Euro 2.0

The Eurozone is drifting farther apart. But are we willing to accept that some countries might be forced to return to their national currencies?

In a recent interview with the German television station ARD, Chancellor Angela Merkel declared that “what Europe needs is more Europe, not less.” This made many non-German observers happy: Italians, Greeks, Spanish, Portuguese, and lately also French people hope that Berlin may be willing to embrace a leadership role on the continent in solving the European crisis.

Yet the chancellor was also acutely aware that domestic reactions to her words were rather different. Leadership normally comes with a nuisance, mostly in the form of sacrifice. Germans pushed for necessary reforms before other European countries did. At a time when they discussed the sexual escapades of prime ministers or officials meddling with economic statistics, Germans reformed their social welfare system under the banner of the so-called “Hartz 4” reforms. The mindset today: If Bavaria prospers, it is because they have earned it.

Merkel has hinted at this in her interview: She argued that Europe is moving at “two different speeds.” One could guess who’s moving at the top speed (Germany) and who is not (all that is not Germany). Her remarks also hint at a possible solution that tends to surface at discussions in Brussels from time to time: Let’s split the Eurozone and create two separate currencies, and similar countries would be grouped together. It has been realized that monetary policy cannot be parted from fiscal policy. All the discussions about “discipline” are not exclusive to the Euro, it is a central aspect of fiscal policy. Structuring two monetary zones of similar characteristics may help shape environments were policies may exert similar effects.

Nevertheless, we should also consider that the big European monetary regions are not only structurally different: they also suffer from different crises. Grouping Greece with Spain would not help solve the state accounting problems in the former and the banking crisis in the latter. A division of the Eurozone into two smaller unions would prevent them from adopting the most proper and perfectly tailored monetary and fiscal policies to get out of the quick-sand in which they are caught. So, the idea that is being discussed in Berlin is actually that of a “Euro 2.0,” rather than two euros. It could be nicknamed “Deutsche Mark and friends,” and would include Germany and the productive Nordic economies. The other countries would be taken onto a path to Drachma, Peso, and Escudos.

You may have noticed that I have not mentioned the Lira. One could suspect that this is due to my family name and the 24 years I have spent living in a country with lots of sun and high taxes. This is true: I dream that the PIGS states might become PSG – not the Parisian soccer club, but a list of fiscally troubled countries that does not include Italy. I dream that Italy might instead join the club of growth economies. But there is also a more impersonal consideration: Italy still has an industrial sector that is largely different from that of the other South European countries. Moreover, it is closely connected to Germany in terms of commerce. A split is an option, yet if the marriage is kept together, all may benefit.

Read more in this column Stefano Casertano: Steady as she goes


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