LONDON AND OXFORD GROUP

News & Commentary in English

European Monetary Union: Second honeymoon or pending divorce?

Open Europe debate on European Monetary Union - 28/04/09 in Brussels

Ignazio Angeloni, Advisor to the Executive Board, European Central Bank, gave an overview of economic data on the eurozone, saying that 6 to 7 million jobs have been created during the 10 years of the euro. He said that an important achievement was that labour markets had become more flexible, in particular in Italy, Spain and Portugal.

He admitted that it was debatable whether this was due to the euro. “Quite frankly”, he said, “I don’t think economists have an answer to that. Most of the progress took place before 1999, but then again, one could argue that it is because of the euro. The important thing is that the labour market has changed in the positive direction.”

His analysis continued, saying that “a lot of times it is referred to the loss of competitiveness. A group of countries have lost competitiveness – Italy, Greece, Spain, Ireland – but relative to the average of the eurozone some countries have improved (Germany, Austria) and some have remained at the same level.”

He concluded with comments on the future expansion of the eurozone: “What is going to happen to the family? The decision to join the euro area is very similar to marrying. Do it only if you are convinced. Not only your partner should be right, but also you should be ready to marry. Don’t also do it because of other problems that you have”.

David Marsh, author of "The Euro: The politics of the new global currency", said “the euro was set up as follows: You can not make changes in real exchange rates through nominal exchange rates, you can only do that by changing production costs.”

Looking ahead to the future of the EMU project, he said: “I’m not predicting doom and gloom, but I’m saying this will be a time of real reckoning. There will be political blackmail. Germany will pay a very high price to keep EMU together, whether it will be through the back door or not. EMU is about preserving Germany’s export markets, and is something like a holy grail.”

He further lamented the ECB for not being transparent enough: “Jean-Paul Trichet is allowed to make too many speeches on things for which he’s not really responsible for culture, jobs, etc but he does not tell us terribly much about monetary policy. I think the ECB should publish more on its decision making process.”

He concluded: “the only way for the euro to survive is to have a political union. Without that, sooner or later the eurozone will break up. It will not be the same as how we started. I cannot predict when exactly, whether it will be in 10, 20 or 30 years.”

Derek Scott, vice-Chairman of Open Europe and former Economic Advisor to Tony Blair, said that “the Economic and Monetary Union was a major mistake, as it has imposed an asset price bubble on top of all the mistakes made in the US. We know that for countries in the upturn of the economic cycle, inflation had been too low, inflation would pick up, and when the boom goes to bust, the opposite occurs: in countries where inflation has risen very high, it falls more dramatically and interest rates are higher at exactly the time when they should be lower. That is what we’ve seen in a number of countries, because of initial weaknesses in Germany, interest rates were kept far too low, in countries like Spain, Ireland and Portugal and Greece.”

He went on, saying: “the eurozone has been presented somehow as a zone of stability. It is true that countries have avoided currency crises in the way that they may have done if they hadn’t been in the single currency, but currencies are important measures of things going wrong just as in the ERM real interest rates were important signals. What we’ve done is to throw away important phenomena: when the patient gets sick, all that means is that the symptoms come out in other areas, and we are beginning to see that in very high levels of unemployment, higher debt and so on.”

Concluding, he said: “so it seems to me that Mr. Delors was probably right, saying that this thing cannot exist without having a political union, and you cannot impose a political union, it has to require the citizens of Spain, Britain, France and Germany seeing their relationship with their union in the same way as the citizens of Massachusetts, Texas and California do to their union. That isn’t going to happen. It seems unlikely to have a debt union without a political union. This is going to end up sometime along the road, not immediately, because I think things will be patched together, in a major political financial crisis in Europe.”

Back to main page

For further details including book purchases, bulk copies and news on book launch events, please contact:

Wiebke Räber, London and Oxford Group, + 44 (0)20 7796 9911, wiebke.raeber@londonandoxford.com

For all other questions about the book, including reviews, please contact:

For English edition: Katie Harris, Yale University Press, + 44 (0)20 7079 4900, katie.harris@yaleup.co.uk

For German edition: Dagmar Landgrebe, Murmann Verlag, +49 (0)40 3980 8313, landgrebe@murmann-verlag.dee