"Did the euro crisis lead to more European integration? Or to Europe being dominated by Germany?" -Hello Jacques Le Cacheux. -Hello Sylvain Kahn. -You are an economist, professor at the University of Pau, at Sciences Po and researcher at the OFCE, the Office français des conjonctures économiques, and you are specialized in European economic issues. According to you, did the euro crisis lead to more or less European integration? -It depends on what you call more or less European integration. We can observe that the euro zone crisis led to an increase of inequalities within the euro zone. There has been a rather strong difference between what we could call the core of the euro zone, that is to say Germany and many countries around it such as the Netherlands or Austria on the one hand, and the countries that could be called peripheral. Especially southern European countries. Greece, Spain and Portugal of course, but also Italy. When we look at the major economic indicators, the per capita GDP, for example, or the employment-to-population ratio, we notice that there is a major difference since 2008-2009. Huge differences have appeared. In the best-case scenario, many years will be required to put an end to it. On the other hand, the euro zone crisis led European authorities to take several actions, institutional reforms, etc. that reinforced, in a certain way, the coordination of economic policies. -Is this reinforcement a step in the right direction, according to you? Is it a shot in the dark? Or something that is fully satisfactory? -Not really satisfactory because, in fact, we have mainly reinforced the budgetary discipline. We were obsessed by the public-debt crises and the fact that a certain number of countries were managed in a rather irresponsible way. We wanted to reinforce disciplines that were already in the Stability Pact and nothing else really. But it seems to me that this approach already proved to be inefficient. The Stability Pact did not work. It cannot work against crises such as the 2008-2009 crisis. We should have gone towards the creation of what we could call a budgetary capacity of the euro zone. That is to say, have more common budgetary policy levers. -A European tax for example? European bonds? -For example. One of the recommended solutions was to pool a part of the public debts and try to handle them together in order to avoid crises of confidence about such or such national public debt. After all, this is what the United States did upon their creation in 1790 with the American Constitution. Thom Sargent reminded it in his Nobel conference in 2012. It was one possible path. The other possible path, indeed, would have been to reinforce the European budget, give it its own real resources which, today, it is lacking. A European corporate tax, for example. We notice, today, that the public opinion would be ready, so it seems to me, for such an innovation that would say: "Major multinational companies such as Google, Amazon, Starbucks, etc.", which, today, pay very low taxes, as we saw it with LuxLeaks among others, "The European Union will now directly tax them for the whole euro zone or for the whole European Union." I think it would be a decisive step. -So that there is no major difference between the Irish or French corporate tax rates, for example. -Exactly. Also knowing that multinational companies take a huge advantage of it. -You mentioned the fact that the central countries were reinforced, northern countries as geographers could call them, even if it is not the geographical north, as opposed to the southern countries, which is a geographical and metaphorical south with less developed countries. You did not include France in either group. -It is always very striking, when doing intra-European comparisons, to see that France is always exactly in the middle. Halfway between the worst and the best. France is always in this medium situation. Not as good as the best, but better that the worst. Besides, geographically, this is exactly our position. But it is true. If you look at the evolutions of the employment-to-population ratio, the per capita GDP, etc. you notice that France is more or less exactly on the average. Yes, it is a seesaw between both. This is the reason why, when we talk, for example, about splitting the euro zone between a strong and a weak euro, France would end up falling between two stools. Which side should we go? -So it seems to you that this idea of replacing the current euro by two euros, two euro zones, is really interesting? -I do not think so. We can refer, for example, to the 1970s experience. You might remember that during the 1970s we tried to create the Snake in the tunnel. After a few years, this Snake was greatly reduced and, eventually, it ended up only including what we sometimes called the "mini mark zone", that is to say the mark and a certain number of satellite currencies. If today we were to split the euro zone in two parts, apart from the issue I raised about France that would have a hard time choosing the lesser of two evils, this is what we would get. We would have a German euro, which would come down to a new mark, which would be highly appreciated, and a southern euro which would