The Euro at a Crossroads: Time for Bold Progressive Reforms in the EU
In her article commemorating the 25th anniversary of the euro, Christine Lagarde highlights the currency's role as a unifying force in European integration and a stabilizer in the face of global economic challenges. As a progressive platform, Progressiva recognizes the significance of the euro in fostering unity and stability within the European Union. The euro has indeed been a monumental step in bringing European nations closer, serving as a symbol of collective identity and economic integration.
However, from a progressive standpoint, it's crucial to acknowledge both the achievements and the limitations of the euro and the broader economic policies of the EU. The euro's success in establishing itself as the second most important currency globally is noteworthy. It demonstrates the potential of cooperative economic policies and a shared vision. The European Central Bank's commitment to price stability and its response to various crises, including the recent pandemic and geopolitical tensions, underscore the importance of a centralized monetary policy that can adapt to changing global circumstances. And globally, there is also the possibility of the euro becoming the lender of last resort. A lender of last resort is an institution, usually a central bank, that provides funds to financial institutions facing financial difficulties or crises, to prevent their failure and the subsequent negative impact on the economy. This role is crucial in maintaining financial stability, as it ensures liquidity in times of financial distress.
Historically, currencies like the British Pound and the US Dollar have played this role at a global level. Their central banks, the Bank of England and the Federal Reserve respectively, have acted as lenders of last resort, not only within their own economies but also in the international financial system. This role has significant geopolitical and economic implications, as the currency of the lender of last resort often becomes the preferred medium for international transactions, enhancing the issuing country's global influence.
Currently, the Euro, the US Dollar are the major currencies with significant global circulation. As noted by economic historian Barry Eichengreen, the currency that emerges as the dominant global lender of last resort could shift the geopolitical balance of power. If the Euro were to assume this role, it would indicate a significant increase in the EU's influence in global finance, potentially leading to shifts in geopolitical alignments and strategies.
However, for the Euro to become a global lender of last resort, the European Central Bank (ECB) and the Eurozone's financial institutions would need to be prepared to provide liquidity in times of global financial crises. This would require not only robust financial mechanisms and reserves but also a significant level of political and economic integration among EU member states to support such a role effectively. The Euro's ability to become a global lender of last resort would reflect the EU's collective economic strength and political unity, underscoring the importance of continued integration and cooperation within the EU. And at the moment this is impossible due to the limited integration and excessive economic constraints of the stability pact, which in a monetarist/ordoliberal perspective is more worried with financial stability than with playing an important geopolitical role.
This opens to the more general limitation of the euro and the EU's economic framework, which also face significant challenges. One of the critical issues is the economic disparity within the Eurozone. While the euro has brought benefits, it has also highlighted and sometimes exacerbated economic inequalities between member states. This disparity stems from differing economic structures, labor market conditions, and fiscal policies across the EU. It was only 10 years ago when Martin Wolf on the Financial Times was pointing out that imbalances of a system that seemed relly to serve only Germany. Now, while the situation is probably more complex in the moment in which a common currency is adopted, redistributive fiscal policies are necessary among members states, or rather economically more developed regions and regions with a higher unemployment rate.
To address these challenges and make the EU and the Eurozone more equal and cohesive, several policy changes and initiatives are necessary:
Fiscal Integration and Solidarity: There's a need for deeper fiscal integration, allowing for more coordinated economic policies and fiscal transfers between member states. This would involve not just shared monetary policies but also harmonized fiscal policies that can support underperforming economies and reduce inequalities.
Investment in Social Programs and Infrastructure: Progressive policies should advocate for increased investment in social programs and infrastructure, especially in less developed regions of the EU. This approach would help balance the economic scales and bring more equitable growth and prosperity to all member states.
Strengthening the Banking Union: As Lagarde suggests, completing the banking union is crucial. This step would ensure a more resilient banking sector that can better support economic stability and growth across the Eurozone, particularly during financial crises.
Green and Digital Transformation: Investing in green and digital sectors is essential for future growth. The EU should leverage its collective strength to lead in these areas, ensuring that the transition to a green and digital economy is inclusive and beneficial to all member states.
Greater Political Integration: While the Eurozone has a unified monetary policy, the lack of political integration sometimes hinders comprehensive and cohesive economic strategies. Strengthening the political union could facilitate better coordination and implementation of economic policies.
In conclusion, while the euro has been a significant achievement for European unity and stability, addressing the current challenges requires a progressive approach that focuses on greater economic, fiscal, and political integration, along with a commitment to social equity and sustainable growth. Progressiva, with its vision of a united and progressive European Union, advocates for these changes to ensure that the benefits of the euro and EU membership are shared by all Europeans.