Commentaries

Will a president Macron be able to reform the eurozone?

^{May 3, 2017, from: The Conversation, Global Edition}
European financial markets are already betting on the victory of centrist French presidential candidate Emmanuel Macron in the country’s May 7 second-round election. Are investors right to believe that the eurozone – the monetary union of countries that have incorporated the euro as their national currency – will gain new momentum with Macron in the Élysée Palace?

In this piece, written for The Conversation, I argue that Macron will have better chances to reform the Eurozone by pushing for a rebalancing of Eurozone governance rather than advocating “to set up a common eurozone treasury with a single finance minister”.

Instead, while in some areas centralization is needed to ensure stability, in particular with respect to a central bank that can effectively backstop financial crises and a full banking union, it might be advisable to renationalize fiscal policy.

The reasons are twofold: First, the political chances to install a European finance minister are minimal. Therefore, there is a high risk that Mr. Macron might achieve little or no progress in his term, eventually increasing the chances for populist in the next presidential election. Second, giving back full control over the budget to the national authorities also means transferring back the responsibility for solid finances and replacing the various fiscal pacts, which never have really worked.

Of course, this may require to reduce the debt overhang of the past. But by doing it, this would give more room for a sustained Eurozone recovery and – eventually – even more widespread support for new Eurozone-wide fiscal mechanism for burden sharing ...read more

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Finally, some good economic news from the Eurozone – but will it last?

^{April 10, 2017, from: LSE EUROPP European Politics and Policies}
Finally, good news from the Eurozone. Unemployment rates fell to 9.5% in February 2017. According to Eurostat, this is the lowest rate since May 2009. The 19 countries that have adopted the common currency are thus returning back to the unemployment level they experienced before the outbreak of the Eurozone crisis. In the last 12 months, the Eurozone recovery has lifted 1.25 million people out of unemployment.

This long-awaited decrease in unemployment is highly welcome; every person back in work is good news, even though it took nine years to recover. Yes, many economists believe that the recovery could have been faster with much less pain if there had been less initial emphasis on austerity and less reluctance “to do what it takes” at the ECB before Mario Draghi made that move in 2012. But that said, the Eurozone must now look forward.

So, is the worst over? Is wealth and prosperity – the ultimate promise of the EU to its citizens – finally coming back to the Eurozone? And is the fragility of the Eurozone that brought the crisis and the dramatic rise in unemployment a thing of the past?

In this piece, written for LSE EUROPP, I will argue that much more needs to done to return to the pre-crisis level and to make the European Monetary Union waterproof against future shocks ...read more

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Rebalancing EU governance could help rebuild support for the EU

^{August 31, 2016, from: LSE EUROPP European Politics and Policies}
The impact of Brexit on the future of the EU lies in the hands of European policymakers. In a best case scenario, Brexit will serve as a forceful push toward reforming European governance. The British vote has highlighted the political limits of ever-deeper economic integration and challenged the view that an ever-closer European Union is the best answer to it. However, the concept of national sovereignty is illusive in the presence of (financial) globalisation. Rather than simply opting out of integration, policymakers should focus instead on rebalancing European governance and national sovereignty.

In this piece, written for LSE Europp I argue that re-nationalization of fiscal policy is vital for regaining support for the Europen project, while in other areas such as banking union centralized or co-operative approaches are needed to maintain financial stability and revive the European economy …read more

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The use of overly intrusive conditionality in Greece is threatening the European project

^{June 1, 2015, from: LSE EUROPP European Politics and Policies}
A Greek default may be  only a matter of weeks away unless an agreement on the reform programme between Greece and “the institutions” will be reached. But Greece demands to renegotiate the whole programme, while the institutions, fearing a precedent, insist on sticking to the obligations. Thus, a default could simply result from a fundamental disagreement on the institutions’ conditionality, finally triggered by a deliberate decision of the creditors. Prominent economists like Barry Eichengreen, Paul Krugman, or those organised in the Eiffel Group have recently urged for a less intrusive conditionality and more self-responsibility of debtors, though with varying intensity and differing arguments. What is wrong in asking Greece to fulfil its obligations as articulated forcefully by German finance minister Wolfgang Schäuble? Or it should we agree with Yanis Varoufakis who blames austerity as the only deal-breaker?

