Tuesday, April 18, 2006

With friends like these, does the EU need enemies?

Taken from the Open Europe Bulletin a follow up to my piece on the Euro / or maybe I should say a prequel,

"In an interview with Belgian daily De Morgen (18 March) Commission President Jose Barroso's economic advisor Professor Paul de Grauwe has argued that the euro has damaged Italy's economy, and that without "political union" in Europe, the euro will collapse in ten to twenty years. He also argued that the EU's Lisbon process, which forms the backbone of the Commission's efforts to make Europe more competitive, "is best buried."

He said, "Sometimes I wonder: do we still need the European Union? I start to have doubts about that. It is sufficient that countries open up their economy. You don't need to do that in the context of the European Union." Asked whether Europe has added value he said, "I'm not sure about that. Probably the Union creates a framework to keep markets open in an organised way. In that respect it has added value."

He went on to argue that "the euro is a bad thing for the Italian economy. I'm afraid that Spain is also evolving in the same direction. If that happens, we are stuck with a big problem." He said that developing a "political union" is the only way to mitigate the problems created by the euro, saying "A political union is the logical end-point of a currency union. But if that political union fails to materialise, then in the long term the euro area cannot continue to exist." He said, "Now that nobody appears to want that political union, you can begin to wonder whether monetary union was such a good idea. I hardly dare predict that, in the longer term, the monetary union will collapse. not next year, but on a time frame of ten or twenty years. There is not a single monetary union which survived without political union. They have all collapsed. You invariably get big shocks. A monetary union becomes very fragile without a political framework. With the exception of a Don Quixote like Guy Verhofstadt [Belgian Prime Minister and author of The United States of Europe], I see nobody who is pushing the case for a political union." He said, "A large free trade zone remains the only feasible option for Europe. It's an illusion that we can realise a political union in Europe in the near future. Political unification has failed. But that is a big problem for the currency union. That is in danger."

He went on to say: "Lisbon was a political fiction. The Lisbon process is best buried. The whole process, for that matter, is based on the wrong diagnosis. We have built a system of social security that gives people too many incentives not to work. They can easily interrupt their career and leave the labour market early. For many people it is financially unattractive to work. So we shouldn't be surprised that economic growth is subdued." He went on to say that productivity per hour worked in the EU is the same as in the US, but that because Europeans take more time off, growth is slower in the US where people work more and consume more".

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