Insufficient Europe

Insufficient Europe

The agreement on third bailout program for Greece did not become a solution to the Eurozone problems. It only delayed the final decision and revived the old controversy regarding the future of the currency union.

Europe is in for a hot political season. The leading actors put forward different plans to reshape the Eurozone.

François Hollande says he wants France to be in the heart of Europe, not at its curb. In an article published by the Journal du Dimanche to mark the 90th birthday of the former European Commission President, Jacques Delors, one of the founding fathers of the United Europe, the French President called for a full «Eurozone government» with its own ministers, parliament and budget. He emphasized that the creation of Eurozone met the interests of EU member-states (there were 19 of them back then). None of them has withdrawn so far. 

At that, the President says, the trust in euro is undermined by the Greek crisis. The currency needs to be strengthened. In his column, Mr Hollande argued that «what threatens us is not an excess of Europe but its insufficiency».

The ideas put forward by French President boil down to the following: 

- the Eurozone member-states should establish their own government and the European Monetary Fund able to come up with rapid and solidified response to the emerging financial problems;

- the Eurozone is to have its own budget to be followed by formation of banking union with insured deposits and mechanisms to counter massive capital flows;

- a single Eurozone parliament should be formed by MEPs from Eurozone member-states;

- the Eurozone is to introduce a minimal wage to exclude social damping; 

- corporate debts should be harmonized to exclude tax damping;

- the Eurozone should establish a common unemployment insurance.

These proposals would carry more weight if it came from Berlin but any integration initiative taken by Germany would be seen as a step on the way to turning Europe into a German protectorate, especially against the background of the stance taken by Berlin on Greek debt crisis. Besides, Germany has its own vision of prospects for European integration. Jacque Delorsa wise person, once said that France was not ready to waive its sovereignty while Germany was not ready to face additional economic risks. Indeed, the events related to Greek debt prove once again that Berlin is adamant in its views that each member state should pay off its debts on its own. 

The German government's panel of independent economic advisers responded to the French President’s proposals with a report on Greek debt crisis and lessons learned that could be used to stabilize the Eurozone. The group of «wise men» said the Greek crisis showed that further reforms were needed, such as insolvency procedures, to avoid a possible debacle of the currency union. Christoph Schmidt, the German Council of Economic Experts, said: «To ensure the cohesion of monetary union, we have to recognise that voters in creditor countries are not prepared to finance debtor countries permanently».

Аn insolvency mechanism for Eurozone states would mitigate losses suffered by money lenders and make investors better estimate the risks, the council says. «Wise men» also say that countries should be able to leave the single currency. The experts believe that permanent economic instability should not put the euro at risk. They warned about the danger of «quick win» fiscal policies offered by Francois Hollande. The authors of the paper advocate the principle of individual fiscal responsibility.

France can count on the support of South Europe, in particular Italy and Spain weakened by the economic crisis and unbearable external debts making them dependent on the economy of Eurozone in general. Rome and Paris stress the need to join the resources by introducing a single Eurozone budget and European unemployment insurance. Berlin appears to see things differently. The countries of Northern Europe that have successfully made it through the worst times of financial and economic crisis also oppose the unification «a la française». They see things in pure practical terms. Small Greece became such a big problem! Just imagine Italy or France going downhill? German Finance Minister Wolfgang Schaeuble called on France to get its finances in order; otherwise there is a slim chance that Germany would agree to cooperate with Paris on the issue of Eurozone reform.

The Hollande’s initiative also testifies to the fact that French Socialists are unable to modernize the country, so they try to shift the responsibility on Brussels. This policy is to efface the De Gaulle’s legacy, something opposed by both the National Front led by Marine le Pen and Nicolas Sarkozy, the leader of the Republicans. The both politicians are set to run for presidency in 2017. The incoming changes will encompass the Eurozone, as well as France. But they may not be what Francois Hollande wants them to be.