your yearly income in the US, you get questions, and of course the ultimate bubble indicator, http://www.federalreserve.gov/releases/z1/Current/z1r-5.pdf Table R.100, line 22 and 23, also 5 years in normal times and not 6.4 years like now

    Everybody got what he needed most. And that is the way those deals are made, under such circumstances

  13. @ Francis

    For the biggest crimes there is no interest in justice . It’s just get on with things. I see what you say about people getting what they needed but there is something missing.

    That Spiegel article says : “Es war viel einfacher. Nichtstun genuegte. Der Friede mit den Taetern wurde auf den Ruecken der Opfer geschlossen.
    nur Hitler und seiner Entourage seien fuer den Holocaust verantwortlich gewesen. Alle Uebrigen, spottete der legendaere hessische Generalstaatsanwalt Fritz Bauer betrachteten sich as “vergwaltigte , terrorisiert Mitlaeufer oder depersonalisierte und dehumanisierte Existenzen , die veranlasst wurden, Dinge zu tun die ihnen vollkommen wesenfremd gewesen sind”

    And it works elsewhere too

    http://www.nybooks.com/blogs/nyrblog/2014/aug/25/khmer-rouge-genocide-wasnt

  14. Tull the Lada was designed in the mid ’60s in Italy and as the Fiat 124 won the European Car of the year sometime in the sixeties. They sold the tooling i think to Polish and Russian factories.

    By the late eighties it was duff because as its shortcommings became apparent over the years the design remained strongly and determinedly the same. Car industry eh!

    Obviously that sort of thing could never happen in a central bank.

  15. Mr charming

    one is tempted to say that comparing the Lada to the Euro is a bit unfair on the Lada. The former was clearly based on a sound design, had a steering mechanism including some self correcting gear such as an accelerator and a brake.

    The euro was never desinged properly, lacks an engine and seems to have only a brake but no accelerator and no steering. Moreover, there appears to be a nutter in the back seat called Jens who wants to make sure it goes in some different direction.

  16. Tull old chap, the nerdy guy in the back has been sent to Coventry by his mates who are in the thrall of the cool Italian lad who promised to do whatever it takes to pimp their ride – go-faster stripes, fog lamps, a novelty air horn, furry seat covers with matching rear-view mirror dice, and a nodding economst of approval gazing out of the back window.

    I understand the furry dice were key to getting Jens’s buddies on board as proper acknowledgement of the importance of the use of a rear view mirror while driving.

  17. Bandhu’s core argument is that the mechanisms now in place to deal with sovereign debt overload etc. obviate the need for deeper integration/political and fiscal union of the EU. Does he make his case? I’m not qualified to judge that.

    When it comes to the politics of it though, the article is a rehash of that old core-periphery two-speed model of European integration thesis with which we are all familiar as it has been a persistent theme of every EU referendum debate in Ireland since the late 1980s. So member-states that favour an integrated energy policy should go ahead and create one among themselves and others can ‘opt in’ as and when it suits themselves. We’ve been here before many times over, even in terms of the euro project itself.

    Bandhu rightly points out that the problem with deeper EU integration is public acceptance. The EU is too remote, culturally and politically, from the daily lives of most citizens. A ‘democratic deficit’ is inbuilt to its institutions and policy-making processes. The cosmopolitan politics advanced by social philosophers like Beck, Habermas, Castells and others has not gained any traction. The trend is towards greater provincialism rather than cosmopolitanism in the political outlook right across Europe. Loose and mutable policy networks are preferable and more politically rational for the EU than any grand schemes of integration.

    But therein lies the blind spot: these policy networks cannot exist in isolation from those member-states which remain non-aligned. Such two-speed policy arrangements inevitably affect everyone else. Increasing and multiplying the opportunities for establishing two-tier policy streams ultimately implies the collapse of the EU project. Mini-EUs within the larger EU is a recipe for fragmentation and confrontation between different policy ‘blocs’. At the start of the euro crisis, the UK line was that it wasn’t affected as it was not in the eurozone. That changed quickly when the likely impact of a euro collapse on the UK economy became apparent.

