Panos Tsakloglou

Greece Should Not Waste Another Opportunity

Greek students protest in Athens this week against education reforms. Source: dpa/Yannis Kolesidis.
Greek students protest in Athens this week against education reforms.
  • Why it matters

    Why it matters

    The Greek financial crisis threatened the whole European project, and it is vital the continent learns from mistakes made in the way it was handled.

  • Facts


    • The leftist Syriza party came to power in January vowing to end austerity, but has had to backtrack on its pledges.
    • Greek lawmakers approved another set of austerity measures in October in return for another €2 billion bailout.
    • Greek banks have been relying on emergency loans from the European Central Bank this year to survive.
  • Audio


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Handelsblatt Global Edition: Looking back on the creation of the euro and its forerunner the ERM, there was some academic doubt whether the result would be economic convergence within Europe, or divergence. Of course, politics prevailed, but pressures undoubtedly arose. How do you review that debate?

Panos Tsakloglou: Until the mid- to late 2000s there was convergence, but that process broke down with the current crisis. The big question now is what will happen in future. Can we have a monetary union without fiscal union – which in theory can happen only in an optimal currency area – and synchronization between economies?

The original thinking was that a common currency would help achieve a common business cycle, subject to the differential impact of external shocks across countries. However, that did not turn out to be the case.

If you look at historical precedents, the only successful monetary unions are those that were also fiscal unions. But a fiscal union requires a common budget, and a common budget requires some form of common state entity. Currently, this is not feasible, as in many European countries euro-skeptic parties seem to be on the ascendant.

Yet we may still see some form of common fiscal policy emerging in the near future, in the form, firstly, of Eurobonds financing large pan-European infrastructure projects. Another possibility could be a common unemployment insurance scheme. Without those kinds of initiatives we could be heading for the end of the road.

There is also a need for steps in the direction of further economic integration, some of which in fact have already taken place, such as the European Stability Mechanism (a kind of IMF for the euro region). The banking union is also such a step, despite the fact that it does not include a common deposit guarantee scheme. Nevertheless, overall, the system we have now is still quite loose.

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