The inability to resolve the crisis in Greece reveals the principal failure of the single currency.
Time is running out for a deal to be done on refinancing Greece’s debts in order for it to avoid defaulting on them. It may be that some kind of last-minute deal can be done to keep the show on the road - and put off the hard decisions about Greece’s future in the Eurozone for another few months. But the nature of the debate about the negotiations has only confirmed the fundamental weakness at the heart of the single-currency project.
As Robert Peston notes in an interesting article for BBC News, what is absent is any sense of wider European solidarity. Wealthier countries want their debts to be repaid and are willing to drive down the living standards of the Greek people to an astonishing degree in order to achieve that. When the Greek finance minister, Yanis Varoufakis, talks about European solidarity, of all the countries in the Eurozone being ‘in it together’, ‘he’s been viewed by his eurozone peers as though he farted in the negotiating room’, says Peston.
The trouble is that economic union was forged without political union. As a result, there is a single-currency zone containing countries with widely different economies but no mechanism by which transfers of wealth can take place within that zone. Instead, all the zone’s members must bow down to the national interests of the strongest economies, without any democratic means of influencing the outcome. Perversely, there isn’t even much solidarity to be had between the weaker members of the zone. Having fallen into line with the demands of Germany and the European Central Bank, other struggling economies like Portugal, Ireland and Spain - which make up the so-called ‘PIGS’ with Greece - are, if anything, the least sympathetic to Greece’s problems.
As economist Phil Mullan pointed out at the Battle of Ideas festival in 2012, ‘a monetary union alone can never deal with the inevitable economic inequalities that are bound to exist across any broad geographical area, differences which are all too evident today. To deal with economic inequalities, you need to have fiscal transfers and other such policies to address them.’ But he added, the political structures to achieve this can’t be simply added on to a failed system. ‘These mechanisms cannot be gradually and retrospectively introduced. To attempt to impose fiscal and political union on top of what presently exists will only make things worse, not just economically but, more importantly, politically and democratically.’ Mullan called for ‘a controlled dissolution of the Eurozone’ to enable ‘a proper public debate about how to realise the benefits of European integration’.
You can watch highlights of the debate, Euro and the economy: the final countdown?, here:
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