Zone Euro. Éclatement ou Fédération

(Euro Zone. Collapse or Federation) 

Paris, Michalon Éditions, 2012

Facing one of the worst crisis ever experienced by our economic systems and democratic institutions, we all have plenty of questions on how it all started, how it has developed, what have been the wrong steps made and, most important, what could be the possible outcomes.

Zone Euro. Éclatement ou Fédération (Euro Zone. Collapse or Federation), the new book by Michel Aglietta, is conceived as an effort to answer to ten questions – based on interviews with Richard Robert – ranging from the financial crisis in August 2007 to its impact on European monetary union, the role played by the Greek crisis, the reforms needed for the EU economic governance, notably for re-launching its economic growth, in the framework of a new regulation for financial markets and of a reformed international monetary system.

Michel Aglietta, professor of economics at the University of Paris Ouest Nanterre and scientific advisor at the “Centre d'Etudes Prospectives et d'Informations Internationales” (CEPII) and Groupama-Asset Management, has worked extensively on financial markets and the international monetary system. In this book he clearly states his position from the first lines: “the federal union of European countries has become indispensable to solve the crisis and safeguard the European social model through the immense transformations of the world in the next decades”. The “economic federalism” required should rest “on three pillars: to make the euro a fully-fledged currency by modifying the European Central Bank (ECB) mission, to build an economic governance based on public budgets resulting from a dialogue between the European level and the national legislative institutions, to pool public debts in a powerful financial markets of common bonds (eurobonds)”.

Aglietta’s critical analysis starts from the overcoming role assumed by the financial system in the global economy and the risks related to the high-level of private (even more than public) debts. The other structural problem detected is the increasing competitive gap in a monetary union among heterogeneous national economies, in the absence of effective industrial policies and resource transfers. Besides, Aglietta stresses that the ECB plays a different role compared to the national central banks, as it cannot act as lender of last resort for the member States.

The Greek crisis is a textbook example of a collapse of the weakest link in the chain in an interdependent financial system. Aglietta is very straightforward in pointing out that Greece’s entry into the euro was a political decision with little economic rationality. Lacking a Marshall Plan-like European support to Greece, Aglietta considers leaving the euro the sole viable strategy for Greece, as a sort of “Argentina-like way out”, in spite of its painful (short-term?) economic, political and social costs.

Aglietta strongly criticizes the “French-German compromise” on which the European monetary union was built and underlines how the German monetary doctrine imposes adjustments to deficit countries, exacerbated by Germany’s “moralistic” and (obsessively) rule-based approach. Thus, Aglietta refuses the straightjacket of the recently agreed Fiscal Compact and supports the idea that public finances adjustments require collective action, with a European budgetary authority, a European Treasury, the involvement of the European Parliament and the establishment of a strong Eurobond market.

The need to re-launch long-term economic growth is at the core of Aglietta’s proposals. His plea for environmental policy as Europe’s new technological frontier is possibly the most fascinating part of his book. Climate change should transform the way we conceive risk-benefit analysis, notably with the introduction of “carbon certificates” (actif carbone) – that could even be incorporated in bank’s reserves – to evaluate investments on the basis of CO₂ emissions saved. A European Green Fund should be established, financed by the EU budget, strengthened by a European carbon-tax and a Financial Transactions Tax and the issuing of “project bonds”.

Budgetary consolidation cannot ignore social justice and economic growth, and the fundamental role played by the welfare system. At the same time, a Systemic Risk Council (more effective than the current European Systemic Risk Board) is required, parallel to a “downgrading” of the official role recognized to rating agencies. The ECB should add to its mission for price stability the focus on financial stability and on economic growth.

The last chapter of the book is devoted to the shrinking weight of Europe in the world economy. Only a reinforced eurozone, with an active external monetary policy, could allow Europe to still play a role in a system with the US dollar hegemony coming to an end and fast growing new economic superpowers. A polycentric monetary system is emerging, which could see an increasing role of the SDR as a reserve currency and finally as a world currency. But these issues are just sketched in the book – and would deserve to be at the centre of a new one.

Summing up, Aglietta’s book is a good overview of the economic positions that criticize the way the European monetary union has been built, nonetheless with a strongly pro-European approach, pleading for a truly federal union – on whose institutional aspects very little is said. Regardless of not sharing his views on some relevant points – notably, the viability of a Greece exit from the euro, the role of the ECB vis-à-vis member States in a federal system, the need for strong fiscal discipline at the national level –, the book is rich of stimulating ideas and worth reading and, hopefully, being translated in other European countries.