I want to see an agreement that would be good for Greece and help it thrive inside the eurozone. I think that such an agreement should be based on the principle of substantial post-dated and conditional debt relief in return for economically relevant reforms. I have no idea whether this is possible. But I have always thought it would take time. It is important to avoid a breakdown in the discussions before then. Whether that will be avoided is now unclear. And whether somebody else can do a better job than Varoufakis is also unclear.
As for Europe as a whole, how sustainable is the idea of turning the eurozone into a bigger Germany? It is still, it seems to me, the way the eurozone is going.
That is to say, the eurozone relies heavily on external demand. The better alternative would be internal rebalancing of demand. I remain very skeptical about the likelihood of such a development. It seems that the worrying inflation data of last summer on the verge of deflation made the ECB react with new non-conventional measures.
How effective do you think these measures will be? I think they were all that the ECB could do, and so it had to do them. Since the eurozone is now showing a weak recovery, it is possible that these measures will indeed prevent a slide into outright deflation.
But it is far too soon to be sure. In some ways, unfortunately, the eurozone looks a bit like the Japan of 20 years ago. At least in the banking union it seems that important progress was made during to break the link between banks and sovereigns within the eurozone, with some caveats as to the lack of agreement for a fiscal backstop and a joint deposit guarantee scheme.
Is this a hopeful sign? Yes, this is a hopeful sign, though how far it can achieve a unification of monetary conditions across the eurozone remains highly unclear. But, at the least, it is an important step in the right direction. Speaking of banks, in your book you state that the majority of the reforms since have not changed the nature of the business and that higher capital requirements are needed.
Yes, over time capital requirements have been raised substantially, though I remain very concerned over the reliance on risk-weighting, and I still regard the capital requirements as being substantially too low. But the movement has by now gone further than I had expected.
Three-quarters of the people in the euro zone are in favour of the euro, the highest since The number of euro zone members has also continued to expand, surely a vote of confidence. Yet the biggest reason for optimism about survival must be the consequences of the alternative. Breaking up would be hugely traumatic, financially and economically.
It would also threaten the survival of the EU itself, which has always been built on a foundation of economic integration. The single market would quite possibly collapse. So, then, might the possibility of co-operative relations. Some seem to think that Europe needs another bout of aggressive nationalism.
Those with some historical knowledge know how lethal that bacillus is likely to be. Mr Gros emphasises that the record is not too bad. Today, a higher proportion of the adult population is economically active than in the US. Unemployment rates are also declining, even in the most crisis-hit countries. The euro has forced important reforms. All this is significant. Furthermore, any sort of federal union seems to be off the table. This guarantees that the fundamental political problem - the disjunction between eurozone responsibility for policy and national political accountability - will endure.
Risk-bearing must work through cross-border private finance. That is why the banking and capital market unions are important. It needs to be easier and more acceptable to restructure debt. Not least, macroeconomic adjustment needs to be far more symmetrical. Ultimately, the euro zone is doomed to succeed. A break-up would do huge damage to the fragile order built on the postwar wreckage.
Whether or not it was a good idea, the costs of undoing it make that idea unthinkable. But it will not succeed — and might not even survive — if complacency sets in. The euro zone barely survived its near-death experience.
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