Guardian
February 21, 2012
The eurozone finance ministers agreed a new bailout for Greece last night; but this will not end the eurozone crisis. Over recent months, it has become increasingly challenging to keep track of what is going on, but as far as I can see we are caught in three overlapping crises that are becoming increasingly difficult to solve: a structural crisis, a policy crisis and a democratic crisis.
The structural crisis became evident first. The eurozone in its current form is a halfway house that is not future proof. The big question is how the building can be developed and reinforced. There are basically two ways of looking at the current situation: is the eurozone a loose group of 17 national economies, chained together by the same currency and monetary policy for political reasons, that need to find a way to coexist in this framework? Or is it effectively one big economy in the making with the political institutions, financial transfers and fiscal policy integration needed to make it work on their way?
When Angela Merkel talks about a "fiscal union" it sounds like the latter but she really means the former. If you chain small open economies together with a joint currency economic imbalances need to be adjusted and 17 different fiscal policies must be made sustainable. This is what she tries to achieve by severe cutbacks in the crisis countries and exporting the German idea of debt brakes across the eurozone.
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