Against this background, this piece for LSE EUROPE I argues that using deeply intrusive policy conditionality is a flawed approach in the context of European integration for at least three reasons: first and most evidently, the institutions’ conditionality has often proven dysfunctional and too painful for debtor countries; second, the use of extensive policy conditionality is an ad-hoc approach with unequal burden sharing between debtors and creditors; third, too intrusive conditionality is in conflict with democratic decisions in debtor countries, which can put the idea of a Europe in which nations participate as equals in jeopardy …read more

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The ‘Juncker plan’ does not offer a genuine path to boosting the Eurozone’s recovery

^{March 19, 2015, from: LSE EUROPP European Politics and Policies}
The €315 billion European investment initiative – the so called ‘Juncker plan’ – was accepted by EU finance ministers on 10 March and is expected to go operational as a new “European Fund for Strategic Investment” (EFSI) by mid-2015. Is this finally good news for Eurozone recovery? Unfortunately, the Juncker plan has been widely misunderstood as a recovery programme for the crisis-ridden Eurozone: it is in fact no more and no less than a (welcome) investment initiative for Europe. The Juncker plan should be welcomed as a long-run strategy to address investment weakness and to promote (green) growth in Europe. But since Lord Keynes constantly reminds us that in the long run we are all dead, it must be made crystal clear that the plan does not solve the Eurozone’s current economic problems.

In this piece, written for LSE EUROPP, I review the pro and cons of the Juncker initative as an investment plan and discuss why it will not boost the Eurozone’s recovery. I conclude that a fiscal pillar of a Eurozone recovery plan would look quite different and there is widespread consensus among many economists as to what it would entail: fiscal stimulus from countries that can afford it, the return of the golden rule of public finance at the national level, which allows for debt finance of public investment if required, thus giving more fiscal leeway beyond the Maastricht rules, and an additional boost in European/Eurozone public investment …read more

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Quantitative easing: Germans have nothing to lose but their fears!

^{January 21, 2015, from: The Conversation}
The European Central Bank is due to decide whether and how to undertake quantitative easing (QE) via large-scale purchases of government debt on secondary markets. For Germany – as the Eurozone’s largest economy and one with a decidedly conservative monetary stance – this seems to be the ultimate nightmare. But the markets are already betting that QE will come. With the Eurozone sitting close to deflation, the ECB must react to reach its inflation target of 2%. What are the German fears and do they withstand serious scrutiny?

In this piece, written for The Conversation, I discuss the validity of the these fears and their potentially negative impact on the details of a QE program …read more

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On the road to Asia: why Germany and the Eurozone want a trade deal with Australia

^{December 23, 2014, from: The Conversation}
Shortly after the G20 summit in Brisbane, German Chancellor Angela Merkel and Australian Prime Minister Tony Abbott announced initiatives to increase trade and investment relations between Germany and Australia. Both parties agreed to set up a joint working group to identify future initiatives. What can we reasonably expect from it?

In this piece, written for The Conversation, I discuss three major motivations behind the initiative from the German and European point of view …read  more

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The case for using public investment to boost growth in the Eurozone is overwhelming

^{October 28, 2014, from: LSE EUROPP European Politics and Policies}
One year after the Eurozone’s much hyped ‘recovery’, signalled by some green shoots in the second quarter of 2013, the region’s quarterly economic growth is flat again. Even Germany’s growth prospects have been revised downward, and recent IMF estimates point to an almost 40 per cent chance of recession for the Eurozone. The main reason is the lack of determination of policy makers to end the Eurozone crisis. Will they continue to muddle through and pave the way for decades of low growth? Or will governments and the European Commission do ‘whatever it takes’ and change the fiscal stance as demanded recently also by ECB president Mario Draghi?

In this piece, written for LSE EUROPP, I review three different explanations for the lack of recovery in the Eurozone, and argue that there is now an overwhelming case or using public investment to boost growth in the Eurozone, both at the regional and at the national level. However, while economically the case for public investment is crystal clear, I also note that policy makers need now to find ways to communicate to their electorates that it is time to change both faulty narratives about the Eurozone crisis, debts and deficits, and faulty policies …read more

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Draghi calls for spending to rescue Euro – but will governments do ‘whatever it takes’?

^{September 4, 2014, from: The Conversation}
In July 2012 European Central Bank president Mario Draghi famously announced that the ECB would do “whatever it takes” to rescue the Euro. And he added: “Believe me, it will be enough.” In fact, it has so far been enough to avoid the break-up of the eurozone. It has, however, not been enough to push the eurozone out of the recession. On August 22, 2014, Draghi again suggested something remarkable, which has not been in his initial official script: fiscal policy should take a much more active role in ending the recession.

Does the eurozone need a different fiscal policy? And if yes, will European politicians do whatever it takes? And will it be enough? In this column, written for The Conversation I will argue, that Draghi’s call is ultimately a call for changing Eurozone governance also with respect to fiscal policy … read more