12 January 2018

Financial Times: Dijsselbloem and the lessons of the eurozone debt crisis

The outgoing eurogroup chief has issued a parting warning that the eurozone is still not “shock resilient”. Jeroen Dijsselbloem said further reform efforts were needed in Greece and other countries, despite his five years of steering through divisive bailouts and major policy steps.

Mr Dijsselbloem, who on Friday will step down as president of the eurogroup of euro area finance ministers, told the Financial Times that the single currency’s robustness would depend on making labour markets more flexible and improving the functioning of capital markets, with national governments needing to do much of the work.

“If there were to be an economic shock this year, many of our countries and the monetary union as a whole are not prepared,” the former Dutch finance minister said.

“As the member states still have the main macroeconomic powers and authorities, they should continue the reform drive. This is the most important [thing],” he said.

Mr Dijsselbloem’s emphasis on the role of markets in absorbing shocks contrasts with the push from French president Emmanuel Macron and the European Commission for new budgets or backstops at European level to help countries weather crises.

Mr Dijsselbloem said he was not opposed to an enhanced role for the euro area’s sovereign bailout fund in helping countries that take an economic hit. But he said a push to improve resilience and competitiveness should take priority over creating more support schemes for crisis-hit countries.

The eurogroup developed into a key decision making body during the long eurozone financial crisis. Discussion of how to reinforce the eurozone is likely to dominate the tenure of Mr Dijsselbloem’s successor, Mário Centeno of Portugal.

During Mr Dijsselbloem’s time in office, governments navigated the worst of the sovereign debt crisis, including bailouts of Cyprus and Greece. The EU also created the eurozone’s banking union, a project to restore faith in the robustness of the bloc’s financial system, which Mr Dijsselbloem sees as his proudest achievement during his tenure.

The accomplishments of the banking union “are huge”, he said. It “has forced banks to really start cleaning out the mess, to look at their balance sheets, take their losses, build up more provisions, sell off bad portfolios, go to the markets and bring in new capital”. [...]

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