18 June 2013

Andrés Ortega: Better to suffer inside the eurozone

In spite of all of the associated shortcomings and suffering, for many in Southern Europe it is still better to be inside than outside the eurozone, comments Ortega in this Policy Network article.

A wind of euroescepticism is sweeping through a castigated Southern Europe. For a country very pro-European, 72 per cent of Spaniards, according to last autumn’s Eurobarometer, mistrust the EU institutions (even though an even greater proportion, 86 per cent, mistrust the Government). Yet paradoxically, 67 per cent of Spanish citizens support staying in the euro, in spite of the policies of austerity imposed on Spain. The same is true for Portugal, Italy or Greece. Southern Europeans understand that inside the eurozone it is cold, but getting outside would freeze them.

Obviously, it would not be the same to exit the euro as not having got inside in the first place. Maybe it would have been politically easier to have had a devaluation, or several, that would have recovered for a time the lost competitiveness, at a price: the impoverishment of the whole countries of the region. Cuts in public expenditure would not have been avoided. But within the euro, all those countries have been forced to what is called “internal devaluation” i.e. essentially cuts in salaries that the employed feel directly in their paychecks (although not enough in products and prices).

However, an exit would leave those countries, at least temporarily, out of the markets to finance themselves, in what in Spanish is termed (by the Argentinian experience) a corralito (small corral). And the less favoured part of the societies, the working class and the middle classes, would suffer heavily.

As a policy, it would be suicidal for any politician. In those countries, and particularly in Portugal, Spain and Greece where the demise of dictatorship is more recent. The construction of democracy and of economic modernisation go hand in hand with integration in an ever deepening European Union. “Europe” is part of their national identities, and no Government would dare risk being responsible for its own country dropping out of the most important European project. It would cause a deep identity and political crisis. Socialist prime ministers have followed that line in these three countries, at the price of measures that have been very unpopular for them and that have brought their electoral defeats. And conservative governments have done the same. 

The last few years have been very harsh for Southern Europe. Its people know  that the EMU was badly constructed. They have shown that they are ready to make the effort to stay in a Union that has to integrate much more, but in a different way. More Europe but different. The EU is a good platform for reconstruction, if it leads to convergence. Otherwise, it will be a failure.

Full article

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