Past Event

The Euro and the battle of ideas

Why is the Euro in trouble? Are philosophical differences between the founding countries to blame and can those differences be reconciled?

Date: October 13, 2016, 8:30 am Topic: European Macroeconomics & Governance

SUMMARY

See below for the video and audio and the event materials 

At this event Markus Brunnermeier and Harold James presented their new book The Euro and the Battle for Ideas (co-authored with Jean-Pierre Landau). A joint work which combined not only their different backgrounds (the authors are, respectively, an economist, a historian and a former deputy governor of the Banque de France), but also their different national perspectives.

The authors outlined how the political response to the euro crisis has led to a seismic shift of power in Europe. With the notable expection of the ECB which gained significantly in stature and influence, decision-making capacity moved from European institutions to the capitals of member states, particularly Berlin and Paris. However, the differences between Northern (but above all German) and what are sometimes called Southern (but above all French) visions of the appropriate economic policy emerged with great clarity in the management of the crisis.

In this regards, the authors contested the usual way of interpreting the political dynamics as simple result of a balancing between contrasting economic interests. Conversely, since material interests are always interpreted through the lens of ideas, they claimed that we should take into account more the different economic philosophies developed in each country to fully understand the origin and the rationale of any European political dispute.

The declared attempt of the book is to trace the long-term historical, intellectual, and cultural origins of the “French” and “German” economic traditions. The authors claimed that the indeterminate cohabitation of these two traditions of economic and political thought, in addition to mutual incomprehension and national stereotyping, prevented an adequate response during the crisis and led to downward compromises on the future design of the European Union.

In terms of policy contribution, the authors supported the proposal presented in 2011 to create Euro Safe Bonds (“ESBies”), as a practical solution to permanently break the link between sovereign debt and the stability of banking sector in a manner amenable to different political (and philosophical) positions.

According to the main discussant, Marco Buti, the book provides important insights with respect to the origin and the persistence of clashing economic cultures within European project. He agreed with the opinion expressed by the authors regarding the shift towards intergovernamentalism, reclaiming, nevertheless, an active role of the European Commission during the crisis, bringing the EFSM and the Banking Union as example of important policy proposals.

He added to the discussion evidence that economic differences across EA countries widened during the first years of EMU and linked them to the increasingly diverging social and political preferences. To bridge these differences and address the transition to an enchanced European governance, he called for the parallel progress on risk sharing and risk reduction in the current phase of development of Banking and Capital Markets Union. A relevant obstacle, however, is represented by the fact that these over-present differences of economic ideas increased substantially during the crisis. After several year of digging trenches around established intellectual and theoretical propositions, Marco Buti warned that economics ideas tranformed even into ideologies, from which an open discussion in the quest for a compromise becomes more difficult. Finally, he showed interest for the proposal of the ESBies, as a good balance between the non-mutualisation concerns (German position) and the (French) necessity to address systemic risks, but it would require a nontrivial transition in the current sovereign bonds market.

A relevant comment from the audience came from Mario Monti, according to who the reciprocal interaction between European political authorities and the ECB have been somewhat underestimated by the authors (at least in their presentation). As an example of this, he recalled the importance of the decisions taken during the Euro Area Summit in 29 June 2012, which thereafter represented the political pre-conditions for Mario Draghi’s “whatever it takes” speech. Moreover, the discussions during that Summit represented another suggestive example of the battle of ideas evoked by the authors. In that context, indeed, the German position emphasizing the need to put one’s house in order first (“often falling into the fallacy of composition”) severely confronted in the quest of compromise (truly necessary at that time) with the French and others’ ones pointing more to systemic problems requiring systemic responsabilities.

In conclusion Guntram Wolff made two points. Firstly, he questioned the “shift towards intergovernmentalism” argument identified by the authors since it provided a wrong description of the events: in fact there was nothing to be shifted. What actually occurred and eventually added political tension during the crisis was the difficult creation of new mechanisms for fiscal risk-sharing across countries, which was not originally included in the Maastricht treaty. Secondly, regarding financial stability issues, he agreed on the necessity to complete the Banking Union, while arguing that the real missing part is a proper fiscal backstop, and not necessarily the ESBies.

Event notes by Filippo Biondi, Research Assistant.

