OPINION:
THE END OF THE EURO: THE UNEASY FUTURE OF THE EUROPEAN UNION
By Johan van Overtveldt
Agate B2, $24.95, 208 pages
The principle problem with this concise book is, of course, that the whole drama continues. I write as British Prime Minister David Cameron has just dropped a bomb into the laps of his 26 European Union partners by refusing to go along with a new treaty aimed at reinforcing economic integration and solving the crisis of the 17 members’ common currency, the euro. Johan van Overtveldt completed his manuscript, he tells us, on Aug. 30, but the past is prologue, and he has certainly prepared the present scene.
Bravely, he set out to lay out possible scenarios for further developments. In an attempt by a very systematic mind (no wonder he hints at prevalent Flemish contempt for the lofty generalizations of his fellow Belgians and other francophones), he lays out three possible directions. Following his calling, he journalistically labels them “More of the same [MOS],” “Throwing out the System [TOS],” and “Rebuilding of the System [ROS].”
MOS means, he says, continuing to throw more credit at the problem, whether emanating from governments reinforcing failing banks, the International Monetary Fund or the European Central Bank. A second part of this crisis response was imposing “reforms” on delinquent creditors such as Greece. But in the end, he argues, MOS is a Ponzi scheme because deflation enforced on the debtors means they cannot hope to grow to pay their debts or even pay the interest on their more-and-more pricey borrowings. The game would be up, he says, either when the banks fail or austerity brings on political crisis.
TOS suggests individual euro users decide their only course is individually to exit the common currency. Short term, he says, the enforced devaluation of their currencies might improve their competitive opportunities. But in the end, Mr. van Overtveldt argues, this is the Argentina route, which several of the southern European debt-ridden countries resemble economically - one that has not improved the once-prosperous South American candidate for first world rank. He does argue that Iceland has been as successful as it has because it was done quickly and with unusual backing of its small and remote population.
ROS, accepting defeat - even the exit of some members - and then rebuilding the monetary union from scratch is “a Herculean task.” He argues an effective monetary union requires four conditions: political union, fiscal integration, labor mobility, and price and wage flexibility. Could the European Monetary Union achieve those conditions and survive? “Likely no,” Mr. van Overtveldt says.
“Despite the deep crisis,” he concludes, “the European authorities have done hardly anything really substantial about the fundamentally important issues: rebuilding the banking sector, restoring the long-term sustainability of public finances, improving the structure of growth performance of their economies and, most important of all, rebuilding the institutional framework of the monetary union to make it more durable and efficient. They are quickly running out of time. As a matter of fact, it is probably already too late.”
Although the author isn’t ready to say it bluntly, he comes to a rather startling conclusion - especially at this moment when across the political spectrum in Germany there appears universal support for attempting to strengthen the EU institutions through new agreements. He concludes his narrative with a bevy of quotes - he has relied on others’ words for most of his arguments - suggesting that it will be Germany that finally pulls the plug on the common currency.
He argues that the time is past when Germany’s neighbors - and others further afield - can rely on German recognition of its culpability in two wars that almost destroyed European civilization.
“I do not mean to imply that the present generation of German politicians is in any way unaware of the country’s past,” he writes. “My point is that they seem much less inclined to let that past dominate Germany’s policies.”
Berlin’s critics point to German business’ profitable courtship of Iran, despite increasing Western sanctions meant to inhibit its development of weapons of mass destruction. Also cause for criticism is Berlin’s love affair with Russia’s energy giant Gazprom - even to the point of cheating its eastern neighbors of transit fees - and its continued refusal to acknowledge that its export-led incentives are basic to the euro problem. Perhaps, Mr. van Overtveldt sugarcoats those issues. Although he never quite says it, the author predicts that it will be German action, with all the power of Europe’s paramount economy, which will, in the end, spell the death knell for the euro.
Sol Sanders writes the weekly column “Follow the Money” for The Washington Times.
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