This site uses cookies to improve your experience and to provide services and advertising. By continuing to browse, you agree to the use of cookies described in our Cookies Policy. You may change your settings at any time but this may impact on the functionality of the site. To learn more see our Cookies Policy.
OK
Dublin: 18 °C Sunday 21 April, 2019
Advertisement

Does this man know how to fix the Eurozone?

A former advisor to Jose Manuel Barroso says the only way to save Europe is to change direction.

Image: Philippe Legrain via Facebook

First published 6.30AM

PHILLIPE LEGRAIN DOESN’T speak like a typical Brussels official.

He could never be accused of being vague or diplomatic. Take, for example, his analysis of what caused the European financial crisis.

“It all stems from the capture of governments by banks.”

Refreshingly blunt from a man who spent four years as a close advisor to European Commission President Jose Manuel Barroso.

There’s no whiff of bureaucratese from his assessments of European officials (“incredibly arrogant”), the election of the EC president (“a farce”), or the claim that austerity is responsible for economic improvement (“nonsense”).

Neither is he anti-European. In his own words, he thinks the EU is a “fantastic thing”.

What he wants is a revision of what he says is the fundamentally flawed and unjust approach European institutions took to solving the crisis.

Banking interests

“The Eurozone was meant to be a community of equals all sharing a currency. In fact, Eurozone institutions, not least the ECB, see themselves as the institutions that represent French and German interest, and in turn the interests of the banks of those countries.”

The first mistake, he argues, was linking banking and national debt.

“(When) bad lending between banks becomes and obligation between governments, that’s what fundamentally changes the whole nature of the EU.”

Partly because of arrogance, but largely because restructuring Greek debt would have implied big losses for the French and German banks, a decision was made to breach the legal basis on which the Eurozone was founded, the no bailout rule.

Legrain argues that the same rule was applied to Ireland.

Look at how banks in Ireland were treated relative to Cyprus. In Ireland, the creditors were British, German, French banks and investors. Therefore you say the government must provide a full bailout to those creditors.

“In the case of Cyprus, the creditors were Cypriot and Russian depositors, so it didn’t matter.”

Missed opportunity

The crisis, in addition to being poorly handled, was also a missed opportunity.

“That’s the tragedy of this crisis. This is a crisis that could have united Europe in an attempt to curb the over-mighty banks that got us into this mess.”

Instead, it has divided Europe, pitting creditor countries countries against debtor countries, and with EU institutions becoming instruments for creditors to impose their will on debtors.

His new book, European Spring, says that there must be a roll back and reform of Europe as it currently exists. The current state of play, he argues, will do nothing more than drive a wedge between Europeans.

“We’re in a position where we’ve gone down the wrong path, and going down the wrong path has eroded support for the EU and for closer co-operation, which makes it difficult to make the changes that are necessary.”

We need to have greater decentralisation, and then, when the popular support exists, move to a better system. The system we have now is economically dangerous and politically poisonous.

Ireland-then and now

Despite Ireland’s own reckless governance and lending during the boom, he says that without the link between the banking system and the soverign, our downturn would have been briefer and less painful.

“Whatever part of the blame Ireland has for a crazy property bubble, which would inevitable have led to a recession and bust, it didn’t have to be exacerbated in the way it was.”

The decision to use government funds to bailout Irish banks was “clearly and unjust” one, he says. And Ireland should do everything in its power to rectify the consequences.

“If you’re Ireland, you should play hardball. Next time that there’s a big decision that requires unanimity, you should say you’ll veto it unless you get official debt relief.”

The relentless application of austerity in Ireland is “perverse”, he says.

“It should have been delayed and it would have been much less. Going on collective austerity at a time when the private sector is trying to repay debt…you end up with unnecessarily deep recessions.”

Hoping for reform

Barroso brought Legrain in after seeing him on television speaking in opposition to European policy. He was working at the London School of Economics, having spent several years as a journalist with The Economist.

Hardly a radical’s CV, but he does think that a dramatic solution is needed in Europe.

“Hopefully the elections will be a wake up call. The huge vote for extremists, mostly of the far right, will serve as a wake up call.

If it doesn’t, then one has to hope that mainstream politicians and a wider campaign will convince people that change is needed.”

The outlook, he says, is grim without change. He paints a picture of a democratic deficit at the heart of Europe that will widen unless it is tackled.

“You ought to have much more democratic accountability and much more democratic choice about the future of Europe…if we are going to co-operate more closely, then we have to have proper democratic control and the right to change course.”

If you don’t accept that, then I don’t think you can have the current level of integration. Either we need to restore powers back to national governments or we need to have much more accountability at European level.

Ultimately, he says that an honest assessment of the direction taken during the crisis is the only way to preserve the European project.

“To pretend that things are fine, and that no mistakes were made, that people are deluded if they disagree, is not pro-European, it’s foolish. If you genuinely want Europe and the Euro to succeed then you have to be honest about what’s gone wrong.”

2010 ECB letter to Lenihan could finally be made public>

Barroso: ‘The European Commission is one of Ireland’s best friends’>

  • Share on Facebook
  • Email this article
  •  

About the author:

Jack Horgan-Jones

Read next:

COMMENTS (61)