05 Nov 2011

Euro : when governance is missing…

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The Euro : Pride and Prejudice, John F. Welch

The Euro : Pride and Prejudice” is the name of a captivating conference held in Luxembourg on the 2nd November with 3 invited speakers : Dr. Jacques Santer, former Prime Minister and President of the European Commission ; Dr Thanoas Skouras, Professor of Economics ; Athens University, Dr. Alfred Steinherr, Academic Director, Sacred Heart University – Luxembourg.

Not very easy to wrap up a so much burning topic in a few sentences … so I will focus on some highlights and key-words given during this more than 2 hours session.

Jacques Santer depicted the global insight of the European political situation

Solidarity and coordination are the utmost important things to target in this current times, if we want to get out of the Euro-crisis.
A balance between social welfare and economic growth is to find out, to ensure a sustainable future to the Euro-zone. This challenge can not be reached without going towards more economic convergence between the EU-members.

Thanoas Skouras outlined the biggest pride and prejudice aspects of the Euro

Pride : the EU states along with the banking actors have not dealt with the financial crisis of 2007. We are suffering from a lack of strong actions to curb the economic crisis that has followed the financial one.

Prejudice : according to George Soros, there have been hidden weaknesses in the construction of the Euro. The first one is the absence of common states policies. A currency without strong political roots can not survive.

Last but not least, the mission of the ECB – European Central Bank is to revisit, with among other things giving it the empowerment of lending to the EU-states and setting up a EU-treasury.
As a conclusion, a new EU-treaty replacing this of Maastricht has become urgent.

Alfred Steinherr rolled out a meticulous analysis of what did have gone wrong since the inception of the Euro and what is expected to come up in the next years

He kicked off with stating that the Euro-crisis is not a matter of persons (… referring to the clashing positions of Germany and Greece), but of system.

Some inconsistencies (non-sense) about the Maastricht Treaty were presented :

  • the debt rates against GDP ruling the Euro-members were disregarded to accommodate Belgium and Italy
  • no bail-out rule have been set up, which gets the treaty not credible
  • current account deficits have been simply forgotten

He came to the conclusion that what gets impossible in a monetary union is to follow in the same time 3 incompatible objectives : economic convergence (common EU-policy) ; price stability (few inflation) ; external equilibrium (free movement of the laborforce and capital within the EU-space). One of them is to be kept up.

Pursuing economic growth coupled with convergence means that the incomes should grow more rapidly in the South than in the North. It would result in more inflation then !
The question is today how Southern countries of Europe can return to growth ? It appears that there is no willingness at the states level to transfer some of their authorities to a central EU-body, neither to set up a common treasury.

The only thing that is likely to happen very soon is an in-depth review of the Maastricht Treaty. In the meantime it will not reverse the on-going trends observed : the current failure of the Euro as an attractive currency ; the slow growth combined with a rising unemployment ; the rejection of Europe as an ultimate and widely-shared goal for all European citizens.

Despite this context, “the Euro will survive !”, ascertained Alfred Steinherr.

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