After a decade of flagrant disregard for the rules – and breaches of trust – among nations in the eurozone, there is a need to rebuild some faith in the project and in the mutual goodwill of its members. The plans need to set out a sequence of actions that credibly take the euro area toward its medium-term goals, while not ignoring “realpolitik”.
A lack of political realism has certainly dogged some commentary to date. There are blithe calls, for example, for the mutualisation of public debt and for something called a “banking union”. What would the real implications of such policies be? Taking the case of France, which has an annual GDP of approximately €2,000 billion, mutualising all euro area public debt would expose the country to liabilities of over four times its GDP. Beyond debt mutualisation, some argue that the bank deposits of euro area residents should be guaranteed and mutualised – which would heap a further €17,000 billion in liabilities on the shoulders of French taxpayers. It is difficult to conclude that the French electorate, with their choice of the relatively centrist François Hollande as president, have just voted for such a heavy burden. That said, they have certainly shown their willingness to take some steps in that direction with France’s recent call for jointly guaranteed eurobonds.
Eurobonds, however, are unlikely to be the cure for what ails the eurozone. There must be radical intervention if the European project is to survive. Even so, survival looks likely if only because the alternative is worse. A general break-up of the euro would crack open the market in financial services almost from the first day. The market in goods would not be far behind. This would leave the EU itself an empty shell. To avoid this fate, the eurozone must strike political balances across a range of policy fields while still engaging with the wishes of the majority of electors. This will demand a clear explanation to voters of the perils of not finding agreement on Europe. However, the end-point of the process will not be a European replica of the US. There is no democratic mandate for this.
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