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EXPERT OPINION: European economy, with Joerg Bibow

Is the Eurozone crisis over? The market panic of last summer is gone, so policymakers are congratulat- ing themselves for fixing the situation. The Eurozone is perhaps stabilized, but at a very depressed level, with a gross domestic product that’s 3% smaller than it was five years ago. What little growth there is has happened in Germany, while several countries remain stuck in severe crisis—for example, unemployment is Greece is about 28%, youth unemploy- ment a mind-boggling 61%. The crisis is not nearly over.

How does the Eurozone operate? The Eurozone—18 of the 28 European Union countries—shares the euro as its common currency. The euro is managed by the European Central Bank, which is mandated to promote “price stability,” chiefly by keeping a lid on inflation. While sharing one currency, Eurozone members have largely retained authority over their own labor market, social, and fiscal policies—similar to US states. But the US is not only a monetary union; it also has a federal treasury. If the US falls into recession or has major bank failures, the Federal Reserve and the Treasury can cooperate to address the situation. If individual states hit hard times, the federal in- come tax and Social Security systems provide some automatic relief. There are no such safeguards in place if Euro- zone members hit hard times, as many did in the past five years. So they cob- bled together clumsy financial assis- tance programs and imposed severe austerity measures.

What’s your outlook for Europe in the next few years? Economic cutbacks aren’t working. If we all pursued the Eurozone’s strategy

—austerity without end—we’d sink the entire global economy! What contained the disaster in the Eurozone were ex- ports to growing countries elsewhere, like the US and China—an external life- line, so to speak. I recently returned from a conference

in Athens, where the political situation is very fragile. This is also true in other Eu- ropean Union countries. In fact several right-wing parties that are xenophobic and nationalistic, and therefore also anti- EU, are gaining strength. With further austerity measures in the pipeline for Greece, Spain, France, and others, political unrest and calls for euro and/or EU dissolution are a big risk.

What new approach would you like to see? I think the Eurozone’s policy regime was ill-constructed and needs serious repair: essentially, the Eurozone needs to be more like the US.

vestment across the monetary union by issuing “Euro Treasuries”—like U.S. Treasury securities. I’ve just launched a proposal along these lines in a research paper ( ?docid=1962). Europeans like to talk about their com- mon destiny and future. They’ve also identified the need for investment to se- cure that future. But they need to put their money where their mouth is, or else I fear there will not be a happy end- ing to the euro story.

Economics professor Joerg Bibow has degrees from South Africa, Germany, and the UK. He is a member of the Bretton Woods Committee and other groups.

This is difficult, because the Eurozone is not a nation and has no full-fledged federal political institutions. Despite this, I think a rudimentary federal treasury is both absolutely necessary and feasible. One key role of the “Euro Treasury” would be to fund public in-



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