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October 21, 2021
EDITORIAL

Uncertainties of the future…

The discussion on selected members states exiting the eurozone is now getting serious, in a context where several members of the eurozone are facing default amidst the sovereign debt crisis, and also because the Franco-German engine or Europe’s powerhouse, Germany, hesitated about taking due measures in time.

But this time it’s not about stigmatising countries or pointing fingers. The question is how can we come out of the euro crisis? The international press abounds in news, analyses and expert statements on the matter. With its accelerated dynamic of default, Italy is the star, because it caused that whipping evolution last week. As a matter of fact, in a last minute attempt to halt the country’s sliding into default, Saturday night Italian PM Silvio Berlusconi resigned and now a new cabinet is to be formed, that will hopefully calm down financial markets.

A feature published on the website of German Der Spiegel magazine on Friday was communicating some really troubling facts. The piece was on how the Italian situation influences the eurozone: ‘With the euro zone’s debt crisis now having enveloped Italy, many have begun wondering what the future European Union might look like. Berlin has denied reports of a potential euro-zone breakup, but many see the emergence of a two-speed Europe.’ So it’s no longer just about the survival of the eurozone, but the very future of the European Union.

The truth is that both issues are very tightly connected. Some states exiting the eurozone would involve a different European Union construction than the one we have become used to so far, meaning an association of states that put their economic and political destinies together to be able to withstand the competition of the 21st century when giants like the US, China and India are expected to dominate the international system.

The issue of the future of the EU became so pressing last week that, according to credible news in the international media, French and German officials met to address it. In fact, according to such news (Reuters quotes EU sources), the discussion went on the split of the EU into two parts (financially sound euro states and the rest), but very few details actually surfaced. Naturally, the German Government denied the plan. ‘On the contrary, our policies are aimed at stabilising the euro zone in its entirety and attacking the root of its problems.’ (Chancellor Merkel’s spokesperson). Wednesday night, European Commission President Jose Manuel Barroso made one very probative statement. ‘There cannot be peace and prosperity in the north or in the west of Europe if there is no peace and prosperity in the south or in the east,’ he said. And, should some of the members exit the eurozone, the German economy would shrink by 3 per cent, Barroso also said. ‘What is more, it would jeopardize the future prosperity of the next generation.’

Without going into too much detail, these unprecedented developments come from the very serious situation in Italy. This country’s sovereign debt crisis makes a bailout intervention by the specialised EU mechanism virtually impossible. The funds required would be incommensurately higher than the mechanism’s availability, even if the fund was raised to one trillion of euros two weeks ago. Actually, EU officials have stated, under the protection of anonymity that such intervention is out of the question. Or, under such conditions, the only option left is Italy’s exit of the eurozone once its default would trigger some irreversible processes in Europe and its salvaging would break al’ of the EU’s convergence rules: (inflation, public debt etc.). Italy’s exit would be just the beginning of the domino. Greece, Spain, even France are in line, according to the developments on financial markets. The management of such a situation calls for precautions and even a strategy for the EU to be able to survive as an organisation.

But how can a state actually exit the eurozone? Most apocalyptic scenarios have been arguing that such thing would be virtually impossible and that it would have extremely grave consequences on the EU, European economy and global economy.

In fact, the cautious ones have taken the due precautions. There are already competitions organised in that respect, inviting outstanding finance specialists and economists to answer the fundamental question: ‘How can the eurozone crisis be overcome without causing the economic chaos in Europe and worldwide anticipated by the pessimist?’ Such contest was launched by Lord Wolfson in October, with quite interesting recitals: ‘The stakes are enormous. The future of the world economy will, in large part, be governed by what happens over the next few years in Europe. I, along with most European businessmen, hope that the Eurozone will stabilise, but in the event it does not Europe must not sleepwalk into a policy vacuum. This prize aims to incentivise the world’s brightest economic minds to help fill that policy void: their endeavours may well prevent Europe from descending into a financial chaos that would destroy savings, jobs, and social cohesion.’ The value of the prize is GBP 250,000 – therefore second to the Nobel prize for economy – and the deadline for submitting projects is January 31, 2012. A columnist like  Gideon Rachman, who has also dealt with the matter in a piece for the Financial Times recently, ‘sees’ his former Cambridge professor Harold James, currently with the Princeton University, as a possible winner. James’ solution to the current crisis has been applied before in the EU, in 1992 – 1993, to overcome a theoretically similar situation, but, of course, when there was no single currency. This time it’s about the eurozone member states keeping the euro, while also allowing states in difficulty to resort to national currency at the same time, therefore using a double circulation. In this double monetary circulation, the euro would have the role of the former ‘gold coverage’ of national currencies until the issue of the sovereign debt of the respective state is resolved. James says that, ‘to maintain the euro for all members of the eurozone, but also allow some of them (in principle, all of them) to issue – if necessary – national currencies. The countries that did would probably find that their new currencies immediately traded at a heavy discount.’

More than the answer to the question of the management of a possible exit of the euro-zone by states facing bankruptcy, it’s the question whether or not the EU will survive a such a shock. A similar shock would also bring about an already foreseeable division – French President Sarkozy did not rule it out in an interview last Thursday, and former German Foreign Minister J. Fischer expressed similar opinions also on Thursday – down two different lines, which, in fact, would mean the end of the European unity and a return to an anarchic and conflicting past.

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