Winecoff_2015_laCaixa

The Crisis in Europe

William Kindred WinecoffAssistant Professor of Political Science

Indiana University BloomingtonLuncheon for la Caixa Fellows

August 18, 2015

W. K. Winecoff | Europe’s Crisis 1/11

What Sort of Crisis Is This?

What can I tell you that you don’t already know?

In my mind there are three facets worth (briefly) discussing:

The crisis as a multilevel governance failure.The crisis as a contradiction within the European unificationproject, particularly as it pertains to Germany.The crisis as a global event that Europe was poorly-situatedto handle.

I will conclude with some thoughts on recent developments in Greeceand what it could mean for the future of the Union.


The Crisis as a Multilevel Governance Failure

EMU: sovereignty vs. federalism?

You get sovereignty when you can self-finance, not otherwise.

No shared credit rating & no cross-national EZ fiscal transfers becausethat would involve a loss of sovereignty.

ECB: single mandate for price stability.

Thus: institutionalized austerity was always part of the EMU bargain.

Germany: structurally reformed and constrained as penance for the war.

Germany: able to absorb its East relatively painlessly; a model for therest of Europe?

ROE isn’t like Germany. It took a lot for Germany to be likeGermany.


Is Everyone Like Germany?


The Macroeconomic Trilemma


The Macropolitical Trilemma


A Brief Digression on Austerity

Austerity is not an idea: it’s a mathematical fact.

In a debt crisis someone has to pay.The only question is about the distribution of pain.The distribution of pain is determined by power.Who has always had the power in the EMU?

Austerity was institutionalized in Europe because Germany – forlegitimate democratic reasons – was unwilling to extend an open-endedcommitment to fiscal transfers to the South and East.

Some EMU countries internalized this lesson; others didn’t.

Note: biggest austerity of all would come from euro exit.


The Crisis as a Contradiction in Europe

EU: create a United States of Europe (in Germany’s image)?

Keep Germany from dominating or even threatening.

Institutionalize relations... i.e. constrain states’ policymaking flexibility.

This involves sacrificing sovereignty: Trilemma.

No default mechanism (make it unthinkable if not impossible).No fiscal or monetary bailout mechanism.

#ThisIsACoup (It’s not; this was always the deal.)


The Crisis as a Global Event

In 2007 the global economy began experiencing a grand mal seizure.

Countries that came out of it decently had:

Monetary/exchange rate flexibility, and/or:Autonomous policymaking, and/or:High national savings (usually via exports).

Note: Debt ratios on their own don’t predict severity of the crisis.

Note: The more rigidly you are constrained the less room to adjust.

Note: It’s not just about banks, but about imbalanced growth modelsaround the world.

Varoufakis got this one right: “The Global Minotaur”.


Greece

2010: Probably should have Grexited.

2012: Bankers took 75% haircut.

Since 2010: EU transfers to Greece of well more than 100% of GDP.

By 2014: Growth, primary surplus, trade surplus, return to global capitalmarkets.

Syriza: Burn it to the ground to provoke an anti-German insurrectionwithin EMU (France, Italy, East).

Not to provoke Southern solidarity: Portugal, Spain, Ireland,etc. would never join.

This was always doomed, and it was disastrous.

Now: more substantial debt relief (in NPV terms) in exchange for moresubstantial reforms.

Both Syriza and EU want to make Greece not like Greece.Which model wins? (Germany’s.)


Other Stuff If I Have Time

Thus, the fundamental EMU bargain remains the same: either you’re inor you’re out, but the terms are non-negotiable.

Debt forgiveness: Germany vs Greece (+ Greece is getting a lot).

Syriza as Trotskyist revolutionaries... is this 1905? It’s not 1917.

“Democracy” vs. “technocracy”.


Documents

Winecoff_2015_laCaixa