Review on: Stefan Hinsch and Wilhelm Langthaler, Europa zerbricht am Euro. Unter deutscher Vorherrschaft in die Krise (‘The euro is breaking up Europe. Into crisis under German sway’). Promedia Verlag, Vienna, 2016, 204 pp.
Although the title refers to Europe, this work is essentially about the European Union, its crisis and the probable unhappy outcome, the “collapse of a historic project”. The volume contains profound analyses of the economic and monetary processes that led to this situation but also valuable historical, political and sociological exposés which make the background and the general context easily comprehensible.
The authors’ fundamental finding is that in the EU we have an ‘imperfect monetary union’. As long as each EU Member State had its own separate currency, the others, though under pressure from Germany’s exporting power, the deutschmark and the interest policy of the Bundesbank, could ease that pressure by means of monetary adjustments, devaluations and interest-rate changes and could avail themselves of compensatory mechanisms. With the irrevocable fixing of euro exchange rates for the participating currencies on 1 January 1999, the creation of the European Central Bank and the adoption of the Stability and Growth Pact, the individual countries lost these instruments. The ‘EU convergence criteria’ prescribed fiscal and monetary performance targets but essentially disregarded productivity growth. The only way in which countries that are now caught in the euro trap can offset competitive disadvantages – provided that they exercise budgetary discipline – is by engaging in ‘internal devaluation’, in other words lowering prices, which is not really feasible, and cutting wages and salaries, welfare benefits and pensions – the programme implemented in Greece, Ireland and Portugal in the name of ‘debt reduction’. [Read more…]