Eurozone Crisis: A Constitutional Challenge for Europe

Tuesday, October 11, 2011, 9.00–10.30, Municipal Library 

In cooperation with CERGE-EI

 

Moderator:

Karel Kovanda, Former Director-General, DG External Relations, European Commission, Czech Republic

 

Panel Discussion:

Jan Macháček, Journalist, Czech Republic

Alan Brown, Group Chief Investment Officer, Schroders, United Kingdom

Vladimír Dlouhý, Economist, International Advisor, Goldman Sachs, Czech Republic

Jacques Rupnik, Political Scientist, France

Zdeněk Kudrna, Economist, Institut für europäische Integrationsforschung, Austria/Czech Republic

 

 

The debate dealt with various aspects of the current debt crisis. Jan Macháček opened the debate with a presentation and saying that “it is not a financial crisis; it is an institutional crisis, thus constitutional”. He emphasized the difference between federalism and centralism, and noted that politicians should talk about constitutional aspects, and the process of federalization should start. He expanded the issue of importance of studying proposals for the “European common bond”.

 

Vladimír Dlouhý, on the other hand, labeled the lack of competitiveness in Europe as the cause of the crisis. He figured out that a convergence in productivity is necessary to sustain a common currency. He emphasized that an American ethos rather than elites created the Dollar, and that in Europe the Euro was on the contrary a product of the elites. Thus the failure of European elites resulted in the crisis.

Alan Brown, defined the Eurozone crisis as a “fundamentally political issue”. He agreed with Vladimír Dlouhý while talking about elites. He pointed out that integration is the solution, but that the problem is lack of time and management. He stressed that Europe needs to take steps quickly. He emphasized the role of the real interest rate and nominal exchange rate while talking about currency and found the problems associated with a locked nominal exchange rate. He mentioned that the ECB failed to regulate the market and that its mechanism is no longer valid.

 

Jacques Rupnik noted that Europe cannot rely much on the process of integration as it used to work. He disagreed with Vladimir and added that similarities in productivity and welfare state are not the necessary condition for starting a common currency. He emphasized that financing the crisis by increased taxation without representation will fail, since taxpayers are the voters at the same time. He criticized the validity of the Maastricht treaty for the Euro and stated that it is an ambiguous document.

Zdeněk Kudrna outlined that Euro is a force of stability even if imbalances in the financial markets are caused by its mismanagement. He stressed the threats, which would accompany the collapse of Eurozone and gave the example of Iceland’s debt paying refusal. He suggested the need of a minor breakthrough, which would show the way for the future. He agreed with Vladimír Dlouhý and Alan Brown that if the ECB is able to raise enough funds to plug money into the economy then the crisis will not be as severe and costly as it now seems to be.