A chance to tell the euro story in full

Jeroen Di­js­sel­bloem’s com­ments have an­gered the south but they are an op­por­tu­nity to re­visit cri­sis roots

Kathimerini English - - Focus - BY NICK MALKOUTZIS

ANAL­Y­SIS Maybe the dial in his mind was still switched to the rig­ors of the Dutch elec­tions, or pos­si­bly his fo­cus was on former col­leagues who might now want to chal­lenge him for his post as Eurogroup pres­i­dent. What­ever the case, Jeroen Di­js­sel­bloem ex­posed one of the ugli­est and most dam­ag­ing sides of the dis­cus­sion about the eu­ro­zone since the cri­sis broke out.

“The north of the eu­ro­zone showed sol­i­dar­ity,” he said in an in­ter­view with Frank­furter All­ge­meine Zeitung. “Sol­i­dar­ity is very im­por­tant but those de­mand­ing it have du­ties too. I can’t spend my money on al­co­hol and women then ask for help.”

His com­ments were la­beled as di­vi­sive, racist and sex­ist. South­ern Euro­pean coun­tries felt that what Di­js­sel­bloem said was an un­fair, in­sult­ing car­i­ca­ture. Calls for Di­js­sel­bloem’s res­ig­na­tion came from Por­tu­gal and Italy, while the Greek gov­ern­ment con­demned his re­marks as be­ing “un­help­ful.”

The Dutch fi­nance min­is­ter, who may be out of a job soon af­ter his La­bor Party gained only nine seats in the re­cent elec­tions, passed up the chance to apol­o­gize dur­ing a ses­sion of the Euro­pean Par­lia­ment’s Eco­nomic Af­fairs Com­mit­tee on March 21.

“Sol­i­dar­ity comes with strong com­mit­ment and re­spon­si­bil­ity,” he said, in­sist­ing that he had not been re­fer­ring to the south. “Oth­er­wise, sol­i­dar­ity will not hold. It can­not be up­held. You will not main­tain pub­lic sup­port for sol­i­dar­ity if it doesn’t come with com­mit­ment and re­spon­si­bil­ity and an ef­fort from all sides.”

Di­js­sel­bloem later ex­pressed re­gret that his orig­i­nal com­ment was mis­un­der­stood and put it down to “Dutch di­rect­ness” and a strict Calvin­is­tic cul­ture. Nev­er­the­less, he may now find it dif­fi­cult to re­main Eurogroup chief, a po­si­tion he gained de­spite hav­ing rel­a­tively lit­tle ex­pe­ri­ence.

Dur­ing his term he has had to deal with the Cyprus bailout, a flar­ing up of the Greek cri­sis and the an­tics of Ya­nis Varo­ufakis, among oth­ers, which would have tested men of greater ex­pe­ri­ence. He also ap­pears to have made a gen­uine at­tempt to bro­ker a de­ci­sive deal be­tween Greece and its lenders at the De­cem­ber 5 gath­er­ing of eu­ro­zone fi­nance ministers, ul­ti­mately fall­ing short. We should avoid con­fus­ing our anal­y­sis of Di­js­sel­bloem’s re­cent com­ment with an as­sess­ment of his time in of­fice.

The ideas that the Dutch fi­nance min­is­ter ex­pressed are highly prob­lem­atic and ex­tremely per­ni­cious. They need to be ad­dressed sep­a­rate- ly. They go to the very heart of the la­tent racism that has ex­isted in some of the Euro­pean me­dia, politi­cians’ rhetoric and the pop­u­lar nar­ra­tives that have taken root since the euro cri­sis be­gan. They also cor­re­late with the faux-moral­is­tic ap­proach to cri­sis man­age­ment that has driven a wedge be­tween the core and the pe­riph­ery, while com­pound­ing many of the prob­lems it was meant to ad­dress.

There are two key is­sues that need to be ad­dressed. The first is the idea of sol­i­dar­ity, which has been a buzz­word for eu­ro­zone pol­i­cy­mak­ers. The def­i­ni­tion of sol­i­dar­ity is when groups or in­di­vid­u­als act to­gether for a com­mon pur­pose. How­ever, when Euro­pean of­fi­cials talk about sol­i­dar­ity in the con­text of the euro cri­sis, they present it as a one-way trans­ac­tion: The pro­gram coun­tries were in dan­ger of go­ing un­der but were res­cued with loans pro­vided by their part­ners.

