December 2nd, 2011
04:05 AM GMT
London (CNN) – Just like the credit crunch three years ago, the current eurozone crisis will no doubt spawn endless books and provide many an interesting case study for the world’s future economists. Whether the lessons will be learned and future crises avoided depends largely on whether you believe history repeats itself. And that’s another topic that divides opinion as much as the eurozone itself.
Already academics at Oxford University’s Centre for International Studies have identified 10 key failures of Europe’s leaders in how they have handled the issue, even though the saga is far from over.
Associate Fellow Kirsty Hughes says that the errors are largely political, democratic and economic in nature.
Here’s a list of where Hughes says EU leaders got things so wrong:
Aside from the talk about balancing budgets together and pooling Europe’s giant debt pile, Hughes says what the region needs now is vision “to show that the EU is more than just a single currency, that it has a current and future political, social and economic purpose and dynamic.” How can you get bond markets to invest in you for the next 10 or 20 years without a clear vision on your combined goals? Especially with countries squabbling about the erosion of sovereignty that may result with proposed changes to the EU treaties– changes Germany’s Chancellor Angela Merkel says are essential for future integration.
2) Imbalance of power strains relations between member states:
Here’s a question for you: Who really counts in the European Union? The two largest economies, France and Germany? The 17 EU countries that share the euro? Or the full 27, including the 10 more that aren’t part of the currency union?
The answer depends on who you are. As the crisis has deepened, France and Germany – with significant amounts of political and financial capital invested in the euro project – have taken on the lead role. Hughes says the concentration of decision-making on two countries and a handful of unelected officials “represents the worst of all worlds.”
Not only has the process been painfully slow and behind the curve, she says it has often visibly failed to bring other interested parties into the negotiations, namely the other 15 members that share the same fate.
Even less attention has been paid to the ten more EU members that aren’t part of the euro zone.
3) Neglecting the EU’s role on a global stage
Though progress has been painfully slow when it comes to solving Europe’s domestic woes, Hughes also says the E.U. has taken its eye off the ball on its foreign policy at a key time of upheaval in the Mediterranean and Middle East. Hughes says that after the Arab Spring uprisings, Europe should be ‘asserting and defining its role in the new order to retain influence.’
4) Lack of policy choices. Is austerity the only answer?
Throughout the eurozone crisis, the Franco-German wonder cure has been austerity. Those swallowing the medicine like Greece and Portugal have been vocal about their skepticism, saying deep cuts will stifle any future growth and lead to a lost generation however very few credible policy alternatives have been put forward by any of the EU’s members.
5) Failure to put people first
Hughes says Europe’s leaders have acted as though there were almost academic economists, failing to see the hopelessness brewing in places like Spain for instance where unemployment among the young runs at 40 percent. She goes as far as saying those heads of government who do not give hope to their citizens should not deserve the title ‘leaders.’
6) Emergence of technocratic governments
Two eurozone countries – Greece and Italy – are now run by technocrats, unelected by the people. That in itself, Hughes says is a failure of democracy on a national and international level.
7) The EU’s democratic deficits
The EU’s weaknesses were exposed long before the eurozone crisis gained momentum. French, Dutch and Irish voters rejected new constitutional treaties for the bloc, exposing the lack of cohesion. While some argue that transforming the EU into a Federal entity would be the best answer to the crisis, Hughes says given the substantial ‘No’ votes to previous treaty changes, any such moves would be premature at this stage.
8) Macro-economic failures
Germany and the United Kingdom espouse the view that more rigorous budgetary discipline is the answer for countries like Greece, Portugal, Ireland and Italy – nations that have large debts and little hope of paying back their borrowings soon. Having said that, not all economists agree that cuts are always the key to solving a crisis. Such countries were already suffering from low growth and now public sector layoffs and pension cuts could also prompt a slump in demand for goods and services, a drop off in consumer and business confidence, which all in all will dent output.
9) Failure to confront the financial markets
The failure of Europe’s leaders to reassure financial markets early about Greece has magnified the cost and scale of the crisis today and left the region with a situation in which some of its largest economies (like Italy) may soon be unable to finance themselves as nations normally do: on the open bond markets. Hughes says it’s time to throw out the ‘neoliberalism’ rulebook, in which control is shifted from the public to the private sectors. Or else, Europe’s politicians will continue to repeat the errors of 80 years ago.
10) Micro-economic failures
The Eurozone project has demonstrated that without similar levels of productivity, the economic strains that monetary union members suffer will continue to become more apparent, Hughes says. Wages, prices, unemployment and a whole raft of other factors will continue to vary widely among member nations. If the balance is right, the country can remain competitive, Hughes says. If it’s wrong, it may well spend to make up for the shortfall – such as building new motorways and airports –which create jobs. Such spending leads to large deficits, which later widen when the economy slows.
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