Financial Times
May 17, 2012
Europe’s leaders should step out of the playground. The euro debate has become an infantile shouting match about a series of specious choices: fiscal austerity versus growth; spending cuts against jobs; market reforms or social inclusion. This way lies madness – and the certain disintegration of the single currency.
The clock is now showing one minute to midnight. Greece is probably beyond saving. The early signs of bank runs in Spain and other peripheral economies suggest the virus of contagion is taking hold even before Athens makes up its mind in a second general election. Policy makers have less time than they thought only a few days ago.
François Hollande’s election in France has been widely seen as a threat to the coherence of the eurozone. To the contrary, the rebalancing of the relationship between Berlin and Paris should be viewed as a last chance for a grown-up conversation. With or without Greece, the eurozone needs a new strategy – a grand bargain, if you like. The vital ingredients are clarity and credibility.
In pursuit of clarity governments should start by publicly agreeing on what they can agree on. Everyone presumably can sign up to the idea that deficits and debts must be brought down to sustainable levels. All should be able to admit that restoring competitiveness in the peripheral economies will require wrenching structural reforms. It is also self-evident that, without economic growth, debts and deficits will remain high and political consent will evaporate. You do not have to be a Keynesian to recognise debt traps. Finally, improvement in the trade positions of eurozone weaklings requires smaller surpluses in the strong economies.
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