Yes, it can.
The real question is whether there is a coalition of the willing to move beyond rhetoric and do what it takes. A related question is whether those with the power to save the euro have the democratic mandate to do so.
Events this summer laid to rest any remaining doubts that the European monetary model is flawed, and ultimately unsustainable in its current form.
There is a broadening consensus forming around the need for deeper economic and fiscal integration to steady the ship. ‘Eurobonds’ have been the rallying call of the left as a means of effectively cross-subsidising weaker eurozone members, and there is certainly much of merit in this idea. ‘More Europe’ may be part of the answer.
The idea is that a central authority would issue debt on behalf of all Eurozone members. Whether this would account for old or only new, all or only a proportion, of members’ debts is up for debate, but there is no doubting that this would result in steeply lower borrowing rates for Ireland, Greece, Spain, Portugal and Italy, and marginally higher rates for Germany, Finland and the Netherlands.
On the face of it, this sounds like a great deal for the weakest links, and a bum deal for the strongest. Higher borrowing costs may come, however, to represent a modest investment for the promised return of economic stability and a competitive currency for Germany and co.
Too good to be true for peripheral members in a jam?
To secure democratic endorsement of all that is necessary to make ‘Eurobonds’ a reality, including Treaty changes, would take years. Even securing elite-level political consensus would take months. Financial markets move in minutes. Europe doesn’t have months, let alone years.
If people are labouring under the impression that ‘Eurobonds’ are a free lunch, however – think again. In essence, the EFSF is a forerunner of what ‘Eurobonds’ may look like. The quid pro quo isn’t pretty, and could become permanent.
In return for rescue funds, Greece, Ireland and Portugal have already surrendered fiscal autonomy. Italy and Spain are not far behind. If ‘Eurobonds’ are truly in prospect, this is certainly a sign of things to come.
When one weighs up the cost of doing what it takes to save the euro, or letting it collapse, one needs to avoid the flippant rhetoric that often tars Irish discourse on Europe. One needs to look at where we are now, the alternatives that face us, and what sort of Europe we want to be part of when the crisis passes.
Moving forward with integration to the degree envisaged by proponents of ‘Eurobonds’ requires a full and frank debate. The measures entailed go far beyond the Constitutional Treaty, let alone the Lisbon Treaty.
In the mean time, however, there is much that coordinated European action can achieve in the short-term:
- As growth slows, and inflation fears subside, there is ample scope for the ECB to reverse course on rate hikes rather than staying stuck in neutral.
- The European Investment Bank is the biggest development bank in the world. Its resources must be mobilized to the fullest extent to support growth and competitiveness enhancing infrastructure.
- The EFSF needs to be bulked up and used for preemptive recapitalisation of European banks.
- EU members with ‘fiscal space’, like the UK and Germany, must slow their politically driven austerity drives to offset the austerity being forced on others and keep Europe, the world’s largest economy, from sliding back into recession, or worse.
In the future, Europe’s foundations require radical realignment. Again. Right now, Europe needs a little less conversation, and a lot more action.