probably be very strongly depreciated. We created the euro to avoid this. I think that the Germans would be the first to lose. Because the Germans tend to forget that the euro prevented, just like the Snake in the tunnel in the 1980s-1990s, the southern countries to undergo competitive devaluations. This is the exact reason why France insisted on Italy and Spain being involved from the beginning to avoid this. -But, of course we understand that there has been a totally unexpected crisis. We could even say that it was caused by the infamous Lehman bankruptcy in the United States in 2008. So, there may have been a major accident. But according to you, why did not the euro zone, the creation of the euro zone, achieve the goal it had been given, that is to say convergence? As you said it, today we can clearly say it is due to the crisis, but should we also say it is the fault of a poor management of the euro zone? There is no convergence but an increase in the differences. -Yes. I think we fooled ourselves regarding the capacity of the monetary integration itself to provoke this convergence. Besides, some economists warned us quite early. I remember works by Paul Krugman, for example, showing that we would rather go towards what we called conglomeration. That is to say that already very industrialized countries would become even more industrialized, and that regions in the process of abandoning would become even more abandoned, etc. Thus, that we need budgetary mechanisms among other things to offset these trends. We did not implement them. I think that this is the original sin of the euro zone. Having too much faith in the capacity of the currency to integrate the whole economy. -Is it too late to implement these mechanisms? -No, it is not too late. But I think it is more difficult today than in 1999. Because in the end, the countries that took advantage of it do not want others to benefit from it. Nowadays, we notice very strong selfish reactions. Germans, for example, say: "No, we made efforts, it is over. We do not understand why we should make sacrifices now." As you know, in Germany, the debate "Yes to a union, no to a transfer union" is very strong. There is the idea that, after all, Germany does not have to subsidize Greece or Spain. I think that the every man for himself spirit is much stronger today than in the 1990s. There is also a lack of leadership regarding these issues according to me. The Mitterrand-Kohl couple at the beginning of the 1990s, among other things, played a major driving role that cannot be found nowadays. -Regarding Germany, the Germans do not consider that, even though it is imperfect, the success of the unification, that is to say the integration of the ex-GDR within Germany, was partly the result of the solidarity of the Europe of 12 then 15? -No. I think that the Germans consider that they paid for this. Only them. They predominantly consider that Europe did not help them regarding this issue. They are not completely wrong. It is true that we did not help them much. A few structural funds for Eastern Germany, but, roughly, in 1991-1992, when we had to face the choice, for example, of reevaluating the mark, and that the French government of the time said it was out of the question... A certain number of decisions that could have been made at that time and that would have eased the work of the German authorities have not been made. Thus, the Germans use the argument of the cost of the reunification saying "We handled the German unification alone and the costs it created. So manage your issues by yourself. We cannot..." Schroeder talked about "Zahlmeister" for Germany when he said that he was fed up that Germany was Europe's paymaster, or Europe's treasurer, I do not know how it can be translated. I think that nowadays there is this feeling in Germany. We have seen it during the Greek crisis in particular. -The memory of the write-off of the debts incurred by Germany between the interwar period, even during the war, write-off which occurred, I think, at the beginning of the 1950s... This is not taken into account? -No because the Germans consider that it was something else. -They are not wrong, by the way. -They are not wrong. At the same time, it is true that Germany has a rather complicated relation with its own history. Of course, Nazism is unanimously condemned, etc. but, at the same time, the Treaty of Versailles, which led to these infamous German debts, is often considered, in Germany, as a particularly unfair and leonine treaty. For many Germans, it even justified the Second World War. Keynes already wrote a book in 1919, "The Economic Consequences of the Peace". It was precisely a criticism of these war reparations that were demanded to Germany at the time. Thus the Germans do not place these issues on an equal basis. They are partly right. -What about you, Jacques Le Cacheux? Would you not consider writing "The Economic consequences of the Aid Plans imposed upon Greece"? -Sometimes, yes. But Greece also has a very complicated history. The difficulties of the Greek public sector partly get back to the 19th century, to the Greek independence, etc. It is also deeply rooted. -Thank you Jacques Le Cacheux. -Thank you.
