Central and Eastern Europe needs a different kind of eurozone – EURACTIV.com
EU countries such as Czechia, Croatia and Bulgaria should have the courage to distinguish between the political realities of the European integration process and their own long-term economic interests. They should leverage their future eurozone membership for meaningful structural change, writes Eoin Drea.
Eoin Drea is a senior researcher at the Martens Center in Brussels.
The recent eulogy of the euro to mark its twentieth anniversary was a case study in positive projection. For the President of the European Central Bank (ECB), Christine Lagarde, the euro represents “a beacon of stability and solidity in the world”.
A coterie of EU commissioners and current policymakers were no less enthusiastic, seeing the single currency as “an unprecedented collective effort, and a testament to the unity that underpins our union”.
In many ways, the success of the euro is undeniable. Public support remains high and it has become a truly global currency, second only to the US dollar. For many smaller Member States, ranging from Ireland to Greece, a common currency reduces transaction costs and increases mobility.
But, for EU members in Central and Eastern Europe, the devil is really in the details, not the burgeoning political outlook.
Because beneath the rhetoric of unity and identity, there is a disturbing reluctance to recognize the costs of deeper eurozone integration. Indeed, the hazy focus on adding more states to the euro currency highlights the forgotten reality of Europe’s single currency efforts.
Namely that the euro remains a political project, not an economic one.
And therein lies the danger of eurozone reform for Central and Eastern Europe.
In the short term, the economic measures needed to ensure the stability of the euro – such as completing banking unions and improving financial flows across national borders – are essential for all EU members. Paschal Donohoe and his Eurogroup predecessors spent years trying to finalize these key elements of successful monetary unions.
Unfortunately, the gritty politics of eurozone development is a far cry from the catchy rhetoric of shared economic values.
Yet it is really only when the banking union is finally complete that the economy will truly diverge from politics. Next, the EU will redouble its efforts on further economic integration – joint EU borrowing, more fiscal centralisation, EU-level taxes – as essential to safeguard the future prosperity of the eurozone. . To protect all that came before.
Completing a banking union is one thing, but a full fiscal union will spark a whole other conversation in Central and Eastern Europe.
This continued economic deepening is likely to have a long-term negative impact on overall support for the wider European integration process. This will be seen as another Brussels-led attempt to override national prerogatives.
And we have already seen too many European “East versus West” battles in recent years.
It could also end in political disaster. The EU’s inability to complete a banking union (after a decade) does not bode well for the much more fundamental reforms needed to make a deeper eurozone work.
Because such a euro zone would deprive these Central and Eastern European Member States of national tools to manage economic shocks.
The inability to use interest rates to stabilize the economy (don’t ask, don’t tell the cost of current euro membership) will be amplified by the inability to use fiscal policy (or corporate tax rates) to smooth the business cycle.
As with interest rates, these states will depend on overall eurozone policies, not national ones. This will increase their dependence on the larger eurozone economies.
However, having EU member states that are not yet members of the euro creates opportunities for Central and Eastern Europe.
Because instead of dutifully singing from the Brussels anthem, states like Czechia, Croatia and Bulgaria should have the courage to distinguish between the political realities of the European integration process and their own economic interests long-term.
They should leverage their future eurozone membership for significant structural change.
These states should partner with other smaller EU member states and net contributors in the West to advocate for a return to a decentralized vision of eurozone governance.
A model where the existing monetary control system (via the ECB) is complemented by a model of fiscal governance based on a much greater role for independent fiscal councils and greater room for qualitative assessments based on national circumstances. This is a standard budget model, not one based on desperately divisive budget rules.
This model would put an end to persistently fruitless debates over fiscal rules and reduce popular anger towards the European Commission as the eurozone’s ultimate policeman (as has been viscerally demonstrated in Greece over the past decade).
Such an approach would restore the no-bailout rule contained in EU treaties and place the burden of fiscal responsibility on national governments, not administrators in Brussels. This would force governments to combine their lofty pro-euro rhetoric with real fiscal responsibility.
The potential future benefits for Central and Eastern Europe would be enormous. A positive role in the governance of the Eurozone combined with budgetary flexibility at the national level would be worth more than a thousand political speeches on the euro as a symbol of our success.
It would place Central and Eastern Europe at the heart of the single currency project.
Unfortunately, these states show no sign of creativity in the euro zone. The avoidable costs will be all too evident in the years to come.