Jean Pisani-Ferry’s latest book is being released at the beginning of a year that promises to be crucial for the euro, and offers a cogent analysis of the origins of the eurozone crisis and its underlying causes. He details the design faults that have dogged the single currency since its conception – and reminds us that the drafters of the Maastricht treaty were perfectly well aware of those faults but were unable to resolve the dilemma that has come back to haunt us today; how to have economic co-operation without political union.
The success of the European currency during its first ten years tended to overshadow this crucial question. And during that time, the euphoria of historically low interest rates in many countries made possible by their membership of a reputedly stable and prosperous economic zone, led some states to borrow too much while others accumulated surpluses. This has since revealed the European Council’s mutual budgetary and economic oversight to be no more than an academic, and indeed hypocritical, exercise.
In the long term, you can’t base a currency on ambiguity, and diverging economic and budgetary policies eventually revealed, with the advent of the bond crisis, the eurozone’s faultlines in all their glory. Or rather, as Pisani-Ferry makes clear, one should say crises because he shows that Greece’s situation is not the same as Ireland’s or Portugal’s, even if they share the same cause of inadequate common governance rules.
For two years now, the whole edifice has been propped up by the European Central Bank, which has neither the statutes nor a culture that would allow it to take on the responsibilities that Europe’s leaders have been shirking. Their dithering has effectively deprived Europe of political direction, adding only to the confusion that reigns. “The worst way to respond to market pressures is with half-measures,” emphasises Pisani-Ferry. His book ends with the scenario to which I myself think Europe should now commit itself: the creation of a political, economic, budgetary and fiscal union.
Le réveil des démons - La crise de l'euro et comment nous en sortir by Jean Pisani-Ferry, Fayard, 2011, 228 pp., (ISBN 978-2213668222)