In an op-ed for POLITICO (June 21), Mário Centeno, the president of the Eurogroup and Portugal’s Socialist finance minister, summarized the reforms that the eurozone needs: a common budget, a European deposit insurance and, most significantly, a eurozone safe asset.
The list is missing a crucial element: open democratic debate. The narrative that the main obstacle to more risk sharing among eurozone members is a lack of trust is a deceptive one. The problem is not that governments don’t trust each other. It’s that some governments want one thing and others want another.
Despite their toxic threats to liberal democracy and their counterproductive policy solutions, populist parties raise a legitimate issue: We need to properly discuss the institutional architecture and the economic policy of the eurozone.
Populists often criticize austerity, claiming it did not lead to a reduction of debt as a share of GDP. But debt reduction was never the main aim. The EU’s goal was to exit its crisis through an exports-led growth and austerity was a crucial element here because the difference between a government’s revenues and expenditure is a major determinant of a country’s net exports. Proposed structural reforms are aimed at achieving the same goal, by reducing labor costs and thereby improving firms’ price competitiveness on international markets.
The approach has worked: The eurozone as a whole now has a sizeable surplus in the current account of its balance of payments and most eurozone countries exhibit higher levels of GDP than before the crisis. The downside are growing poverty even among the full-time employed, widespread financial uncertainty for the middle classes, and persistent unemployment and underemployment.
In economic terms, the need for eurozone reform arises because this export-led growth strategy can only be successful (if we can call the current situation a success), as long as the rest of the world grows healthily and demands a growing value of goods and services from the eurozone. This may not be the case in the near future.
The other reason the eurozone is ready for reform is that most of its citizens — including perplexed social democratic voters — may prefer a different strategy, for example an investment-led plan. And they have the right to have a voice.
The eurozone needs to be open and transparent about this political divergence if it wants to move forward.
Carlo D’Ippoliti
Associate professor of political economy at Sapienza University of Rome; editor of PSL Quarterly Review and Moneta e Credito
Rome, Italy