Is Europe approaching its “Hamiltonian moment” — the point at which, just as the assumption of state debt by the U.S. government helped cement the new American federation, an emerging deal in Europe could complete the continent’s unfinished integration?
Maybe, says European economic and monetary affairs commissioner Olli Rehn, although progress toward that end is going to be typically European — slow, fitful, incremental.
It’s clear, Rehn said in public statements and an interview this week ahead of the International Monetary Fund meetings, that the 17 nations of the euro zone understand that they must more fully collectivize responsibility for public debt and cede some control over their finances to a central authority. The current debt crisis — the threat of a default by a major nation, the possible splintering of the currency union — has convinced most everyone of that, he said.
But navigating to the ultimate end will probably be a years-long endeavor, involving crisis management in the short term and then a politically controversial restructuring of the way Europe’s Economic and Monetary Union functions.
“I can tell you that the decision-making process of different states and electoral cycles is complex,” said Rehn, since it is overlaid by central institutions such as a European Parliament and the European Commission.
Still, the conclusions of the past 18 months have, he feels, become inescapable. The “system errors” wired into the euro’s structure have become all too apparent.
“A monetary union with only relatively loosely coordinated economic and fiscal policies is not powerful enough to prevent the kind of imbalances that brought us to the current crisis. Neither is it strong enough to counter a crisis,” he said. “The euro-area member states need to go further in pooling economic sovereignty. . . . We need to go further in making our financial backstops more flexible to contain market turbulence. In general, we need to make the decision-making more agile and effective.”
Rehn, a Finnish parliamentarian, is a central figure in smoothing the way. His office is preparing a feasibility study, for example, on how to introduce “eurobonds” — a way for the European union to raise money as a group using the strong credit rating of the region, as opposed to the current situation in which a Greece or Portugal stands on its own.
The trade-off: ensuring that governments in Athens or Lisbon don’t run up the same sorts of unsustainable bills that led them to need international help in the first place. That, ultimately, becomes a question of national sovereignty — of allowing an outside disciplinarian to make judgments if local politicians don’t.
Europe, Rehn said, remains on a more gradualist “evolutionary road.” The grander ideas — and eurobonds is only one of them — are for “the day after tomorrow,” Rehn said. He was repeating a phrase that European Central Bank governor Jean-Claude Trichet has used to describe the many reforms the euro area needs to make but probably not in time to fight the current crisis.
That may be little solace to investors watching wild swings in the equity markets, or job hunters wondering when the developed economies will gain enough footing for businesses to invest and start hiring.
Interim steps — including ECB intervention in bonds markets and the scope of a proposed stability fund — are ultimately just that, ways to plug holes in the dike while a stronger structure is built.
But on one point Rehn — like other European and IMF officials — is firm: Greece won’t be left to default, and the euro zone won’t break apart. The consequences are too grim.
“We don’t see a Greek default as plausible, and we will not let Greece come down to a disorderly default or an exit from the euro,” he said.