London, December 2, 2014/ Independent Balkan News Agency
By Thanasis Gavos
What happens to a union when a chasm between creditors and debtors, powerful and weak members gets established and keeps growing? “Then you risk the destruction of all good things about it,” was the simple answer given by Nobel laureate economist Sir Christopher Pissarides during a lecture in London examining the state of the eurozone. “Its future is bleak,” was his unmistakably pessimistic conclusion.
The UK Cypriot economist criticised the imposition of one member country’s philosophy onto the rest of the partners, he asked for more or less Europe but “not more of the same” and disputed Germany’s view that the eurozone crisis has been one of weak labour market structure. His view was that the crisis erupted due to the fact that many countries share a currency without fulfilling the necessary criteria.
Sir Christopher told an audience of mostly Cypriot and Greek expats that the internal devaluation attempted in the eurozone’s periphery, especially in Greece, brought about results different to what was expected.
“So what should the eurozone do now?” was the question he set himself. His answer was threefold: expansionary monetary policy, more fiscal transfers from the core to the periphery and debt restructuring.
He predicted that the European Central Bank would sooner rather than later adopt some unconventional measures to stem the threat of deflation.
As far as the fiscal transfers are concerned, he referred to moves by the European Commission, the EIB and others, but said he believed more should be done. Pointing again to Germany’s responsibilities, he said that Berlin could be giving 1% of its GDP towards investments projects in the periphery. Yet the German government has “needlessly” chosen to follow a strict fiscal policy next year in order to balance the budget.
In terms of debt restructuring, Mr Pissarides said that the ECT could step in and buy sovereign bonds with fresh money. Specifically for Greece he supported the idea of issuing the country with new debt with fixed zero rate for 60 years, or a more selective haircut than the one already imposed on the country’s creditors.
His conclusion, which led to the “bleak future” assessment, was that a monetary union can only work as part of a political union, something that he does not envisage as the most likely outcome for the eurozone.