(The following is the translation of an interview that appeared in Sunday’s Eleftherotypia. C. J. Polychroniou talks to Jörg Bibow about the latter’s proposal for a Euro Treasury and how it represents a viable solution to the eurozone crisis — a crisis that is very much ongoing, Bibow explains.)
CJP: A number of economists, including yourself, maintain that the eurozone crisis remains unresolved, yet the financial markets are calm. Is this a case of seeing the glass half empty rather than half full?
JB: Sure, if you are a believer in the efficient market theory you might conclude that things are just fine. Well, I don’t. Does anyone remember that the markets were also in a state of bliss in the years leading up to the crises in the US and Europe? As serious economists such as Keynes and Minsky well understood, financial markets are subject to conventional behavior and prone to instability. The current convention appears to be that Mr. Draghi’s famous “whatever it takes” promise is insurance enough that really bad stuff is not going to happen. Fine, but how powerful is Mr. Draghi, really? At some point the markets might wake up and wonder what it would actually take to fix the situation and how Mr. Draghi might possibly deliver on that. Complacency can turn into another full-blown scare in no time. And the reason to be scared is the fact that the euro is still not on any sound footing. Serious regime flaws are still in place. The eurozone economy may have stopped shrinking, largely owing to growth in the rest of the world, but that alone does not fill up the glass. Unemployment is stuck at mind-bogglingly high levels. Indebtedness continues rising. Prospects for any real recovery are grim. Ultimately, what will convince countries to stay with the euro as the euro comes to symbolize impoverishment rather than prosperity?
CJP: Many critics of the current eurozone architecture maintain that a transfer union is the only way to address imbalances and keep the euro alive. What you have proposed, however, is a “Euro Treasury” scheme which is designed not to be a transfer union. First, what’s wrong with having a transfer union?
JB: A transfer union features more or less automatic support from currently richer and stronger members to partners that are currently poorer and weaker. An element of transfer union was part of the EU and euro project from the beginning, the EU structural and cohesion funds. The US monetary union includes a far more extensive transfer union than that to be sure. Unfortunately, the euro crisis has greatly increased resistance against moving in that direction. Moreover, the troika rescue programs are erroneously interpreted as transfers – when in fact they were bailouts of creditor countries’ banks and meant more debts rather than any gifts for euro crisis countries, allegedly the beneficiaries. I see nothing wrong with a US-style transfer union for Europe in the long run. My “Euro Treasury” plan simply acknowledges that that is not a short-run option. Therefore, my Euro Treasury would pool fiscal resources and issue common euro bonds. But the benefits would be equally spread, with no transfers from rich to poor.
CJP: Exactly, how would the Euro Treasury work? continue reading…