The Next Euro Debate
An astute piece from Andy Watt. He thinks that we shall indeed soon see what markets are anticipating – the long deferred grand bargain, in which the ECB backstops euro bondsÂ (thus averting a banking and sovereign debt crisis), in return for which euro countries agree toÂ much enhanced surveillance of national fiscal policies.
That brings into question what policies will dominate in a more integrated euro politicalÂ space. On the one hand – and this seems the most likely given the stance of Merkel and the ECB – everybody couldÂ be forced to impose austerity in the form of cuts to wages and attacks on pensions and social programs.Â On the other hand,Â surplus countries could pick up the slack and expand so as to allow deficit countries to re-adjust.
“On the one hand there is the view that the core/surplus countries pay but the periphery/deficit countries adjust under the rod of the ECB and/or Commission. This is the view that has dominated the debate so far. Put most simply the position is: everyone must become like Germany. The alternative approach amounts to combiningÂ generous European solidarity with a recognition of mutual responsibility by all actors and thus the need for symmetrical adjustment….. If the price of debt mutualisation and ECB support is one-sided debt brakes,Â generalised austerity and attacks on collective bargaining institutions and welfare states,Â it will not be a price worth paying.”