Europe's Orphan : The Future of the Euro and the Politics of Debt

Originally Conceived As Part Of A Unifying Vision For Europe, The Euro Is Now Viewed As A Millstone Around The Neck Of A Continent Crippled By Vast Debts, Sluggish Economies, And Growing Populist Dissent. In Europe's Orphan, Leading Economic Commentator Martin Sandbu Presents A Compelling Defense Of The Euro. He Argues That Rather Than Blaming The Euro For The Political And Economic Failures In Europe Since The Global Financial Crisis, The Responsibility Lies Firmly On The Authorities Of The Eurozone And Its Member Countries. The Eurozone's Self-inflicted Financial Calamities And Economic Decline Resulted From A Toxic Cocktail Of Unforced Policy Errors By Bankers, Politicians, And Bureaucrats; The Unhealthy Coziness Between Finance And Governments; And, Above All, An Extreme Unwillingness To Restructure Debt. Sandbu Traces The Origins Of Monetary Union Back To The Desire For Greater European Unity After The Second World War. But The Euro's Creation Coincided With A Credit Bubble That Governments Chose Not To Rein In. Once The Crisis Hit, A Battle Of Both Ideas And Interests Led To The Failure To Aggressively Restructure Sovereign And Bank Debt. Ideologically Informed Choices Set In Motion Dynamics That Encouraged More Economic Mistakes And Heightened Political Tensions Within The Eurozone. Sandbu Concludes That The Prevailing View That Monetary Union Can Only Work With Fiscal And Political Union Is Wrong And Dangerous--and Risks Sending The Continent Into Further Political Paralysis And Economic Stagnation. Contending That The Euro Has Been Wrongfully Scapegoated For The Eurozone's Troubles, Europe's Orphan Charts What Actually Must Be Done For The Continent To Achieve An Economic And Political Recovery. 1. A Gaint Historic Mistake? -- 2. Before The Fall -- 3. Freece And The Idolatry Of Debt -- 4. Ireland: The Private Is Political -- 5. Europe Digs Deeper -- 6. Righting The Course: From Bail-out To Bail-in -- 7. If Europe Dared To Write Down Debt -- 8. Eurpoe's Real Economic Challenges -- 9. The Politics That The Euro Needs -- 10. Great Britain Or Little England --11. Remembering What The Euro Is For. Martin Sandbu. Includes Bibliographical References (pages 273-302) And Index. Cover......Page 1 Title......Page 4 Copyright......Page 5 Dedication......Page 6 CONTENTS......Page 8 PREFACE......Page 12 Spinelli’s Proposition......Page 18 Vindication of the Sceptics?......Page 21 A Politics of Blackmail......Page 24 The Disowned Currency......Page 26 The Overlapping Goals of Monetary Unification......Page 29 A Currency Designed by Economists......Page 32 Misplaced Misgivings......Page 34 Europe’s Economic Drift......Page 37 A Honeymoon for the Single Currency......Page 42 The Euro and the Genesis of the Crisis......Page 45 One Size Fits None......Page 46 The ‘Export Competitiveness’ Conundrum......Page 52 The Euro’s Lopsided Capital Flows......Page 56 Losing the Printing Press......Page 62 The Euro’s Innocence......Page 64 The Promise of Europe......Page 65 A Country Runs Out of Credit......Page 68 The Difficulty of Putting Your Money Where Your Mouth Is......Page 70 Three Great Morality Plays......Page 72 The Costs of Compromise......Page 76 Economic Tragedy......Page 79 The Alternative That Could Not Be Named......Page 84 An Escape from the Euro?......Page 87 Killing Democracy in Its Cradle......Page 90 Disenfranchisement without Respite......Page 93 An Interview Out of the Ordinary......Page 97 One Letter and Six Months......Page 99 Europe’s Banking Addiction......Page 102 Too Big to Fail......Page 104 Pulled Down by a Helping Hand......Page 107 Alternatives......Page 110 Quid Pro Quo......Page 115 Lehman Syndrome......Page 118 Doubling Down......Page 123 Austere Solidarity: All Must Tighten......Page 124 The Eurozone’s Self-inflicted Second Downturn......Page 127 Letting Zombie Banks Roam......Page 133 Death by Accounting......Page 135 Irreversibility Reversed......Page 139 The Mutualisation Fix......Page 143 The Tyranny of Technocracy......Page 147 Germany’s Conditions......Page 150 The Logical Extreme......Page 154 Learning from Failure......Page 156 Accepting Default......Page 157 Learning the Irish Lesson......Page 161 Prising Loose a Deadly Embrace......Page 163 Testing the Waters......Page 166 Plunging In......Page 167 Fiscal and Monetary Let-Up......Page 172 Whatever It Takes......Page 174 Lasting Injury......Page 178 Renouncing ‘There Is No Alternative’......Page 182 A Stroll through Counterfactual History......Page 183 Fail Early, Fail Often......Page 185 Ending the Cult of the Sovereign Signature......Page 190 Sovereign Contagion......Page 194 Restructuring Politics: Dealing with Greece......Page 198 Restructuring Politics: A Less Conflicted Europe......Page 200 Three Tasks......Page 206 Making the Eurozone Safe from Sudden Stops......Page 207 Idling Europe’s Economic Engine......Page 214 A Pact Long in Need of Reform......Page 221 Encouraging Long-term Growth......Page 225 Unexploited Opportunities......Page 232 A ‘New Deal’?......Page 234 Choosing an Alternative......Page 238 France: The Duumvir that Abdicated......Page 243 Germany: The Reluctance of the Hegemon......Page 245 Insurrections......Page 248 From Restored National Autonomy to Renewed European Integration......Page 256 The Real Choice for Britain in Europe......Page 259 Counterfactual History: Crisis Policy with Britain in the Euro......Page 260 Brown’s Five Tests Today......Page 267 Greater Guernsey?......Page 276 The Euro and National Power......Page 281 What Is at Stake......Page 282 Exonerating the Euro: A Summary of the Argument......Page 283 The Euro and Economic Strength......Page 285 Unity in Diversity......Page 287 NOTES......Page 290 INDEX......Page 320 Cover 1 Title 4 Copyright 5 Dedication 6 CONTENTS 8 PREFACE 12 ONE A GIANT HISTORIC MISTAKE? 