Bill Mitchell — IMF finds the Eurozone has failed at the most elemental level

The IMF put out a new working Paper last week (January 23, 2018)) – Economic Convergence in the Euro Area: Coming Together or Drifting Apart? – which while they don’t admit it demonstrates that the Economic and Monetary Union (EMU) has failed to achieve its most basic aims – economic convergence. The stated aim of European integration has always been to achieve a convergence in the living standards of those within the European Union. That goes back to the 1957 Treaty of Rome, which established the EEC (Common Market). It has been reiterated many times in official documents since. It was a centrepiece of the 1989 Delors Report, which was the final design document for the Treaty of Maastricht and the creation of the EMU. The success or otherwise of the system must therefore be judged in terms of its basic goals and one of them was to create this convergence. The IMF finds that the EMU has, in fact, created increased divergence across a number of indicators – GDP per capita, productivity growth, etc. It also finds that the basic architecture of the EMU, which has allowed nominal convergence to occur has been a destabilising force. It finds that the Stability and Growth Pact criteria has created an environment where fiscal policy has become pro-cyclical, which is the exemplar of irresponsible and damaging policy implementation. Overall, the conclusion has to be drawn that the EMU, at its most elemental level, has failed and defies effective reforms that would make it workable. It should be scrapped or nations should exercise their own volition and exit before it causes them further damage.

Bill Mitchell – billy blog
IMF finds the Eurozone has failed at the most elemental level
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Brookings — Is Europe an Optimal Political Area?

Employing a wide range of individual-level surveys, we study the extent of cultural and institutional heterogeneity within the EU and how this changed between 1980 and 2008. We present several novel empirical regularities that paint a complex picture. While Europe has experienced both systematic economic convergence and an in- creased coordination across national and subnational business cycles since 1980, this was not accompanied by cultural convergence among European citizens. Such persistent heterogeneity does not necessarily spell doom for further political integration, however. Compared to observed heterogeneity within member states themselves, or in well functioning federations such as the US, cultural diversity across EU members is a similar order of magnitude. The main stumbling block on the road to further political integration is not heterogeneity of tastes or of cultural traits, but other cleavages, such as parochial national identities.

A globalist perspective on European political integration. The problem is "parochial national identities." Which is exactly what globalists assume at the outset. This what one would expect of Brookings.

If the perceived benefits of integration are high, and cultural heterogeneity is relatively small and plays only a minor role, what prevents further steps towards a political union? We think that the answer is the heritage of nationalism. Europeans retain strong national identities, amplified by different languages, and the memories of past violent conáict are still too strong and recent to overcome mutual distrust (see Guiso, Sapienza and Zingales, 2009). Nationalist sentiments are on the rise, and this was true even before the financial crisis, which probably reinforced this extant tendency. This is documented in Table 7.1. Although there is much variation among countries, between 1980 and 2009 most Europeans have become more proud of their national identities: on average the percentage of respondents who are proud of their nationality has increased from 37% in the early 1980s to almost 50% in 2008-09.

Can something be done to dampen nationalism and increase European identification?41 In the long run, mutual distrust among Europeans can be reduced by expanding European educational initiatives. In the history of nation building, public education always played a major role (see Aghion, Persson and Rouzet 2012; Alesina, Giuliano and Reich, 2017). The Erasmus program of student exchange works well, but the evidence suggests that it has not had a large impact in shaping European identities, probably because self-selected participants are already very pro-Europe (Sigalas, 2010; Wilson, 2011; Mitchell, 2011). This program could be expanded to reach more young people in high school or in technical institutions, and not just primarily university students. Moreover, school programs could be designed to include a more extensive curriculum covering European institutions and citizenship.

The feasibility of European political integration also depends on how it is achieved. One issue concerns the policy areas over which it takes place. As mentioned above, Europeans seem ready to accept a transfer of sovereignty to the center in the provision of some global public goods like security, border control, environment protection. A political union should also be resilient to economic shocks like the recent financial crisis, however, and this presupposes agreement on a (possibly minimalist) set of principles of risk sharing and solidarity. It is uncertain when and whether Europeans will be ready to agree on such principles. Redistribution is a sensitive issue, and replicating the welfare state at the European rather than at the national level seems beyond reach for now. While Europeans are very sensitive to inequality within their own countries (relative to Americans, for instance42), redistribution across national borders is perceived as much less politically viable. Nonetheless, it is hard to imagine a federal Europe without some cross-border redistribution and risk-sharing scheme.

