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SPIEGEL: Europe has recently agreed on a fiscal compact committing all members to better budgetary discipline. Is that a step in the right direction?
Rogoff: Yes, but it will by no means suffice. All this treaty does is give the markets the temporary illusion that the problems have been solved for now. It has achieved nothing more than that.(…) What the monetary union needs more than anything is a central government, including a a finance minister, with significant tax and spending authority. The individual countries should also stop insisting on national control of banking regulation. That is a matter that should be dealt with exclusively at European level.(…)The terrible thing is that few countries in Europe seem genuinely prepared for that. Those politicians who know what is needed keep quiet, fearing opposition from the voters. But the pressure of this crisis will create a momentum whose scope and impact we cannot yet imagine. At the end of the day, the United States of Europe may well come about a lot quicker than many would have thought.
SPIEGEL: With all respect to your optimism, the Europeans are unlikely to play along with that. The popular opinion in most member states is that Europe has far too much power, not too little.
Rogoff: Europe is in an interim stage, quite similar to that in late 18th century America. The ratification of the United States constitution in 1788 was preceded by 12 years of a loose confederation, which sometimes worked but usually didn’t. Europe is in a similar situation today. States are like people, it is difficult to sustain a stable half-marriage; either you go for it or you forget it.

SPIEGEL:Many politicians in Europe think that the introduction of euro bonds would pave the way for a marriage later. Do you share that opinion?
Rogoff: No. In the current situation euro bonds would be absolutely the wrong solution. How could Germany protect itself if the French minister of finance makes a few bad decisions? The subject of euro bonds will only become relevant once the political union has been established.

SPIEGEL: Economic imbalances within the euro zone are regarded as one of the main reasons behind the current mess. The southern European states accuse the Germans of exporting too much. Do they have a point?
Rogoff: That is absurd. Portugal’s and Spain’s problem isn’t Germany, it’s China. The south Europeans have to understand that they cannot maintain their current standard of living in the context of globalization without significant economic reform. There are great opportunities for those who can adapt to the new realities.

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