Unhappy Union: How the euro crisis – and Europe – can be fixed

"Having had two historical culture books, this is fast forward to today’s economic and political crisis. As befits Economist journalists, it’s a very perceptive, crunchy, and, mercifully, short book. If you omit the notes and appendices, you can actually, in 180 pages, get an overview and perceptive analysis of what’s gone wrong and how to put it right. Their conclusions overlap quite a lot with mine, so I’m particularly keen on the book. They argue that Germany needs to play its part in resolving the crisis, which is something about which Germany is in denial. Like me, they believe that you need to resolve the issues in the banking sector and to write down unbearable debt. Germany needs to play its part in the adjustment within the Eurozone, and the democratic deficit needs to be narrowed. Undeniably many southern European countries were badly governed in the pre-crisis years, and, as a result of that, they would have suffered in any case, once the bubble was burst. But my argument — and indeed that of John Peet and Anton La Guardia — is that the financial panic was largely caused by policy mistakes in Berlin and Brussels. Therefore, the misery inflicted on those countries has been unnecessarily great and they remain crushed by unsustainable debt burdens. Yes, of course, they need to reform, but the false notion that this is all their fault and that this has nothing to do with decisions taken in Brussels and Berlin these two authors, like me, are trying to correct. Greece’s main problem is an unbearable burden of public debt. That debt should have been written down in 2010, as IMF officials advised. Instead, in order to avoid losses for French and German banks, EU policymakers decided to pretend that Greece’s debts were sustainable. They lent Greece still more money to bail out those banks and then imposed barbaric austerity in order to try and get as much of that money back as possible. As a result, Greece has suffered a longer and deeper recession than Germany in the 1930s. Yes, of course Greece has very serious problems which are the fault of domestic policymakers and, indirectly, the voters that voted for them. But German and EU institutions must take a huge share of the blame. One can argue, with hindsight, that Greece shouldn’t have joined. But now it is in there. Even now, most Greeks want to stay in the Euro. Then the onus should be on trying to make the Euro work — and work for all its citizens, not just for the banks in France and Germany. Yes it’s slipped a bit back, but the Euro itself, its external value remains strong — which is a problem for southern Europe because it makes it harder to export. But the fact you have more than 25% unemployment in Greece and Spain, nearly 3 out of 5 young people, the fact you have stagnant economies and so on, actually I think is a bigger sign of failure of a currency than its external value."