This is not false but it is a very lim­ited in­ter­pre­ta­tion of what has hap­pened over the last few years: Mem­bers of a sin­gle cur­rency that lacked fis­cal unity and the tools to deal with a cri­sis ran into eco­nomic prob­lems and were bailed out with loans that came with strict con­di­tion­al­ity. Although this staved off dis­or­derly de­faults and the pain they would bring, meet­ing the bailout con­di­tions put a se­vere strain on the economies of the coun­tries con­cerned. They put their pub­lic fi­nances in or­der, they em­barked on struc­tural re­forms and en­dured falls in their eco­nomic out­put and rises in un­em­ploy­ment lev­els.

At the same time, some of the eu­ro­zone mem­ber-states pro­vid­ing the loans were able to shore up their de­fenses against a cri­sis in their banks, which had lent freely to the bailed­out coun­tries in pre­vi­ous years, and within their eu­ro­zone. While they put up the fire­wall, Spain, Cyprus, Por­tu­gal and Greece felt the heat of shut­tered busi­nesses, job losses and ris­ing em­i­gra­tion, es­pe­cially among their young peo­ple.

The other point that needs to be made about Di­js­sel­bloem’s com­ment is in re­la­tion to the im­pres­sion cre­ated (in­ad­ver­tently, the Dutch politi­cian ar­gues) that the cri­sis was a re­sult of the prof­li­gate south wast­ing its wealth. Apart from the fact that this con­jures up a nasty im­age, it is a mis­read­ing of how the eu­ro­zone worked.

It is true that the on­set of the cri­sis found Greece, Ire­land, Spain, Por­tu­gal and Italy with a col­lec­tive cur­rent ac­count deficit of al­most 7 per­cent of their GDP. But the core, in­clud­ing Ger­many and the Nether­lands, recorded a sur­plus of around 6 per­cent of their GDP.

As econ­o­mists Alexandr Hobza and Ste­fan Zeugner point out in a 2014 Euro­pean Com­mis­sion paper they wrote, the euro area’s over­all cur­rent ac­count “stayed mod­er­ately pos­i­tive,” never ex­ceed­ing 1 per­cent of GDP. “The euro area cur­rent ac­count po­si­tion dur­ing its first decade thus could be called an ‘im­bal­anced bal­ance,’” they write. “This im­plies that the deficits were al­most ex­clu­sively fi­nanced from the sur­pluses in other euro area coun­tries.”

What the eu­ro­zone wit­nessed in the buildup to the cri­sis was a “down­hill” cap­i­tal flow from the core, which was cap­i­tal-rich thanks to ex­ces­sive sav­ings, to the pe­riph­ery, which was in a hurry to catch up with its part­ners in the newly cre­ated euro. The cri­sis brought th­ese flows to a sud­den stop.

Had the pe­riph­ery in­vested its new­found (bor­rowed) wealth wisely? In many cases, it hadn’t. How­ever, to sug­gest that this was the only prob­lem­atic part of the trans­ac­tions is patently wrong. Where there is bad bor­row­ing, there is also bad lend­ing. The lat­ter part, though, seems to have largely been air­brushed out of the euro cri­sis story. In Greece’s case, the dis­cus­sion cen­ters al­most ex­clu­sively on the waste­ful pub­lic spend­ing and hardly ever on the equally reck­less lend­ing.

To ig­nore this fun­da­men­tal as­pect of what led to the tra­vails of the last few years sug­gests that eu­ro­zone pol­i­cy­mak­ers are not gen­uinely in­ter­ested in us­ing the cri­sis to strengthen the sin­gle cur­rency as a whole and each of its mem­bers in­di­vid­u­ally.

It is dis­heart­en­ing that th­ese is­sues should be a topic of dis­cus­sion in the eu­ro­zone so many years af­ter the cri­sis be­gan. Per­haps Di­js­sel­bloem’s words – what­ever his in­ten­tion – can pro­vide an op­por­tu­nity for a re­bal­anc­ing, for the story to be told in full and for stereo­types to be shat­tered.

Jeroen Di­js­sel­bloem passed up the chance to apol­o­gize dur­ing a ses­sion of the Euro­pean Par­lia­ment’s Eco­nomic Af­fairs Com­mit­tee last Tues­day.

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