Back to the Future?
Angela Merkel, the German Chancellor, has finally admitted what we all knew, namely that the desire to keep Greece in the eurozone was primarily a political decision. In an interview for the BBC series, NEWSNIGHT, the Chancellor says that “We have taken the decision to be in a currency union. This is not only a monetary decision, it is a political one.” She then goes on to add “It would be a huge political mistake to allow Greece to leave. That is why we will be clear with Greece, we will say: 'If you want to be part of a common currency you have to do your homework but at the same time we will always support you.’”
Exactly what the homework assignment implies is unclear. In 1992, long before there was a monetary union Barry Eichengreen, the economic historian at UC Berkeley, warned that the proposed single currency was, in the main, a political project. The Chancellor claims that no country likes to be accountable to the ECB, the IMF, and the European Commission but these institutions have either weak enforcement powers or are likely to push back and demand that Germany, among others, taken on more of the responsibility, and the costs, of maintaining a monetary union. One also wonders how a eurozone country in desperate financial straits would do ‘if’, as she says, it does not want to remain in the eurozone because it is no longer in its economic self-interest to remain in the single currency area? Oh wait, but the Chancellor also points out that the existing rules don’t really permit exit or expulsion from the euro zone. The lesson? There is more to come from the eurozone crisis.
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