The euro and the EU’s economic and political problems are difficult enough to understand when clearly and correctly explained. The Jakarta Post published an article on the subject on July 9, 2015, which misses the point, on all points.
Let me get the record straight:
First, the Greeks have not applied Keynesian policies recently. Greek government austerity measures over the last five years (cuts in pensions, salaries and healthcare costs, lay-offs of government workers) have led to a reduction of Greek gross domestic product (GDP) by 25 percent. Keynes is nowhere in sight.
Today’s (and yesteryear’s) debate between the Greek government and the rest of the eurozone leaders is about how much more austerity, nothing else. Former Polish minister of finance Grzegorz Kolodko, who led his country through a brave, harsh, effective, period of “shock therapy” just wrote a wonderful article “Stop the Africanization of Greece”. His article says it all.
Second, an optimum currency area (OCA) is a notion from economic theory.
The consensus among economists is (and was) — and the Greek drama demonstrates it better than anything else — that the eurozone is not an optimal currency area, not least because labor mobility between eurozone member states is incomplete. An optimum currency area is not something that can be established or declared by a treaty (as the author oddly suggests) — in the same way as “happiness for all” cannot. Your author is off message here.
Third, “meeting real sector criteria”: Early criticism of the EMU (“Maastricht”) criteria was that these criteria only dealt with nominal issues and not with “the real sector”. Continuous high deficits on the Balance of Payments of the eurozone countries now in problems (Greece above all, but also Ireland, Portugal and Spain) matched by surpluses in Germany and the Netherlands, which for long pointed at there being a problem in the real sector remained unnoticed and were after the crisis had emerged, in 2010, finally recognized as contributing to the problem.
ASEAN shouldn’t worry. ASEAN should just continue on its quiet course.
Example: inflation — the increase of consumer prices — was monitored (because part of the “Maastricht criteria”), but Germany’s de facto relative deflation through its wage squeeze and its, indeed impressive, constant decrease of unit labor costs, remained unnoticed. The author of the article lives in happy denial of this.
Fourth, the major stand-off is between the Greek government and the other eight teen eurozone political leaders, much more so than between the Greek government and the European Central Bank. I start wondering if the author of the article has access to recent information on the matter.
Fifth, it is correct (for once) to state that the EU is, unlike the US — that other big monetary union — an incomplete monetary union (for the sake of clarity, I reformulate the author’s “one-country form”).
One of today’s eurozone problems is the fact that fiscal “transfers” are forbidden in the eurozone. Greece, like Spain, Portugal and Ireland before, will have to find money through austerity, which comes down to reducing expenditure.
Unfortunately a country’s national product GDP is defined as “the total of net expenditures”.
Therefore, if government applies austerity and with some luck manages to reduce government debt, this may lead to a reduction of GDP, which may then, sadly, lead to the proportion government debt to GDP (the 60 percent of the Maastricht Treaty) to worsen!
How come? Because the nominator (government debt) may go down, but the denominator (GDP) may go down faster. I hope my explanation is clearer than Kiki Verico (the Post, July 9, 2015).
In the US a state in economic decline continues receiving money from the federal US budget (20 percent of US GDP, of which half — 10 percent of US GDP — concerns social transfers). The EU budget is a mere 1 percent of EU GDP and mostly earmarked for special projects, so not able to help “the eurozone economy” to a significant extent.
Sixth, on “political union”: as all analysts agree, one of the eurozone’s fundamental problems is that it is not a political union. The Eurozone is like a half-baked effort to be half-pregnant.
Seventh, I got lost in the last part of the author’s ill-informed waffle. But for the moment and for the future whatever the risks ASEAN faces, its modesty and caution — often criticized — will save ASEAN from the problems that the EU and above all the eurozone face today.
Not putting the bar too high can help avoid disaster, or the risk of it.
Even ASEAN’s Single Market, promise: Complete on Dec. 31 this year at midnight, will not be half as “single” as the EU’s still incomplete internal market today (this said, although announced for 1992, even the mutual, EU-wide recognition of diploma’s and certificates is still incomplete, 23 years later!). ASEAN shouldn’t worry. ASEAN should, I am convinced, just continue on its quiet course.
During my five wonderful years working with ASEAN in Jakarta (2009-2013), after 20 years working on EU integration in Europe (internal market, euro preparation, enlargement), I have always felt that ASEAN, which took quite a bit of inspiration from the EU, should only take the best tested bits of EU integration and never ever try to explore trials in unchartered waters (as the EU did at high risk with the European Monetary Union).
Let ASEAN wait another 50 years at least before it ever starts to consider perhaps a single currency.
Apparently, the EU today, integrated as it is, is enormously challenged by the monetary union, which could even lead to disintegration: Let the EU and the eurozone not be complacent, the challenges are enormous.
That is, it seems to me, the most valuable “lesson” for ASEAN: Better not too much a little late, than too much too soon.
– See more at: http://www.thejakartapost.com/news/2015/07/14/what-asean-can-learn-euro-crisis-do-your-own-thing.html#sthash.AZyd7Vbi.dpuf
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