Europe is the weak link in the global economy

octobre 29, 2016 0 Par Michel Santi

Today, the crisis confronts those who delivered Europe to the technocrats, bankers and industrial types who are hardly concerned with a united and social Europe. This crisis is not only financial: it consecrates the failure of the European ultra-liberal model. The Founding Fathers of the ECB will focus all the vital energy of their institution on the quest for (and the maintenance of) price stability that was established with Holy Grail status. The German economist Otmar Issing, who was a member of the ECB’s board of directors when it was founded and was its first president, and the Dutchman Wim Duisenburg, made the decision to attach their central bank to the mast of the sacrosanct fight against inflation. To the neglect of growth and employment. It is therefore this congenital defect that is responsible for triggering the crisis suffered by the Union, and it is this superstructure that is at the source of its magnification.

Since the peripheral European nations are deprived of the monopoly of creating the money with which they are indebted, lenders now consider them to be borrowing in a currency that is foreign to them. Also, this absence of fiscal and budgetary integration of the Union’s members has exacerbating financial tensions. The financial system and the States interact very differently depending on whether the monetary union is decentralised or if it is of the federal type. The solvency of a member-state of the United States of America is never even considered upon the collapse of an incorporated bank that is based in that State. For this reason, it is apt to scrutinise the chronology of the formation of the EU itself, for those who (rightly) claim that the US wasn’t made overnight, and for the others who, like Germany and the busy bees of Scandinavia, have been trying to imbibe the southern spendthrifts with their culture of care and discipline that had been indispensable to European budgetary and fiscal integration.

The sequence that demanded the balancing of budgets and restricting debts and deficits was in fact the starting point that everything else was to stem from. It is therefore style that was privileged to the detriment of substance. Because of this, this decentralised structure grossly underestimated the vulnerability of countries having a natural predilection for deficits, or those simply dealing with isolated hardships. In other words, the original sin was cast by putting the euro in place, in the absence of organic institutions that focused on right and proper integration. How did the founders of this common currency hope to hold up a structure that was so fragile due to its reliance on such economically, politically and institutionally diverging nations, without any compensatory mechanism of mutual assistance? And with its only virtue being a balanced budget?

Actually, by giving up the precious flexibility of a sovereign currency (which is thus freely printable), abdicating their monetary policy (the fixing of their interest rates, that is), and by forcing the economies of notoriously different levels of competitiveness to converge, the euro has weakened the countries that make up the heart of Europe.