Panel addresses euro crisis
Anna Boarini | Monday, November 7, 2011
Though the four scholars in Monday’s “Crisis of the Euro” panel discussion have differing disciplines, all agreed on one thing: the eurozone is in serious trouble.
“Europe has often been the site of hope and good things, but has also often been the site of bad and troubling things,” sociology professor Robert Fishman said during the discussion held by the Nanovic Institute. “We’re again at a moment where Europe is the site of bad and troubling things.”
Fishman said he believes the temporary solutions that have and will be put together to deal with this crisis will not be definitive.
“There are many reasons why a definitive collapse of the euro is possible,” he said. “I’m not predicting it will happen, it will be very costly for Europeans and others if it does happen.”
There is a huge difference between the cultures, identities and economies of the 17 European states that make up the eurozone.
“Unemployment in Austria is 3.9 percent,” he said. “Unemployment is Spain is 22.6 percent.”
Political science professor Sebastian Rosato said all of Europe’s problems with the euro stem from the fact that Europe is not a single state.
“There is no chance that Europe will become a single state and this means that even if Europe rides out this crisis, there will be many more crises in the future,” he said. “And eventually, there will be a crisis big enough that the euro will collapse.”
Rosato also said that because Europe is made up of different states, there are different types of fiscal needs.
“If you have a one size fits all monetary policy, it’s going to be too tight for some states and too loose for other states,” he said.
Political science professor Alexandra Guisinger said one of the problems with the euro is based in history. She said that the first time Europe pushed for a fixed exchange rate, or single currency like the euro, was in 1717.
“It seems to me that even if the euro falls tomorrow, you can wait a few years and there will be another attempt [at a fixed exchange rate],” she said.
One of the benefits for countries to have a fixed exchange rate is trade opens up. However, there are also huge downfalls, Guisinger said.
“One of the things my research tells us is that there are some benefits to fixed exchange rates, and there are some definite costs,” she said. “One of the major costs that people recognize is that countries with a fixed exchange rate are far more likely to have a financial crises.”
While the fixed exchange rate of the euro has had some short-term success, Guisinger said that Europeans would continue to pay for this fixed exchange rate in the long run.
Finance professor Jeffrey Bergstrand said the eurozone is a centaur, like the half-man, half-horse creature from Greek mythology.
“I draw that analogy because, we’re in a Greek crisis and I feel very much that is to think as the eurozone as a centaur,” he said.
He went on to quote from an Economist article and said the eurozone is a hybrid, a single currency with 17 different national fiscal and economic policies.
“The formal construct of the eurozone is the economic and monetary union,” he said. “One thing to keep in mind there is there is no mention of the word fiscal.”
He said one of the largest problems facing the eurozone is fiscal policy. One of the requirements to belong to the eurozone is annual budget deficits cannot be more than three percent of the gross domestic product. However, the average deficit is currently four percent.