U.S.E./SFL!Symposium!“Eurozone:!Back!on!Track?”,!Utrecht ... · !1!!!! !...
Transcript of U.S.E./SFL!Symposium!“Eurozone:!Back!on!Track?”,!Utrecht ... · !1!!!! !...
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U.S.E./SFL Symposium “Eurozone: Back on Track?”, Utrecht, January 13 2016
Was the euro a mistake to begin with? Does it have a future? These were the central questions for the U.S.E./SFL Symposium, featuring the President of the Eurogroup and Dutch Minister of Finance Jeroen Dijsselbloem on 13 January 2016.
Jeroen Dijsselbloem in his keynote speech stated “the euro is not to be blamed…” He emphasized the benefits of European Monetary Union, at the cost of surrendering policy instruments, in lowering transaction costs and exchange rate risks. These aspects reduce uncertainty for capital investments and foster economic convergence. He further added “Except Greece, the eurozone countries have returned to the growth path. While recovery is on the way, risks still remain…” He further discussed several myths in the euro crisis. He ascertained that “the sovereign debt crisis is not caused by the euro, though the euro affects how the crisis has played out.” He noted that lending risks were priced similarly across the Eurozone countries prior to the crisis, implying that countries with unsound economic policies are able to borrow aggressively, which feed consumption and housing bubbles. “We could have faced the same crisis without the euro…” He then argued “Although the EU budget is crucial, the establishment of banking and capital market union will play an important role in absorbing the shocks.” He gave an example of the U.S. and indicated that the U.S. FED budget absorbs only 50% of shocks, whereas the rest are absorbed through the private capital market. Overly relying on the central budget may force temporary risks become permanent. Lastly he commented on the statement “the structural reforms are only necessary because of the euro” as being half true. He highlighted that a number of structural weaknesses (e.g. health care, labor market, etc.) are deeply rooted in the EU economies and are not related to the euro. However the deepening of structural reforms would make the euro more resilient and contribute to the real convergence of life standards. He concluded “The construction errors of EMU do not mean the euro is a mistake. We need to adapt and make necessary adjustments to deal with the macroeconomic problems we encountered.”
The symposium was proceeded with a panel discussion, consisting of Dr. Sandra Philippen (Editor-‐in-‐chief at ESB), Prof. Arnoud Boot (University of Amsterdam and SFL), Victor Cramer (Head of the EU division of the Dutch Ministry of Finance) and Dr. Claire Economidou (University of Piraeus), moderated by Martin Visser (De Financiële Telegraaf).
Claire Economidou discussed the challenges faced by the EU. She particularly pointed to an overexpansion that is too soon and too quick, the aftermath of the euro crisis where the weaknesses of EU economies are exposed, the lack of visionary EU industry policy, deteriorating regional periphery and the persistence of nationalism. She envisioned two possible future scenarios for the EU. The one is ‘Muddle through’ based on the current setting, whereas the other is ‘Even closer union’ aiming for a more effective state. She
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proposed a single fiscal authority (with own sources of revenues, ability to issue debt and capacity to make ongoing fiscal transfer…), structural reforms to improve labour and product markets flexibility, visionary industrial policy, and finally an entrepreneurial-‐friendly (e.g. low administrative costs) that unlock business potential of EU economies. Sandra Philippen questioned the timing for structural reforms. She was not convinced that the eurozone is back on track as harsh measures are taken in countries like Spain, Ireland, etc. The real effects of capital market union and banking union are yet to uncover. Victor Cramer added that protecting the social system in the eurozone is the focal point in the international discussions. We have done a lot with respect to the establishment of banking union and reforms, but more need to follow. He further discussed the important role of democratic legitimacy in establishing the banking union, which requires a major transfer of sovereignty. Arnoud Boot first commented on Dijsselbloem’s speech as being predictable and realistic. He commended on his gradual approach because big steps will backfire due to democratic legitimacy reasons. However, there is no precedent in the history how such a system should work. Arnoud Boot further clarified the confusion between the benefits of having am internal market vs. the benefit of the euro. “The internal market does not necessarily need the euro.” He ascertained. He explained the process of creating an internal market to be gradual and logical, where strong countries rise and weak countries fall out. The euro is to facilitate this process in a more efficient manner. He argued that the strong force from the center of the eurozone in setting the goals might disrupt this natural process. Arnoud Boot additionally suggested focusing on wider aspects of the EU-‐wide policies (e.g. youth employment in the south of Europe, education, etc.) that bind people together without inflicting on sovereignty. “The EU citizens’ attitude on the Eurozone is up to the new generation.” Lastly, Arnoud Boot urged us to rethink the future of the financial sector, which will be the key issue for the next 30 years. He emphasized “We haven’t figured out a truly stable financial system yet. The status quo of letting the government keep the financial system alive is a totally wrong equilibrium.” The panel members continued to debate on the benefits of having the euro. Arnoud Boot acknowledged there is no easy answer. Labour union is particularly vocal about the benefits of the euro for the workers they represent. More importantly we confuse the benefits of internal markets with those of the euro. Sandra Philippen further added that the construction of a counterfactual scenario, i.e., what would Europe look like if the eurozone had never been created is relevant to convince people the benefits of the euro. Victor Cramer stated that the currency issue is less important than the challenges we face. We need more competitive member states. Claire Economidou stressed there is no easy divorce for Greece. The social costs of exiting the eurozone may outweigh the economic benefits, which might take 50 years to recover. The panel discussion continued on a number of issues related to the political economy of the eurozone, the diversity of the financial sector, harmonization of the insolvency frameworks and the refugee crisis.
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In conclusion, the crisis has revealed a number of structural weaknesses in the EU economies and in the governance of the EMU. The crisis response has focused on addressing these shortcomings. More systematic changes are necessary. We need to form common policy agenda to tackle the challenges we face collectively.