This column by the FT’s Martin Wolf offers some startling and stimulating insights about the Eurozone and its discontents. He identifies two major failings within the Eurozone (I say ‘within’ because can we really say by whom?)
The first is low demand which has dampened both growth and inflation. Related to this is the divergence in GDP: between 2007 and 2016, Germany’s real GDP per head at purchasing power parity rose by 11% yet it stagnated in France and fell in Spain by 8% and by 11% in Italy.
The second failure is the inexorable rise of Germany’s current account surplus, reckoned to be 9% this year. Within the Eurozone, Germany’s surplus is someone else’s deficit.
Stepping back, it is clear that the 2008 crisis tested the Eurozone. We in Ireland woke up to the fact that risk was going to be disaggregated as our banks faltered and we were on our own as the bond market turned against us. Advance eight years and we find that Italy’s banks are facing serious problems with €360bn of debt, of which some €170bn is held by Italian citizens. While the Eurozone has made strides toward a more resilient banking network, the trouble in Italian banking is disinterring some old headlines about the fate of the euro. As Wolf writes, the Eurozone needs conference. It also needs ambition.
“What the Eurozone needs most is a shift away from the politics of austerity”, writes Wolf. That to me makes a lot of sense. From a macro-economic point of view, money is cheap, inflation low, growth fragmented, and demand weak. From a political perspective there is clearly a need for the ‘system’ to deliver: whether fair or not, the EU is seen as the system.
From another perspective we as societies need to wage war on climate change by dramatically reducing carbon, generating sustainable energy, greening our urban centres and life styles, and mitigating the effects of climate change’s Valkyries – the storms, rising tides, flash floods and droughts that warn us of what’s ahead.