Wolfgang Münchau: What not to worry about in the euro crisis

18 November 2012

There is still a lot to worry about in the eurozone crisis. But it is just as important to understand what not to worry about, writes Münchau in his FT column.

My list of things not to worry about contains five items. The first is France. The Economist last week appeared to pass the honorary title of “sick man of Europe” to France. I think this is wrong. The relatively robust growth during the third quarter was a fitting example that France is often more resilient than forecasters and commentators generally acknowledge...

The second is competitiveness – I dealt with it in part last week. Let us define it here as cost competitiveness. It is true that Germany has gained competitiveness over the past 10 years, when defined in terms of how much output is produced given the wage of a worker, but this process is already reversing. This year, unit labour costs will increase by 3 per cent in Germany, and fall by 8 per cent in Greece, according to a senior European official. An 11 per cent adjustment is a big deal. Spain, too, is adjusting.

The third thing not to worry about is extremist political parties. They exist, of course, and they have become more popular. The rise of the far-right Golden Dawn party in Greece is troubling, of course. But I do not expect extremist parties to alter the course of eurozone politics...

Fourth on my list is the German constitutional court. The legal issues involved in the eurozone crisis management are hugely complex and many good proposals cannot proceed for legal reasons. But the real constraint is political, not legal. If Germany rejects fiscal transfers, or debt writedowns, it will be due to a lack of political majorities, rather than the court. Its latest ruling on the European Stability Mechanism, the bailout fund, shows that this is a court that barks, but does not bite.

And finally, I am not worried about the next tranche for Greece, or for that matter, the one after that... I am not condoning the strategy, on the contrary. I am merely saying that they will find the money.

With this list of things not to worry about, it is now easier to focus on what I do worry about. The first of those, and the most important, is the impact of austerity on growth. 2013 promises to be an awful year for the eurozone economy that could well derail the current strategy.

The second on my list is the continued failure to resolve the crisis, and accept the inevitability of an official sector involvement in a future Greek debt restructuring – or direct transfers. Pushing resolution beyond the German elections in September next year is bordering on the insane.

And finally, the banking union faces further delays and is now subject to a lack of ambition. It will have no positive effect on the crisis because it will not separate the banks from their sovereigns, and contains no power of resolution and no deposit insurance. The debate has degenerated into a typical inter-institutional fight about who gets to do what.

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