  18. @ Veronica

    Insofar as one can pin down what exactly, Sandbu has in mind, the general point that he appears to be making is that politicians have to be upfront and honest with regard to their real desires in relation to Europe. That this is far from being the case is easily illustrated with examples from any member state that one cares to mention. The ideas of the Scottish government on EU reform are a good recent illustration.

    http://www.scotland.gov.uk/Resource/0045/00458063.pdf

    The analysis is largely posited on the assumption that the countries of the EU have somehow agreed to integrate their economic and social policies. That is precisely what they have NOT agreed to do. (They have agreed certain budgetary discipline rules – some outside the EU treaties – but how they stick to them is a matter for them alone).

    Under “categories and areas of Union competence” in the Treaty on the functioning of the European Union (TFEU), Article 5 reads as follows.

    1. The Member States shall coordinate their economic policies within the Union. To this end, the Council shall adopt measures, in particular broad guidelines for these policies. Specific provisions shall apply to those Member States whose currency is the euro.

    2. The Union shall take measures to ensure coordination of the employment policies of the Member States, in particular by defining guidelines for these policies.

    3. The Union may take initiatives to ensure coordination of Member States’ social policies.

    Coordination by its very nature means that those participating in it are aligning, at their discretion, their own policies with those of other countries, not ceding control – in a federal sense- to action in common. Neither the politicians, nor the electorates, IMHO, in Europe want this situation to change. But for this to be recognised, there has to be clarity on who is responsible for what.

    In an odd way, the euro crisis is bringing this out. No responsible politician imagines, for example, that the anyone other than the French themselves can resolve the core economic and societal problems. Scapegoating other governments, and notably the German, cannot be seen as acceptable in an EU whether actions are decided by compromise and collective agreement. There are, regrettably, plenty of European politicians who think that it is.

  19. @DOCM

    The analysis is largely posited on the assumption that the countries of the EU have somehow agreed to integrate their economic and social policies. That is precisely what they have NOT agreed to do. (They have agreed certain budgetary discipline rules – some outside the EU treaties – but how they stick to them is a matter for them alone).

    Anyone who argues that common budgetary rules enforced by the EU do not represent an integration of economic policy is either a fool or taking other people for fools. It is an astonishing thing to say.

    Similarly anyone who argues that most of the EU adopted these fiscal rules under anything less than extreme duress is one or both of dishonest or deluded.

    Finally if you are arguing that the EU economy is in trouble (including Germany and the Netherlands) because of lack of structural reforms in France you have to have been driven completely out of your mind by neoliberal fervour.

    I think that like many ultraconservative Europhiles you might be a Hobbesian at heart. In the domain of German led European technocracy you have found a new monarch for us to surrender our authority to.

    Hobbes: The First Counter-revolutionary by Corey Robin

    Hard choices, actions taken under duress–these are as much expressions of my will as the decisions I make in the calm of my study. Extending the analogy, Hobbes would argue that the surrender of my wallet to someone holding a gun to my head is also a willed act: I have chosen my life over my wallet.

    Against his opponents, Hobbes suggests that there can be no such thing as voluntarily acting against my will; all voluntary action is an expression of the will. External constraints like being locked in a room can prevent me from acting upon my will; being on a chain gang can force me to act in ways I have not willed. But I cannot act voluntarily against my will. In the case of the mugger, Hobbes would say that his gun changed my will: I went from wanting to safeguard the money in my wallet to wanting to protect my life.

  20. @docm
    It would be a lot easier for France to address its problems if the rest of the EZ wasn’t circling the toilet bowl of deflation, quoi.

  21. @Veronica

    I can remember UK Euro proponents claiming that if the UK didn’t ditch Sterling for the Euro it would result in “a two-speed Europe”.

