The Future of the Euro. Matthias Matthijs Assistant Professor of IPE Johns Hopkins SAIS Washington, DC

Transcription

1 The Future of the Euro Matthias Matthijs Assistant Professor of IPE Johns Hopkins SAIS Washington, DC

2 Summary of Today s Talk Hotel California? Moving from Optimum to Minimum The political foundations of markets The Euro Problem Forgotten embeddedness, financial union, economic government, and democratic legitimacy The Euro Experience The reluctant leader, the middle child, and the troubled South The Euro Future The new German problem, EU s capacity to move forward through crisis, Geopolitics, and Swans 2

3 The Eurozone: A Bad Marriage with No Possibility of Divorce? 3

4 From Optimum to Minimum: the political foundations of markets

5 McNamara: Forgotten Embeddedness Kate McNamara (Georgetown) Optimum Currency Area Theory the market makes the currency Embedded Currency Area Theory Politics makes the currency! See summary on next slide Currency Unions in Practice Embedded currencies: one money, one government United States, Federal Germany, Italy & Switzerland Partial Embeddedness: one currency, one decentralized polity Austria-Hungary Disembedded money: one currency, multiple polities Latin Monetary Union, Scandinavian Monetary Union 5

6 The Euro Problem: Forgotten Embeddedness 6

7 Lessons from History 7

8 Jones: Forgotten Financial Union Erik Jones (SAIS Europe) Euro crisis: NOT a crisis of the euro! But, a crisis of the SINGLE MARKET. When EU leaders pushed for K market liberalization and integration in late 1980s, they forgot to build institutions Instead, they held onto national institutions for banking regulation, supervision, resolution and insurance. The absence of any sort of financial union was enough to bring some crisis about. See crises in Iceland, Hungary, and Baltics 8

9 ECB to the rescue: Target II 9

10 Jabko: Forgotten Gouvernement Economique Nicolas Jabko (Johns Hopkins University) Not just a forgotten financial union, but also forgotten union of economic governance Including fiscal union Main problem: divided sovereignty Monetary policy at EU level, fiscal policy at national level Member states have de facto moved towards shifting more sovereign powers to the EU level (ESM, Fiscal Pact) However, still too conditional Too many unsolved political problems left! 10

11 Schmidt: Forgotten Democratic Legitimacy Governing by the Rules & Ruling by the Numbers Vivien Schmidt (Boston University) 11

12 The EU s institutions Output Input - Throughput ECB: From One Size Fits None to Whatever It Takes European Council: One Size Fits One Rules (Read: Germany) European Commission: One Size Fits All European Parliament: No Size At All 12

13 The Euro Experience 13

14 Newman: The Reluctant Leader Abraham Newman (Georgetown) Don t Throw Good Money after Bad Moral Hazard vs. Contagion or Damage to Export Markets Germany s euro experience: From sick man of Europe to export miracle Reunification Blowback Solidarity exhaustion Structural Adjustment Misfit Statistical versus Real Germany 14

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16 Vail: The Middle Child Mark Vail (Tulane) France s Faustian Bargain: Commitments and national policy during the birth of the euro Two goals: political leadership in Europe + maintain social economic model in EU Statist Liberalism in post-2007 world: France as frustrated arbiter and alternative in the eurozone The Middle Child in a Dysfunctional Family: Implications for the future of the euro 16

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18 Hopkin: The Troubled South Jonathan Hopkin (LSE) Joining the Euro: Mistaking the starting gun for the finish line? Mediterranean workers: From restraint to stagnation Entrenching a Conservative Coalition: Unequal gains from monetary union The Crisis: guess who pays? Choice for austerity: regressive distributive consequences Electoral responses: Populism vs. Technocracy Europe is engaged in a major gamble The lack of concern for the electoral process reflects an approach to the political economy in which democratic accountability takes second place to the nebulous notions of investor confidence and credible policy commitments. The success of this strategy rides on whether EU leaders have correctly assessed the southern European electorate s patience and endurance. 18

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20 The Euro Future Wade Jacoby Europe s New German Problem: The Timing of Politics and the Politics of Timing: Do Something! 3 kinds of ordoliberalism The Imbalances Problem Why Deutschland Dithers: 4 scenarios Timing of politics: Bailouts! Too early Too late Too big Too small 20

21 Politics of Timing Thinking Slow and Fast: German Patience and Its Exorbitant Privilege German delays pressures reform in periphery Moving slowly increases pressure on private counterparties for haircuts German banks need to get healthy German financial regulation needs to be made compatible with EU level regulation Can supranational banking save the EZ? 21

22 Does the EU move forward through crisis? Craig Parsons (U Oregon) Matthias Matthijs (SAIS) European Integration: Past, Present, and Future Jean Monnet: Europe will be forged in crises, and will be the sum of the solutions adopted in those crises. Reassuring frame that tells Europeans that they have been here before and that the recent storm clouds have a silver lining. Is this time different? 22

23 Past Crises: Overview and Assessment Major steps in EU integration: European Coal and Steel Community (1951) Failed European Defense Community (1954) European Economic Community (1958) European Monetary System (EMS) (1979) Single European Act (SEA) (1986) Economic and Monetary Union (1992) Eastern Enlargement (2004) 23

24 Crisis: Qualitatively Different and Insufficient Response Why This Time Is Different (1) existence of imminent market and political pressure, with potentially disastrous consequences of inaction (2) euro crisis meant a significant encroachment by the EU on national decision making powers, esp. in the realm of fiscal policy Harold Lasswell: who gets what, when, and how Fiscal policy, re-politicization of monetary policy Euro crisis exposed the EU as a political entity taking it out of its technocratic comfort zone. The Limits of Crisis Driven Reform 24

25 Eric Helleiner (Waterloo) The Euro s Global Monetary Context Europe s Global Ambitions 2008: The Euro s Moment to Shine? Fear of a dollar crisis and collapse The private demand for dollars + foreign official support for the dollar Enduring European international ambitions China as a new player in the euro s future 25

26 Mark Blyth (Brown Univ) Possible Futures, Risks & Uncertainties European Political Economy and the importance of embedded institutions American Lessons for a European polity What have we learned? The Return of Politics and possible futures for the Euro Four crisis-generated changes: (1) Franco-German engine (2) Return of the North-South Gap (3) Community method vs. Union Method (4) Legal tensions between nation states and EU institutions White, Grey and Black (Euro) Swans 26

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28 What does all this mean for the future of the euro? 28

29 Remembering Tony Judt & Raymond Aron

30 Thank you!