Extracts from the Preface – January 2011
In early 2011, the eurozone debt crisis looks likely to take a dramatic turn for the worse – raising the intensity of the search for enduring solutions as the markets now price six states as ‘risky’. But there remains a scenario that has a good outcome. It requires a truly credible policy framework in combination with a collective financial facility that is manifestly big enough to fund all states at risk until the benefits of the new policies come through.
Eurozone will have emerged from the financial crisis as a political federation – loose in some respects, but with tightly centralised economic governance at its heart. The proven commitment to fiscal probity may even make it attractive relative to alternative investments around the world.
Since the decisions at the fateful crisis weekend in mid-May 2010 which created a structure to resolve the situation in Greece, it has been increasingly clear that the eurozone was going to take tough collective action on the economic governance of its members. Its leaders have committed to enacting by June 2011 the European Commission’s detailed proposals – even if the many critics regard them as still lacking in effective sanctions. But they do contain truly radical plans to intervene in the domestic economic affairs of members – if it becomes apparent that serious imbalances are brewing that could infect their fellow members via financial contagion.
If the eurozone does indeed do “whatever is required”, then it will survive. A political entity will emerge that will be characterised by a centralised funding of public debts that result from a collective oversight of many detailed aspects of economic life designed to improve competitiveness. “The policy prescriptions could potentially address fiscal, wage, macro-structural and macro-prudential policy aspects”. Many observers will describe this as a loose federation called ‘Eurozone’.
A glance at the evolution of the European Union once it moved on from being a ‘gleam in the eye’ of far-sighted statesmen shows that the political goals were always to be reached “through concrete achievements which first create a de facto solidarity”. Those practical achievements were the steps to create a single market giving “free movement of people, goods, services and capital”.
If things happened that smashed the concrete achievements, then it is a fair bet that the solidarity would vanish soon afterwards as the blame was spread around for the destruction of the benefits. The existence of the euro – together with a financial system that enables its daily use by 330 million people – is a major component of delivering the benefits of the single market as goods and services can now be purchased very easily across borders.
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