Where next for eurozone governance? | Progress | News and ...

When in 2010 the global financial crisis finally hit and started to deeply unsettle the eurozone, many commentators and experts, particularly in the Anglo-Saxon sphere but also elsewhere, felt a great deal of vindication: ?Didn?t we warn them that a single currency without a central fiscal authority imposed on a group of highly diverse countries in different economic cycles and stages of development is just an irresponsible political and economic gamble bound to fail sooner or later?? ? or so they kept, and keep, repeating.

Since then, numerous articles, studies and expert papers have shown the deep flaws in the original design of EMU, a system that proved distortive in quiet times and extremely vulnerable and fragile in crisis times. Correcting these flaws has turned out to be a very challenging affair: 20 European Union summits later and a more comprehensive solution is nowhere in sight.

This difficult trajectory should not come as a surprise. The EU has entered the arena of high and polarising politics rather ill-prepared. If there was no mechanism to deal with the extraordinary shocks after the global financial crisis, there isn?t yet an orderly political space capable of driving the kind of structured and well-informed discussion Europe needs for taking big and lasting decisions.

For some, this crisis therefore appears self-inflicted and owing to a utopian vision of European unity that was always bound to fail. They are wrong. What we are witnessing is the rise of a fierce and possibly self-perpetuating conflict between creditors and debtors ? at the global and regional level, but also within nation-states.

The crisis we are in is the result of a decade of debt-financed consumption (either private, public, or in some cases both). It?s different from a typical cyclical recession as both creditors and debtors have to undergo painful adjustments. As Harvard?s Jeffry Frieden explains, the distribution of the adjustment burden entails two dimensions: first, between countries, where the dividing line is one between demanding austerity and debt restructuring; and, second, within countries, where the dispute is primarily about who will have to pay off the debt overhang. In his own words, ?debt crises always lead to substantial international and domestic political tension; the current crisis and its aftermath have been no exception.?

Indeed, the world, and Europe, is currently gripped by these very tensions. They owe much to the globalised and interdependent nature of our economies. While the eurozone has a tendency to exacerbate those tensions, it can also serve as a powerful vehicle to mitigate them. But for this, EU leaders must urgently address and resolve the emerging political dilemmas: between socioeconomic diversity and the logic of downward convergence; between a community-based EU and an intergovernmental logic; or in relation to the democratic pressures associated with any further move towards integration in a weakly legitimated union.

In the end, such a fundamental debate involves big questions of justice ? between and within the states of Europe. Capital is already highly mobile; labour increasingly so. There is simply no escape from it, regardless of whether a country belongs to the euro or not.

The latest contribution of the Tory-led government was to launch a ?review of the balance of competences? between Britain and the EU. It?s yet another inward-looking exercise designed to distract from an awkward discussion about an EU referendum. The party of Churchill and Thatcher, traditionally a formidable force in the debates about the future of European politics, is fast becoming an irrelevant bystander. The big question then is: can Labour do better?

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Olaf Cramme is director of Policy Network and co-author of Where next for eurozone governance? The quest for reconciling economic logic and political dilemmas. He tweets @OlafCramme

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coalition government, Conservatives, economy, EU, euro, Europe, eurozone, finance, Labour, Margaret Thatcher, Policy Network, Winston Churchill

Source: http://www.progressonline.org.uk/2012/07/19/where-next-for-eurozone-governance/

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