LONDON (Reuters Breakingviews) - For the euro’s many critics, the sovereign debt crisis that peaked in 2012 was a sign that the single currency is doomed. For Olli Rehn, one of the lessons is that its members need to integrate further and share more risks. In “Walking the Highwire: Rebalancing the European Economy in Crisis”, the former European Union commissioner describes his experience of firefighting to keep the euro zone intact. Though the book was written before the coronavirus outbreak, the pandemic has revived debates about sharing financial burdens among its members. Reluctance to support weaker countries suggests Rehn’s vision remains out of reach.
Rehn, who is now governor of Finland’s central bank, gives a blow-by-blow account of how the crisis unfolded. He switches from the high drama of the political fights over Greece’s debt restructuring to the mundane details of life as an emergency policymaker. Colourful anecdotes about the personalities involved provide some light relief. Rehn’s observation that Lucas Papademos brought competence to Greece’s handling of the economic crisis when he became the country’s prime minister is an only thinly veiled dig at his predecessor George Papandreou.
Much of the book is a defence of the harsh measures imposed on the euro zone’s periphery by the “troika” of the European Commission, European Central Bank and International Monetary Fund. Countries like Ireland, Portugal and Greece were required to cut public spending in return for financial rescue packages. Over time, Rehn says, these policies rebalanced the vulnerable economies, making them more competitive and sustainable. Though his case has merit, it’s unlikely to win over ordinary people who lived through the pain of austerity.
Rehn, who was known for briefing male journalists in a sauna during the crisis, is a credible narrator. But he underplays the real-life consequences of drastic belt-tightening which are inseparable from the reforms he helped devise. Even in its guise as an economics textbook, “Walking the Highwire” would have benefitted from more than passing a nod to the human costs of the crisis.
Rehn’s central point is that Brussels must strive for more policy coordination and cooperation in the single currency bloc, as well as prioritising financial stability. The more committed euro zone states are to the common project, the better it is for them that it functions well, with progress towards goals such as employment-friendly growth.
The coronavirus pandemic offers an urgent test of that commitment. European states are grappling with the most acute economic calamity since World War Two. Like the euro zone crisis, not all countries have been hit equally. Some have suffered a greater number of deaths, face a slower economic recovery and have less scope to cushion the blow with public spending. The IMF expects Italy’s economy to contract by more than 9% this year, compared with 6% for Rehn’s native Finland.
Yet there’s little evidence of solidarity so far. The ECB, on whose Governing Council Rehn sits, is spending more than 1 trillion euros on financial assets this year in an attempt to prop up the economy. But calls for euro zone governments to help more indebted members by issuing joint “coronabonds” have been rejected by countries like Germany and the Netherlands. A proposed EU “recovery fund” has been bogged down by political haggling.
All participants are bound by political constraints. German Chancellor Angela Merkel faces resistance at home to the notion of providing financial assistance to weaker countries. Meanwhile, Italian eurosceptics have seized on the lack of support from EU neighbours to feed anti-Brussels sentiment. On both sides, critics are feeding on public dissatisfaction spawned by the euro zone crisis.
Yet if the single currency bloc can’t act decisively to share burdens and help more vulnerable countries in a health emergency, it may never be able to. The pandemic was not brought on by states living beyond their means. This should reduce the finger-pointing which restricted financial support during the euro zone crisis.
Rehn grew up in the grim shadow of the Soviet Union during the Cold War. His personal experience gives useful context to his views. It also makes the reader wonder whether later generations of bureaucrats and politicians share his deep-rooted and emotional commitment to the European political project. The dearth of consensus on a joint response to the pandemic suggests Rehn’s hopes of greater European cooperation remain elusive.
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