So the conclusion seems to be that Europe is an optimal political area if "parochialism" can be eliminated. Good luck with that.

Brookings Institution
Is Europe an Optimal Political Area?

Alberto Alesina, Guido Tabellini, and Francesco Trebbi

ht Lambert Strether at Naked Capitalism

See also

Counterpunch
Why the European Dream of Integration Won’t Die
John Wight

Dominique Strauss-Kahn — To my German friends

“In counting our billions instead of using them to build, in refusing to accept an albeit obvious loss by constantly postponing any commitment on reducing the debt, in preferring to humiliate a people because they are unable to reform, and putting resentments – however justified – before projects for the future, we are turning our backs on what Europe should be, we are turning our backs on Habermas’ citizen solidarity. We are expending all our energies on infighting and running the risk of triggering a break-up. This is where we are. A eurozone, in which you, my German friends, would lay down your law with a few Baltic and Nordic states in tow, is unacceptable for all the the rest.” ….

To my German friends
Dominique Strauss-Kahn

h/t Yanis Varoufakis

Zero Hedge — French President Calls For The Creation Of United States Of Europe

France in a weak position, too, and Le Pen is rising.

Zero Hedge
French President Calls For The Creation Of United States Of Europe
Tyler Durden

Also, Forget Grexit, "Madame Frexit" Says France Is Next: French Presidential Frontrunner Wants Out Of "Failed" Euro

Don Quijones — Final Stage of Brussels Power Grab Begins — France’s Hollande Proposes Creation of Euro-Zone Government

As I warned a few weeks ago in an article for WOLF STREET, the dual powers of Europe, Germany and France, have decided to drastically accelerate the final stages of European integration….

Raging Bull-Shit
Final Stage of Brussels Power Grab Begins — France’s Hollande Proposes Creation of Euro-Zone Government
Don Quijones

France 24 — France favours establishment of euro government

France favours a "stronger organisation" behind the euro led by "a vanguard of countries", French President Francois Hollande said in an interview published Sunday.
In the past week "the European spirit prevailed" in addressing the Greek crisis, he told the weekly Journal du Dimanche.

"But we cannot stand still," Hollande said, in the interview published alongside a profile of Jacques Delors, the former head of the European Commission.

Delors, a former French economics and finance minister who turns 90 on Monday, is one of the architects of the euro.

"I have proposed taking up Jacques Delors' idea about euro government, with the addition of a specific budget and a parliament to ensure democratic control," Hollande said.…

France 24
France favours establishment of euro government

Jeffry Frieden — What Europeans think about Europe in the aftermath of the crisis

What are the implications of these trends for the future of European integration, and monetary union, over the coming decade? Policymakers at both the national and European level can count upon quite a deep well of support for European integration and for the euro: Europeans appear quite firmly committed to both the broad integration process and the EMU. However, they have little confidence in the ability of existing political leaders to manage both the national and European economies in ways that respond to the concerns of European citizens. This dissatisfaction is particularly concentrated in the more crisis-ridden countries, especially the debtor nations of the Eurozone. Dissatisfaction is also concentrated in those social groups that have suffered most from the crisis: the less educated and less skilled, and the unemployed.

European integration, and EMU, cannot move forward without political support from the public. At this point, such support still exists in general, but there has been such an erosion of trust in policymakers that it is hard to believe that political backing for current policies will be forthcoming for much longer unless conditions improve markedly. And, given the striking differences among socio-economic groups – and especially the great and growing skepticism of the less advantaged among Europeans – it would seem that further progress will also depend upon finding ways to include more Europeans in the gains from integration, and to shelter them from its costs.

Econbrowser
Guest Contribution: “What Europeans think about Europe in the aftermath of the crisis”
Jeffry Frieden, Stanfield Professor of International Peace at Harvard University