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Commentary & analysis with a focus on European economic policy

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Analysis of the proposal „A constructive approach to Euro Area reform“

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A group of 14 prominent economists, seven each from France and from Germany, has issued a detailed and rather comprehensive proposal for reform of the Euro Area (CEPR 2018).* This is a welcome initiative. There is a window of opportunity for reform in the Euro Area. Economically it has been created by the strengthening and increasingly broad economic upturn: policymakers can leave firefighting mode and focus on structural governance reforms. Politically it has been opened up by the 2015 report by the five presidents of the EU institutions, the initiatives by the new French President Macron, the proposals by the European Commission of December 2017, and, most recently, the declarations of intent on Europe emerging from the grand-coalition talks in Germany.

Together Germany and France account for half of Euro Area GDP. The authors of the report are all well-known in policy-oriented circles, while coming from different traditions. For all these reasons the report is set to be very influential. This appraisal follows the structure of the report itself, examining the underlying philosophy and problem analysis (1), the proposals relating to the financial sector (2), to fiscal governance (3) and finally institutional questions (4). An overall assessment with recommendations for extensions and alternatives concludes (5). [Read more…]

Bernd Lucke and the shifting sands of liberalism, nationalism euroscepticism and populism

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(Sie können eine deutsche Version dieses Textes bei Makronom, der Online-Zeitung für Wirtschaftspolitik, lesen: hier)

Just over a week ago Bernd Lucke came to Düsseldorf to give a lecture drumming up support for a new party. Bernd who? Well, the former member of the CDU – for 33 years no less – was very much in the German and indeed European news from 2013 to 2015, as the face of the euro-critical, liberal-conservative Alternative für Deutschland. After a power struggle with right-wing nationalists and racists who increasingly came to dominate the party, he and other members of the liberal wing left to form ALFA, the Alliance for Progress and Renewal. Declining to contest the recent German federal election – perhaps the acronym was just too dreadful – it mutated into the LKR, which stands for liberal-conservative reformer. This is the same name as the group in the European Parliament for which Lucke sits, having gained his seat as an AfD candidate in 2014.

I relate this party-political musical chairs, because Lucke’s background and recent political biography, and also his lecture and the subsequent discussion with 75 or so citizens who attended are telling about current trends in German, and beyond that European, liberalism, nationalism, euroscepticism and populism.

I’ll begin by accentuating the positive. Bernd Lucke, a former professor of economics, is certainly knowledgeable about EU and German affairs, especially economic issues. He is personable and, while conservative in outlook, I genuinely believe he personally has no truck with racists. This begs the question of why he has found himself in their company: I will attempt an answer. His analysis of the Euro is not far from the dominant strain of thinking within German (but not international) economics. He deploys arguments expressed in scientific language; however he does so in a very one-sided way. Again, I think I have an explanation.

Let me give you a flavor of Luckerian discourse, focusing on the Euro. [Read more…]

Wolfgang Schäuble’s poisoned parting gift to the Euro Area

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Those who wish to leave – so a German saying – you should not seek to dissuade from so doing. To few people is the phrase more applicable than to Wolfgang Schäuble who is resigning the post of German finance minister and, with it, that of de facto head of the Euro Group. He held these roles since 2009,  that is virtually since the onset of the Euro Area crisis. While the crisis and the associated double-dip recession was a failure that had many fathers, Dr. Schäuble was arguably the most wanton of those who, to paraphrase Keynes, blundered in the control of a delicate machine, the working of which he does not understand.

On the other hand, the fact that someone who has caused much harm is leaving an influential post does not mean that his or her influence falls to zero. His arty certainly remains the dominant force in German politics. Nor, alas, does it necessarily mean that the successor will be an improvement: it seems likely that he or she will come from the liberal FDP which campaigned on a manifesto of rejecting any form of transfers or bail-outs, and threatening countries that fail to meet tough fiscal targets with being forced out of the single currency.

At his last Eurogroup meeting the departing German finance minister left a chilling message of his own in the form of a short non-paper on European economic policy. I will go through point by point, but the spoiler is simple: it represents a doubling down of believers in Maastricht and a complete rejection of all the risk-sharing and stability-promoting ideas tabled by the European authorities and, most vividly, by French President Macron. [Read more…]