RIGA – Morten Hansen tells it how it is:
[T]his simple analysis explains why the country is still poor in an EU sense: It is on average poorly equipped with skills, possibly poorly equipped with physical capital and most likely equipped with a burdensome public sector – and that’s why it deals with scrap metal and not wind turbines.
I suspect the economic crisis will bring the EU closer together – perhaps not in a form of a federal state, but definitely closer to it than it is now. That’s what a crisis does – it is a natural catharsis for change. It either breaks the union or makes it stronger. It has been true for any kind of blocs. The United States live on as a single federal country after the North won in the Civil War and prevented some states from forming another union. The Soviet Union collapsed unable to deal with the economic and geopolitical changes in the world. The League of Nations failed because it couldn’t prevent the Second World War, while the United Nations…. well, that’s a different story.
The point is though that the Union cannot stay the same at a time of adversity. It is a living breathing thing. When a crisis strikes, it must change or die.
Part of the efforts for change have been exactly those countries hurt the most from the crisis. The Baltic states and Bulgaria, the EU members whose currencies are pegged to the euro, have asked the
central bank to amend the so-called Maastricht criteria that guide a nation’s entry into the zone and – frankly – are a bit outdated. And they’re right to demand a change to the rules that have been set up
before the economic slump.
Wolfgang Munchau wrote recently:
“…the smartest answer to the prospect of meltdown is the adoption of the euro as quickly as possible. There is no need to switch over tomorrow. All we need tomorrow is a credible and firm accession
strategy – one for each country – which would include a firm membership date and a conversion rate, backed up by credible policies.Obviously, this would require the long overdue abandonment of the eurozone’s defunct entry criteria. Of those, the most nonsensical is the reference rate for inflation, calculated as the average of the
lowest three national rates. Soon, this will be a deflation rate. So an aspiring member state would be in the absurd position of having to deflate as a precondition for euro entry.The inflation criterion is not only insane, it is also in conflict with other parts of European law. Since price stability counts as an important overriding goal of EU economic policy, enforcing a deflation criterion would be a clear breach of this objective. The same goes for the exchange rate criterion. Forcing a country into a two-year sentence of membership of the exchange rate mechanism – in which its currency would fluctuate against the euro in a fixed band – is an open invitation to speculators and would risk further instability. The accession criteria are inconsistent with basic stability rules. They should be declared invalid and certainly not be abused as a bureaucratic hurdle to prevaricate in a dangerous crisis.
If calamity strikes, the EU will pay up. This is laudable, but will probably not solve the problem, especially if the crisis spreads. Granting financial aid without a firm commitment to euro membership would be irresponsible. Euroisation is the way to go.”
The bottom line: you either consolidate or go back into your own little country when a crisis strikes. This is why the French President wanted French cars to be made in France and not in Czech Republic. This is why a movement is strong in several member states that is called a protectionism. The minister of the economy here in Latvia suggested to require large Lithuanian and Scandinavian supermarkets to
have a Made in Latvia shelf where only locally produced products would be placed. Another one suggested to create a chain of the government-owned supermarkets to drive down food prices. And then there’s a movement to ban Lithuanian milk, force Swedish banks to take a serious hit from loans they have handed out here.
But there’s also another movement – the one toward a closer union. That’s the one that says that we’re not just golf partners, but that your golf game depends on my golf game and vice versa. It’s not that
we’re utterly separate, but we’re interdependent. It’s certainly true with banks. Here when the government collapsed two weeks ago, we see the price of a Swedish krona plummet immediately. The two countries are interdependent but have different resources. What Sweden can afford, Latvia cannot. Even now some countries talk about setting up a common bank regulation in the union and that leads to further centralization and a closer union.
Yes, the strength of Europe is in its diversity. But a closer union doesn’t kill that diversity. It makes it stronger.
“”On the question of eastern and central Europe, there is an economic and political risk for them and for us,” he told a news conference after a summit of EU leaders in Brussels.” French President Nicholas Sarkozy during a press conference after the EU summit in Brussels on Sunday.
Us and them? I thought we were in this union together.
Heard on the BBC World News on Sunday at 1 p.m. local:
The Brussels correspondent: “No, no actual decision will be made at this summit. This is a kind of precursor to another summit in Brussels in two weeks time.”
Heh.