Does the Eurozone have a future?Sunday 23 October, 14.00 - 15.30 , Pit Theatre Battle for the Economy
Ever since the economic crisis of 2008, there have been question marks over the future of the Euro. The so-called PIIGS - Portugal, Ireland, Italy, Greece and Spain – all required financial support from the European Central Bank and the International Monetary Fund in order to maintain government spending. The price was the imposition of austerity measures and, in the case of Greece and Italy, the replacement of democratically elected governments with technocrats.
While the crisis has not made major headlines since Greece’s last bailout – imposed despite a clear referendum vote to reject further austerity – the potential for further problems lies just below the surface. The most recent bailout has not solved Greece’s financial problems as the Greek depression continues. Government debt now stands at €320 billion – a whopping 180 per cent of GDP. Unemployment is now at 24 per cent, while the poorest 20 per cent of Greece’s 11 million people have suffered a 42 per cent drop in disposable income since 2009.
But while Greece represents a disaster domestically, it is a relatively small economy when compared to the Eurozone as a whole. A much more pressing problem is Italy, where a number of its major banks are sitting on mountains of bad debt. Italy’s GDP has not grown at all since joining the Euro and the state’s finances are in a parlous state. Should a banking crisis begin, bailing out Italy – one of the biggest economies in the Eurozone – will be much more difficult, both economically and politically, than bullying Greece. To top it all, Italy’s prime minister, Matteo Renzi, has staked his government’s future on a constitutional referendum in October. If Renzi’s government falls, a political crisis may be the trigger for an economic one.
Many argue that such problems were inevitable in the very design of the Euro itself. Hitching together countries with very different levels of wealth and productivity without either common fiscal policies or an agreement to support each other, as would be the case between richer and poorer areas of a single country, was bound to create tensions. For example, low interest rates before the economic crisis, that suited the bigger but sluggish major economies in the Eurozone, helped to create a housing bubble in Ireland. When the bubble burst, the Irish government was forced to take on the bad debt of its bankrupt banks. Politicians and voters in wealthier Eurozone states are also increasingly reluctant to bail out weaker economies.
Yet the Eurozone has managed to survive one crisis after another. While many of the measures to keep countries in the Euro have really just postponed problems rather than solving them, there is enormous political will to hold things together. For the Eurozone to collapse, or even to have a member state leave it, would be a devastating blow to the credibility of the European Union itself. And there has been some recognition that the Eurozone will need to be reformed, with greater integration including a banking union and European-level fiscal powers. But while the political will exists among the political classes in European capitals and in Brussels, national electorates are wary of greater integration, with Eurosceptic parties on the rise in many countries.
Can the Eurozone survive without political and economic integration? Is such integration achievable democratically if voters in many countries remain sceptical, or could it be pushed through against the will of The People? Even if no lasting solution is found, could the Eurozone struggle on - as it has before - by simply firefighting each successive crisis? Has the example of Britain’s vote to leave the EU emboldened political movements and parties across Europe to reverse the tide of integration? And even if the Eurozone does survive in the long term, is that in the interests of the people of Europe?
macroeconomist; Research Fellow at the National Institute of Economic and Social Research
economics and finance writer, Financial Times; formerly, business reporter, the Telegraph
editor, City A.M.
professor of international economics and finance
Brussels correspondent, The Times; co-author, No Means No
The future of the eurozone, Alexander Schellinger, policy network, March 2016
Eurozone resilient after Brexit vote as output increases, Phillip Inman, Guardian, August 2016
Eurozone Unemployment Is Still A Disaster - Time To Get Rid Of The Euro, Finally, Tim Worstall, Forbes, September 2016
Eurozone risks collapse into prosperous north and stagnant south, warns Varoufakis, Tim Wallace, Telegraph, September 2016
After Brexit, should the Eurozone pursue full political union?, Brendan Simms, New Statesman, July 2016
Euro zone employment rises to highest level since 2008, Francesco Guarascio, Reuters, September 2016