    They seem to have got something right anyway.

  22. @ Veronica, all

    I see the article as recognizing that the Euro is here to stay, and that all the financial institutions are settled as they are now.

    And the nationalist / socialist outbreak of Montebourg, the open call for crime against treaties, this weekend was just the realization of the hard left in France that this will not change.

    Given that the relection chances are minimal, they want to go the same way as the hard left in the SPD after 2003. That this means their purge, I dont think they believe so far.

    While I am pretty confident, that France will finally do the right things now,
    it has also become completely clear, that we will not hand over decisions over anything critical to Europe, especially not the wallet. That would be way too dangerous.

  23. DOCM,

    gosh, I am so scared, I need to buy physical gold immediately : – )

    That is actually just a one-man show by Lazlo Andor, since about 2 years,

    a hungarian social democrat. They screwed up the economy soo badly, that recently the Hungarians voted for a second time with a 2/3 majority for the right side crazy Victor Orban, you know the only one voting with Cameron against Junckers.

    But since this would need a treaty change with unananimous vote :

    “Für die Einführung einer solchen einheitlichen Arbeitslosenversicherung wäre eine Änderung des EU-Vertrags notwendig, der alle Mitgliedsländer zustimmen müssen.”

    I am pretty relaxed.

    In principle such automatic stabilizers could have some merit, so I don’t want to stop discussions too early, and without knowing details of proposals,

    but in practice all those social insurance, pension level, eviction practices , etc. , etc, are connected with each other,

    and any attempt to federalize parts of them would most likely make the majority feel short changed and lead to endless hate generating debates.

  24. DOCM,

    While I was already loading my gun for de Grauwe …. : – )

    the vox article is from Daniel Gros, and what he says is pretty much the opposite from Lazlo, a reinsurance for large hits in complete opposition to Lazlos first stage paid by Europe.

    Gros sounds actually pretty reasonable to me, but I want to add, that the ESM actually might be such a thing, given the wide discretion the ESM has in setting terms and conditions for such “loans” : – )

    Veronica, all

    As a little background music on Hungary, please just take a look at

    http://www.ft.com/intl/cms/s/0/2234f99a-2942-11e4-8b81-00144feabdc0.html#axzz3BdIcqR87

    and especially the comments there.

    Add that Hungary recently signed up for 4 new nuclear power plants from Russia, to be owned and operated by them, AFAIK.

    And that the commenters claims somewhat contrast with
    wiki/Governmental_positions_on_the_Iraq_War_prior_to_the_2003_invasion_of_Iraq

    And I hope that other european people better understand that we are fed up with all the crazies in Europe.

    I do not want some majorities du jour to be able to make any far reaching decisions on energy, war, permanent payments, etc.

  25. @ francis

    Oops! Wrong name reference.

    The point about the contributions of Daniel Gros is that they are invariably rooted in the realm of the real world and the political possibilities.

    Some movement to create a tipping point, such as those achieved by German and other European leaders in the past, is what is required. Merkel’s track record on that score is not very promising.

  26. DOCM,

    tipping point?

    ESM, banking union, minimum wage, all on Merkels watch.

    those are enourmous changes in a very few years.

    This got to be enough for a while.

    btw, I added some comments on the “insidious” thread.

  27. URGENT !!!!

    DOCM, all

    are you online? PLEASE tell me what you see ! NOW !

    http://www.sueddeutsche.de/politik/russlands-vorgehen-in-der-ukraine-wie-der-westen-auf-putin-reagieren-muss-1.2108496

    comment from

    Trais vor 3 Stunden
    Melden
    Es wäre sinnvoll, wenn die Mitgliedschaft der Ukraine in der EU endgültig aufgegeben wird, ebenso die in der Nato.

    4396 Leser empfehlen diesen Beitrag

    What do you see as / before “Leser empfehlen diesen Beitrag” ??????

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