The future of the Eurozone - a non-issue for the business world?

Just one anecdote: Some time ago, a group of German Liberals invited me to discuss ideas on the future of Europe with them. Naturally, questions related to the economy such as the Europe’s competitiveness, taxes, the Lisbon Agenda or the re-naissance of protectionism within the EU played an important role. After knowledgeable contributions from the participants on these issues, I turned the discussion towards the debate on European Monetary Union. I discussed the success of EMU in its first seven years, but I also pointed to economic and political tensions which are building up under the smooth surface of a widely accepted currency and about potential upcoming challenges (for some hints to these tensions see our category “Unravelling of EMU”). Finally, I put forward some possible cures to these imbalances which the eurozone is indisputably facing today and about what we can do to better cope with challenges that are coming up. I spoke about the need to think about conditions for better functioning markets, about the role of fiscal policy in EMU, about ideas on robust and legitimate governance structures for the EMU and about the external role of the eurozone.

The reaction was not unexpected but worth mentioning here. At first, there was none. Then there was a polite but somewhat reluctant question. And then there was a comment: “You know, these are issues you better discuss with Social Democrats”. Conversations I recently had, make me think that this reaction is very much in line with what is being thought in the world of business associations, at least in Germany.

It is a striking phenomenon that politicians, members of parties, but also associations who claim defending business interests as in a reflex refuse to engage in debates on governance of the eurozone. Take a look at the party programmes or the statements on Europe issued by the main interest groups. If you find forward looking ideas on the future of the eurozone, please send them to us.

Wrongly, liberal- or conservative-oriented actors very frequently equate the debate on economic governance in the eurozone with a renaissance of Keynesianism, or the attempt to introduce an orchestrated demand management through the backdoor. Which is probably one reason why they push the whole debate aside.

These actors, who claim speaking for the business world, consequently fail to develop positions on a key issue which frames all economic activities in the EMU: the well-functioning of the single currency. Interestingly, most of them completely ignore what large international banks such as Goldman Sachs, Société Générale or Deutsche Bank have been saying for months: It’s not all sunshine in the eurozone. Economic and political tensions have built up and more may lie ahead.

Let’s remember: through the single currency, the twelve EMU countries are part of one economy. We should not continue behaving as if we were not. Instead of letting the debate on EMU go down the drain of ideological disputes, it is time to discuss institutional mechanisms, the role and cross-border functioning of markets (not the one one may theoretically wish for, but the one that is empirically observable and politically realistic in EMU today), the incentive structures of actors behaving under the conditions of EMU – and what we have learnt about them since the set-up EMU was invented almost two decades ago. When these structures are in shape, it is time to fill them with policies.

Today, there are at least three blocks of questions which any actor who claims defending the interests of the business world (just like any actor defending the labour side) should find answers to.
 
First, what is the learning we can draw from soon eight years of living with a single European currency? Even if EMU can broadly be judged as a success, are there indications that we are not fully using all the potential EMU may offer? Are all regions living equally well with the euro? If not, do we see political tensions building up which may have further reaching consequences? If yes, can we do anything against this? Is the eurozone really so different from other currency areas, such as the US, that it can live without automatic stabilisers which function across borders? If not, how could such as system look like for Europe?
 
Second, are the economic governance structures of the EMU efficient and legitimate? What are the reasons for the at least partial failure of the Lisbon Agenda? Are structural reforms and macro-economic developments related issues? If yes, what has to be done in the EMU to create an environment which is favourable to further steps of liberalisation/market integration? In the long-term, is the Stability and Growth Pact a sustainable and sufficient tool to frame fiscal policy in the EMU?
 
Third,  what should the international role of the euro be and how does this translate into its external representation? Is the EMU institutionally prepared to take quick decisions on pressing issues that may lie ahead? Do we have a consensus how an intervention from the eurozone on the foreign exchange markets would work efficiently and legitimately for instance if currency turmoil would move the euro exchange rate radically up- or downwards? If not, what are your best ideas to solve this problem?