EU at ‘crunch point’ over future of the Eurozone says expert
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And Jorn Kleinert, Professor of Economics at the University of Graz, has warned the European Union will not be able to justify anything like the £677billion coronavirus recovery package agreed last year to deal with future bloc-wide crises. Prof Kleinert outlined his concern in an op-ed written for Vienna-based newspaper Die Presse.
In it, he argued for a fundamental rethink of the way in which the monetary union, which includes the 19 members of the EU27 which have adopted the euro as their currency.
Prof Kleinert wrote: “The EU and, above all, the Economic and Monetary Union need to take stock after almost 15 years, which were almost entirely occupied with reacting to a wide variety of crises.
“The ECB is doing this. It is adapting its strategy and advising on what monetary policy has to achieve under the changed conditions since 2003 (globalisation, digitisation, changed growth environment, but also the climate crisis). That is correct and important.
What is missing is a discussion about getting out of unconventional monetary policy, out of crisis mode
Professor Jorn Kleinert
“The ECB is aware of the importance of trust for its work and is working to strengthen and, in some cases, regain the trust of market participants as well as that of the population in its work.”
However, Prof Klienert added: “What’s missing is a discussion about getting out of unconventional monetary policy, out of crisis mode.”
At the heart of the problem were the impossibility of separating monetary policy (carried out supra-nationally by the ECB) and fiscal policy (the responsibility of individual member states, Prof Kleinert argued.
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He cited as an example the recovery scheme, which threatened to cause a schism between countries in the north and south of the bloc, with the former fearing it could result in runaway public spending in the latter, with wealthier nations picking up the tab.
Prof Kleinert explained: “There will be no getting around a transfer system in the eurozone.
“Our current system of devoting billions of dollars in one-night session in times of crisis is certainly not the best way to go. What it will look like is not clear.”
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Nevertheless, some suggestions were already “on the table”, and required discussion, Prof Kleinert stressed.
Referring to former US President Franklin D Roosevelt’s economic reforms in the 1930s, he said: “It took the United States 150 years to become an ‘optimal currency area’ after the New Deal.
“The dispute took place in the USA under significantly more favourable conditions because the political union of the United States was only questioned for a very short time and with a different background.”
By contrast, he warned: “Neither the eurozone nor the EU is a political union, and neither will we have 150 years.
“It is not the best idea to adopt the climate negotiation strategy for the EU, as was done in Porto: three targets for 2030 have been set.
“It would have been better to talk about the Europeanisation of the unemployment insurance system, which could be an automatic stabiliser.”
In addition to the Covid pandemic, which had inevitably dominated the conversation in the short term, and the climate crisis, which dominates everything in the long term, it was crucial not to overlook much needed reform of the EU’s structures, Prof Kleinert said.
The Conference on the Future of Europe is proposing the creation of so-called Citizen’s Agoras tasked with formulating policy proposals and recommendations.
However Prof Kleinert was sceptical, concluding: “A broad discussion will be necessary.
“235 randomly selected citizens will certainly not be able to do this.”
(Additional reporting by Monika Pallenberg)
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