Guardian
Editorial
June 26, 2011
Discussions of the Greek debacle commonly assume that it's a disaster made in Greece that now requires the rest of the Europe to step in and sort it out. Wrong: this is a crisis of the eurozone, in which Athens is not a leading actor but merely a stage set. The catastrophe that has been unfolding in Greece over the past year is merely the starkest incidence of long-running flaws within the eurozone. The disaster that European and IMF officials are currently struggling with in Athens naturally has particularly Greek idiosyncrasies – a tax system leakier than a sieve, for one. Still, were this strictly a Greek problem, afflicting an economy worth around only 3% of the eurozone's GDP, it could be contained with some adept statecraft (admittedly a quality rather lacking among the current crop of European ministers). But this meltdown goes wider, as a glance at Dublin, Lisbon or even Madrid will confirm: it is the inevitable product of the design faults of European monetary union. Unless those flaws are fixed, the single currency will remain under existential threat.
Throughout the 90s, as Jacques Delors was brokering the deals that created the euro, the discussion among policymakers centred around whether such a disparate bunch of economies really could hang together. This was a natural anxiety, to which the Eurocrats' answer was the Maastricht treaty's economic entry criteria. Not only were those rules flouted – Belgium and Italy were allowed in, despite breaking the laws over debt – they were also stupidly mechanical (why allow in countries with a deficit of 3% of GDP, but not 3.1%?). They were also deflationary, forcing countries to keep down borrowing, and making no mention of economic growth. The same went for the European Central Bank, whose job is to keep inflation below 2%, even amid massive recession.
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