18 Spinelli’s Proposition 18 Vindication of the Sceptics? 21 A Politics of Blackmail 24 The Disowned Currency 26 The Overlapping Goals of Monetary Unification 29 A Currency Designed by Economists 32 Misplaced Misgivings 34 Europe’s Economic Drift 37 TWO BEFORE THE FALL 42 A Honeymoon for the Single Currency 42 The Euro and the Genesis of the Crisis 45 One Size Fits None 46 The ‘Export Competitiveness’ Conundrum 52 The Euro’s Lopsided Capital Flows 56 Losing the Printing Press 62 The Euro’s Innocence 64 THREE GREECE AND THE IDOLATRY OF DEBT 65 The Promise of Europe 65 A Country Runs Out of Credit 68 The Difficulty of Putting Your Money Where Your Mouth Is 70 Three Great Morality Plays 72 The Costs of Compromise 76 Economic Tragedy 79 The Alternative That Could Not Be Named 84 An Escape from the Euro? 87 Killing Democracy in Its Cradle 90 Disenfranchisement without Respite 93 FOUR IRELAND: THE PRIVATE IS POLITICAL 97 An Interview Out of the Ordinary 97 One Letter and Six Months 99 Europe’s Banking Addiction 102 Too Big to Fail 104 Pulled Down by a Helping Hand 107 Alternatives 110 Quid Pro Quo 115 Lehman Syndrome 118 FIVE EUROPE DIGS DEEPER 123 Doubling Down 123 Austere Solidarity: All Must Tighten 124 The Eurozone’s Self-inflicted Second Downturn 127 Letting Zombie Banks Roam 133 Death by Accounting 135 Irreversibility Reversed 139 The Mutualisation Fix 143 The Tyranny of Technocracy 147 Germany’s Conditions 150 The Logical Extreme 154 SIX RIGHTING THE COURSE: FROM BAIL-OUT TO BAIL-IN 156 Learning from Failure 156 Accepting Default 157 Learning the Irish Lesson 161 Prising Loose a Deadly Embrace 163 Testing the Waters 166 Plunging In 167 Fiscal and Monetary Let-Up 172 Whatever It Takes 174 Lasting Injury 178 SEVEN IF EUROPE DARED TO WRITE DOWN DEBT 182 Renouncing ‘There Is No Alternative’ 182 A Stroll through Counterfactual History 183 Fail Early, Fail Often 185 Ending the Cult of the Sovereign Signature 190 Sovereign Contagion 194 Restructuring Politics: Dealing with Greece 198 Restructuring Politics: A Less Conflicted Europe 200 EIGHT EUROPE’S REAL ECONOMIC CHALLENGES 206 Three Tasks 206 Making the Eurozone Safe from Sudden Stops 207 Idling Europe’s Economic Engine 214 A Pact Long in Need of Reform 221 Encouraging Long-term Growth 225 Unexploited Opportunities 232 NINE THE POLITICS THAT THE EURO NEEDS 234 Cracks in the Consensus? 234 A ‘New Deal’? 234 Choosing an Alternative 238 France: The Duumvir that Abdicated 243 Germany: The Reluctance of the Hegemon 245 Insurrections 248 From Restored National Autonomy to Renewed European Integration 256 TEN GREAT BRITAIN OR LITTLE ENGLAND? 259 The Real Choice for Britain in Europe 259 Counterfactual History: Crisis Policy with Britain in the Euro 260 Brown’s Five Tests Today 267 Greater Guernsey? 276 The Euro and National Power 281 ELEVEN REMEMBERING WHAT THE EURO IS FOR 282 What Is at Stake 282 Exonerating the Euro: A Summary of the Argument 283 The Euro and Economic Strength 285 Unity in Diversity 287 NOTES 290 INDEX 320 Originally conceived as part of a unifying vision for Europe, the euro is now viewed as a millstone around the neck of a continent crippled by vast debts, sluggish economies, and growing populist dissent. In Europe's Orphan, leading economic commentator Martin Sandbu presents a compelling defense of the euro. He argues that rather than blaming the euro for the political and economic failures in Europe since the global financial crisis, the responsibility lies firmly on the authorities of the Eurozone and its member countries. The subsequent self-inflicted financial crisis and economic decline resulted from a toxic cocktail of unforced policy errors by bankers, politicians, and bureaucrats; the unhealthy coziness between finance and governments; and, above all, an extreme unwillingness to restructure debt. Sandbu traces the origins of monetary union back to the desire for greater European unity after the Second World War. But the euro's creation coincided with a credit bubble that governments chose not to rein in. Once the crisis hit, a battle of both ideas and interests led to the failure to aggressively restructure sovereign and bank debt. Ideologically informed choices set in motion dynamics that encouraged more economic mistakes and heightened political tensions within the Eurozone. Sandbu concludes that the prevailing view that monetary union can only work with fiscal and political union is wrong and dangerous—and risks sending the continent into further political paralysis and economic stagnation. Contending that the euro has been wrongfully scapegoated for the Eurozone's troubles, Europe's Orphan charts what actually must be done for the continent to achieve an economic and political recovery.