Can the euro, and indeed Europe, survive the region’s current debt crisis?
One person who is well qualified to speak on that is the economist, Professor Jean-Paul Fitoussi, from Sciences Po University in Paris and Luiss University of Rome, who recently published a book on the subject.
Euronews asked him about the causes and possible solutions to the crisis that has pushed Europe into recession.
Giovanni Magi, euronews: “The treaty on stability, coordination and governance – the budgetary pact signed in March 2012 – forces eurozone countries to put balancing their budget into their constitutions, making it illegal not to. You have been critical of the pact, was there really nothing good about it?”
- Professor Jean-Paul Fitoussi:* “It’s not a question of whether there’s nothing good or if it’s all good. The problem is knowing what is the significance of something that requires EU member states to balance their budgets. It makes one think of a plan that has been created for a federation of states.But the European problem is that there is no federation. So the big difficulty here is we find ourselves increasingly federated, and less and less a federation.
“If you like, this budgetary pact refers to the lack of a political Europe, and it raises the question of what is happening with this integration process where democracy is being reduced within each member state without increasing democracy at the federal level. So there’s a real basic problem. But behind this budget issue, there is the problem of respecting the economic rules. In the past all they cared about was the currency, now all they care about is budget discipline. But Europeans are very dogmatic, very much focused just on that, and so they try to explain everything by that. Before the creation of the single European currency, inflation was the factor; after the creation of the single European currency balanced budgets and public debt are the factors.”
euronews: “Exactly, you said that national debts are sovereign, but the euro is a currency without a country. Without a political union is the banking union that has has been agreed, is it enough?”
Fitoussi: “Yes and no. Firstly, it’s not exactly right when I say that the debts are sovereign but there’s no sovereign currency. The problem is that the European countries are running up debt (borrowing) in a currency over which they have no control. That means they get into debt in a foreign currency. And so they can go bankrupt. If a country borrows in a currency it controls, it can never become insolvent. If emerging countries go bankrupt, that is because their debts are in a foreign currency. That means there is a defect in the structure, that opens it up to speculation.”
euronews: “What can be done to reduce, or prevent, this speculation over whether a state is solvent (has the means to repay its debts)?”
Fitoussi: “It’s pretty simple, we could do what we did when the single currency was created, when the exchange markets for individual currencies (franc, mark, drachma, etc) disappeared, it was no longer possible to speculate in those European currencies. Now we have to create a single equity or security for debt. That way it would not be possible for investors to speculate on European sovereign debt (government bonds) “
euronews: “You mean Eurobonds…”
Fitoussi: “Eurobonds – I’d call it a “single bond”. That means there is only European debt; just like in the United States there’s just one debt; just like in Japan. There’s just one debt in the federated states, and there is one central bank which is always the lender of last resort. “
euronews: “When François Hollande was elected President of France, you said you agreed with much of his economic programme. Do you still hold that view?”
Fitoussi: “Look, everything I’m saying shows that I actually agree with the renegotiation of the” fiscal compact “. But there were no renegotiations. And François Hollande signed that budgetary treaty that he’d said he didn’t want to sign unless there were changes.”
euronews: “Swiss voters recently decided through a referendum to limit corporate executives’ high salaries. Do you think that’s just a symbolic gesture, or should other countries do the same?”
Fitoussi: “It’s a bit of both and I think it might actually be quite effective in providing an example to other countries, but Europe is not in a good position to learn the lesson. Because Europe has a competitive tax system. So if a European country began to want to do the same as Switzerland, some of its citizens might go off and live in places with a better tax regime for them.”
euronews: “One lesson that can be drawn from the recent past is that the European Union as it is now, is not working, it’s not one thing or the other. If we can’t solve this problem and move towards political union, does that mean we’ll have to give up on the whole ‘European Project’?”
Fitoussi: “I don’t know. Look, this is a question that I find very problematic. Because I see people suffering, everywhere. In Italy, Greece, obviously, Spain, France, Germany, where poverty has increased considerable – in Britain – and people are committing suicide, which is not a normal thing, so they want change. And before long they’ll start thinking: there is no possibility of change. So, Europe has to change, or the people themselves might give up (on the European project). But that’s very complicated, because it means that we’d be dropping out of the race just before reaching the finish line. We set out to create a single people: and we will have been deflected from that by a dogmatic approach.”