Thursday, 21 July 2011

The future of the eurozone is Belgium

... one way or the other.

A couple of well written articles by the BBC's business editor,  Stephanie Flanders,  have got me once again thinking about the future of Europe's common currency,  and the more I do the more I come to the conclusion that Belgium pretty much holds all the answers.

When this crisis first began,  way back at the end of 2009 when it first became clear that Greece would need a bailout,  I became rapidly convinced that the euro would not survive this challenge.  I'm still convinced of that,  and my conclusions are being reinforced ever more by the comments of people like Ms Flanders.

Yesterday,  commenting on a report by the IMF condemning the indecision of Europe's leaders, she wrote the following:

At the end of last year,  Chancellor Merkel and President Sarkozy said emphatically that they would hold it together.  But in practice they have continued the previous strategy of attempting to muddle through.
What has happened in the past week or so is that it has become clear  -  to the IMF,  to the Obama administration,  and to many other interested parties  -  that the muddle-through option is not viable.  Worse that that, it is counterproductive.
Why?  Because in the process of muddling through you create so much uncertainty you actively cause the contagion you're trying to prevent.

The IMF has now stated clearly what has long been clear to many: there are only two ways out of this,  either much greater integration  (fiscal and political),  or the breakup of the eurozone.

Flanders  (the person,  not the region,  more about which in a moment)  still holds out the optimistic possibility that the path of integration could be chosen:

The leaders who will meet in Brussels on Thursday still have the power to decide whether this crisis is going to end with much greater integration and burden-sharing between the governments of the eurozone  -  or a dramatic break-up.  But they are increasingly losing control of the timing.

I would love to believe that the positive option is possible.  But that would require joint European bonds,  administered by a joint European treasury,  which would necessitate tight integration of fiscal policy,  which would in turn also require something like a loose federal government for the entire eurozone. And what would that ultimately look like?  Well, it would look pretty much like modern-day Belgium:  regions governing themselves with as much autonomy as you can have without actually being completely separate countries,  with the thinnest possible layer of federal government over the top.

And anyone looking at modern-day Belgium can see instantly why this is not going to happen.  The people of Flanders  (the region)  are currently agitating with increasing impatience for full independence and the demise of the Belgian federation because they are sick of having to subsidise the poorer other half of the country.  And their attitude,  characterised as it is by petty-minded nationalism,  selfishness,  short memories into the past and short-sightedness into the future,  is depressingly close to the attitude displayed by the Germans,  the Austrians,  the Dutch and the Finns when it comes to these bailouts of struggling eurozone countries.  It seems that anyone who is a little bit richer than the average is dead against the idea of even a cent of their money going to those who are poorer than the average,  for whatever reason and under whatever circumstances,  regardless of the consequences for all in the long term.

So yes,  it would be ideal if the eurozone could end up with a structure like Belgium's.  But what's actually happening to Belgium these days pretty much rules out the chance of it becoming a reality in this Europe.