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Italy and Spain in crisis: three thoughts on the future of the Euro

As many will know, there have been political crises in Italy and Spain in recent days. The Italian one, which has involved dispute over the appointment of a Eurosceptic finance minister, directly concerns Italian membership of the Euro. Though the Spanish crisis is not directly related to the single currency, it certainly has consequences for the Eurozone and one can argue that the root cause of the crisis, the fragmentation of Spanish party politics, was instigated by effects of the Euro.

Anyway, these developments give rise to three thoughts about the Euro, which I think are important to the future of the Eurozone/European politics in general. These are related to my forthcoming book on labour movements and the Euro, which will be published later this year.

1/ The Euro is in long-term crisis

There may not be wild panic in financial markets, as there often was in 2010-12, but there are good reasons for believing that the Euro continues to be in long-term crisis. Not only have only limited reforms been made since 2010-12, but fault lines remain the same; indebted and resentful southern countries struggle on attempting to implement structural reforms, whilst northern countries continue to resist schemes for a more redistributive Economic and Monetary Union (EMU). The success of M5S/Lega in Italy is intimately related to the former, whereas the rise in support for AfD in Germany is (a little more loosely) related to the latter. These recent developments may not have posed mortal threats to the Euro, but they are part of a pattern which looks unlikely to end any time soon. In the medium-term, particularly if there is a worsening of economic conditions, such crises may (once again) start to pose existential threats to the Eurozone.

2/ This crisis continues to poison European politics

The capacity of EMU, as it currently exists, to poison European politics also cannot be underestimated. We are living in a global age of populism, as the election of President Trump shows, yet European strains are exacerbated by EMU. The two fault lines (outlined in point one) fuel populism to a considerable extent. In the south, the need to achieve structural reforms drives popular discontent. It is easy to see why this is the case; no public ever enjoyed budget cuts and labour market deregulation. Such discontent moreover has an easy and partly legitimate focus: Germany and other northern countries. The picture may differ in different southern countries – Spain is relatively free of anti-German views whereas in Italy these feelings run high – yet rudiments are similar.

In northern countries, the situation is inverse. Admittedly, there have not been eruptions of anti-Southern Europe sentiment in recent times, but such views continue to be widespread among Northern European electorates and explain why a more redistributive EMU has failed to emerge. In the event of a future crisis which required the provision of more aid to Southern Europe, it is not hard to guess the reaction of Northern European publics.

3/ Something may well give

Though making concrete predictions about the future is not a wise move, the straits in which the Euro continues to find itself mean that it is reasonable to worry about the future of the currency. As I have written, EMU has serious flaws and generally acts as a destabilizing influence on European politics. It is also difficult to see conditions in which EMU could be successfully reformed. Not only were many opportunities missed at the time of the last crisis, but the enthusiasm of President Macron appears to have borne little fruit. The basic obstacle, the recalcitrance of Northern European countries, is unlikely to change soon; even the German centre-left are conservative on Eurozone reform.

In conditions in which these basic problems endure, it is quite difficult to see things remaining the same; the status quo is a source of too much instability. Of course, it may be that further reforms are made to the Eurozone which strengthen the currency. Given the existence of formidable barriers to such measures, which I identify above, an unhappier scenario may unfold. The collapse/shrinking of the zone is possible, though less dramatic retreats are also conceivable. A two-tier Eurozone might be introduced, as suggested by my colleague Michael Arghyrou, or there may be reversion to the European Monetary System of 1979-98, as advocated by Martin Höpner.  Let us be under no illusion however; the implementation of either of these ideas would involve considerable political and economic disruption.

My uncle is a nurse, and my mother jokes that he thinks that every common ailment is cancer. My analysis may suffer from something of this tendency; when it is your job to look for problems, things can appear worse than they really are. Many people I speak with in the European Commission are optimistic about the future of the Euro, arguing that reforms were successful and that EMU is robust. I hope that they are right, yet I need much more convincing that this is the case.

Thoughts on the refugee crisis

As with my last post on the Eurozone crisis, the penning of this blog was prompted by the question of a former student. This time Devin, a very nice student from China who studied for an MSc with us last year, asked me what I thought of the current refugee crisis. Here are some reflections anyway…

1/ The role of social media in such crises is increasingly pointless and irritating

I say this for the reason that almost all of the posts on Facebook and Twitter that defend the refugees/attack reluctant Governments mainly seem to be about posturing. Such posts are very rarely accompanied by concrete actions like donations/volunteering, and merely seem to serve the purpose of making those doing the posting look good to their followers/friends. Posturing is something that most of us do on social media (plenty can be found on my own Facebook!), but such posts severely underestimate the complexity of the situation and are very poor substitutes for donations/volunteering.

2/ More talk about solutions is needed (particularly from left-liberals)

Another thing that has long irritated me about the immigration/refugee issue is the reluctance of those on the liberal-left to adopt concrete, detailed positions on this topic. It is very easy, as I allude to above, to criticize the actions of one’s Government, yet if one criticizes a particular policy consistency requires that a set of alternative propositions are advanced. This is something the left is generally poor at doing. Concrete policies/numbers are rarely put forward in the wider immigration debate, and calls for open-door responses to the current crisis completely ignore the resistance of electorates (60% of Brits do not want more refugees than Cameron proposes according to a Newsnight poll) and subsequent implications for refugees/economic migrants from other parts of the world. This is of course begs the question of what I would do, and…

3/ I would take more than David Cameron proposes but would not adopt an open-door policy

I do agree that the figure of 20,000 (over five years) proposed by Cameron is insufficiently generous. I would therefore be disposed to take more in the region of 100,000 to 200,000, and also push hard for European/international agreements that accommodate as many refugees as possible across as many countries as possible. I must confess that an open-door solution would concern me however. Not only would such a solution ride roughshod over the wishes of existing citizens, but the fact that many of those seeking asylum are not unambiguously refugees would beg serious question for future migration policy. The fact that many of the refugees have distinctive religious identities/very different cultural backgrounds (i.e. of the type that Europe has historically struggled to assimilate) also makes me think that an open-door policy is not a sensible idea…

4/ Nonetheless, I admire the position of Germany

Though an open-door policy is not something I would advocate, I do have something of an admiration for the actions of Germany. The country has (rightly in my view) been the subject of severe criticism for its management of the Eurozone crisis, so it is refreshing to see the country adopt its more traditional post-war position of international solidarity. This is the side of Germany that many of us admire – even though I have concerns regarding the long-term feasibility of this policy!