Is the euro crisis over? To judge from how often the words appear in global media (down by three-quarters between early 2012 and early 2014), the answer is yes.
Markets have calmed since July 2012, when the president of the European Central Bank (ECB), Mario Draghi, promised to do “whatever it takes” to save the euro.
Ireland and now Portugal are climbing out of their bail-out programmes. Even Greece, where the crisis began, has just sold debt.
Yet, as these books all argue, the crisis was always about more than whether financial markets would buy government debt.
It raised broad worries over how countries with widely differing levels of prosperity, competitiveness, public spending and taxes, and regulation of labour and product markets, could share a currency without economic shocks blowing them apart. And it was about whether euro-zone voters would accept low growth, high unemployment and a permanent loss of sovereignty to the centre. None of these concerns has been fully dealt with.
Jean Pisani-Ferry, who now works in the French prime minister’s office, was director of Bruegel, an influential Brussels think-tank during the crisis. His careful and persuasive book is an extensive updating of an essay published in French in 2011. And, although he is a supporter of the euro and of European integration, he describes thoroughly the hugely expensive mistakes made by Europe’s leaders.
The biggest error was to misunderstand the underlying causes of the crisis. Because the first victim was Greece, it became accepted wisdom in Brussels (and Berlin) that the problem was profligate spending and borrowing.
The Germans liked this explanation because it confirmed the suspicions they had before the creation of the euro that they might be lumbered with other countries’ debts. It also looked susceptible to a gratifyingly simple cure: ever more fiscal austerity. And it avoided any suggestion that Germany might have contributed to the crisis by running a large current-account surplus that its banks recycled in cheap loans to Mediterranean property developers.
Mr Pisani-Ferry offers a challenging alternative hypothesis. Suppose that the crisis had begun, as it might easily have done, in Ireland? It would then have been obvious that fiscal irresponsibility was not the culprit: Ireland had a budget surplus and very low debt. More to blame were economic imbalances, inflated property prices and dodgy bank loans. The priority should not have been tax rises and spending cuts, but reforms to improve competitiveness and a swift resolution of troubled banks, including German and French ones, that lent so irresponsibly.
Philippe Legrain, who once worked for The Economist, was another close observer of the euro crisis, as an economic adviser to the European Commission president, José Manuel Barroso. His conclusions are similar to Mr Pisani-Ferry’s, if more stridently expressed. He is particularly good on (and particularly scathing about) the shortcomings of his own institution and the ECB. He is not popular in Brussels or Frankfurt.
Mr Legrain argues that Europe should have tackled its banks’ problems much sooner than mid-2012, when it decided to create a (still incomplete) banking union. A big reason why America has recently grown faster than Europe is that it did more to sort out its banks in 2008-09. Mr Legrain is also right to criticise the ECB for its half-hearted bond purchases before July 2012, when it finally emerged as a proper lender of last resort. Only in the second part of his book, when he moves into broader topics such as education, innovation, climate change and democracy, culminating in his call for a “European spring”, are his arguments sometimes less persuasive.
Both authors agree that the aftermath of the crisis is an unsatisfactory one that may not endure. Even if markets do not turn sour again, most of Europe seems stuck with low growth, high unemployment (especially for young people) and a horrible debt burden. The risk of a “lost decade” similar to Japan’s in the 1990s is worryingly high. Worst of all is the broad disillusion of voters with the entire European project, which will be expressed in this month’s European elections through big gains for populist and extremist parties.
Roger Bootle has similarly gloomy concerns about the state of the European project, but his conclusions strike a far more Euro-sceptical tone. He wants to reduce the role of Brussels and enhance that of governments, with a call to “renationalise Europe”. He also believes that Britain, where David Cameron is threatening to hold an in/out referendum by 2017, is well-placed to push an agenda of reforms that turns the European project into little more than a somewhat expanded free-trade area — and that, if he does not succeed, Britain should leave the club (see box below).
What is striking is how much the authors agree about the failings of the EU and the euro, which is stuck in a half-completed house. Where they differ is in the solutions they propose. Europhiles want deeper integration and more centralised powers. That was proposed this spring by the German-led Glienicker group and by the French-led Eiffel Europe group. It is also backed by Loukas Tsoukalis, a Greek academic, in an essay, “The Unhappy State of the Union”, published by London-based Policy Network.
Yet few voters feel warmly about ever closer union; many would agree with Mr Bootle that this aspiration of the original Treaty of Rome should be formally ditched. Nor do many welcome ever greater intrusion by Brussels and Frankfurt into domestic politics. A more plausible idea, backed by Mr Legrain, is to restore greater freedom to national governments but reinstate the principle that they will not be rescued by the centre if they get into trouble.
The biggest worry may stem from the perception that the crisis is over. This is likely to slow or even stop further reforms. If that happens, the EU and the euro will get into trouble again — and the outcome next time could be even worse.
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