AUDIO & VIDEO RECORDING


event materials

Presentation by Markus Brunnermeier and Harold James

Presentation by Marco Buti

Schedule

Oct 13, 2016

8.30-9.00

Check-in and breakfast

9.00-9.30

Presentation

Markus K. Brunnermeier, Professor, Princeton University

Harold James, Professor, Princeton University

9.30-9.45

Comments

Marco Buti, Director-General, European Commission, DG ECFIN

9.45-10.30

Audience Q&A

Chair: Maria Demertzis, Deputy Director, Bruegel

10.30

End

Speakers

Markus K. Brunnermeier

Professor, Princeton University

Marco Buti

Director-General, European Commission, DG ECFIN

Maria Demertzis

Deputy Director, Bruegel

Harold James

Professor, Princeton University

Location & Contact

Bruegel, Rue de la Charité 33, 1210 Brussels

Matilda Sevon

matilda.sevon@bruegel.org

Read article Download PDF More on this topic

Policy Contribution

A European perspective on overindebtedness

The sequence of crisis and policy responses after mid-2007 was a gradual recognition of the unsustainability of the euro-area policy framework. The bank-sovereign vicious circle was first observed in 2009 and became widely acknowledged in the course of 2011 and early 2012. The most impactful initiative has been the initiation of a banking union in mid-2012, but this remains incomplete and needs strengthening.

By: Nicolas Véron and Jeromin Zettelmeyer Topic: European Macroeconomics & Governance Date: September 28, 2017
Read about event

Past Event

Past Event

Unfinished business: The unexplored causes of the financial crisis and the lessons yet to be learned

At this event Tamim Bayoumi will present his upcoming book on the financial crisis, showing how the Euro crisis and U.S. housing crash were, in fact, parasitically intertwined.

Speakers: Tamim Bayoumi, Maria Demertzis and Aerdt Houben Topic: European Macroeconomics & Governance, Global Economics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: September 28, 2017
Read article More on this topic

Opinion

A resilient Euro needs Franco-German compromise

In a piece signed by 15 leading French and German economists, Nicolas Véron lays out a path to a more sustainable Euro. Germany will need to accept some form of risk sharing. France will need to allow more market discipline. But the two countries can find a common vision for reforms

By: Agnès Bénassy-Quéré, Markus K. Brunnermeier, Lars Feld, Marcel Fratzscher, Philippe Martin, Hélène Rey, Isabel Schnabel, Nicolas Véron, Beatrice Weder di Mauro, Jeromin Zettelmeyer, Henrik Enderlein, Emmanuel Farhi, Clemens Fuest, Pierre-Olivier Gourinchas and Jean Pisani-Ferry Topic: European Macroeconomics & Governance Date: September 27, 2017
Read article More on this topic More by this author

Opinion

Hong Kong should add the euro to its dollar peg

Volatility offers an opportunity for the territory to rethink its strategy. With the economy now more synchronised with China than ever before, the dollar peg may no longer provide an accurate reflection of the real value of the Hong Kong dollar.

By: Alicia García-Herrero Topic: Global Economics & Governance Date: September 12, 2017
Read about event

Past Event

Past Event

Bruegel Annual Meetings 2017

The Annual Meetings are Bruegel’s flagship event. They offer a mixture of large public debates and small private sessions about key issues in European and global economics. In a series of high-level discussions, Bruegel’s scholars, members and stakeholders will address the economic policy challenges facing Europe.

Speakers: Carlos Sallé Alonso, José Antonio Álvarez Álvarez, Agnès Bénassy-Quéré, Pervenche Béres, Matthias Buck, Grégory Claeys, Zsolt Darvas, Jean Luc Demarty, Maria Demertzis, Anna Ekström, Lowri Evans, Ferdinando Giugliano, Sandro Gozi, Peter Grünenfelder, Reiner Hoffmann, Levin Holle, Kate Kalutkiewicz, Steffen Kampeter, Peter Kažimír, Emmanuel Lagarrigue, Matti Maasikas, Steven Maijoor, Reza Moghadam, Nathalie Moll, James Murray, Johan Van Overtveldt, Julia Reinaud, André Sapir, Dirk Schoenmaker, Mateusz Szczurek, Marianne Thyssen, Jean-Claude Trichet, Reinhilde Veugelers, Nicolas Véron, Ida Wolden Bache, Liviu Voinea, Guntram B. Wolff and Georg Zachmann Topic: Energy & Climate, European Macroeconomics & Governance, Finance & Financial Regulation, Global Economics & Governance, Innovation & Competition Policy Location: Square - Brussels Meeting Centre Date: September 7, 2017
Read article More on this topic

Opinion

Europe must seize this moment of opportunity

As the EU enjoys a period of growth and relative stability, there is finally room to undertake long-needed reforms. But it is vital to act soon, and priorities must be set. There are three pillars of reform for the coming months: completing a robust euro area; building a coherent EU foreign policy; and harnessing the single market’s potential to deliver strong and inclusive growth.

By: Agnès Bénassy-Quéré, Michael Hüther, Philippe Martin and Guntram B. Wolff Topic: European Macroeconomics & Governance Date: August 12, 2017
Read article More on this topic More by this author

Blog Post

Italian economic growth and the Euro

While the Euro has frequently been blamed for the poor growth performance of Italy over the years, a long-term analysis shows deteriorating growth before the introduction of the Euro. Additionally, Italy has shown worse performance than other euro-periphery countries, such as Spain, implying deeper structural reasons for Italy’s economic malaise.

By: Francesco Papadia Topic: European Macroeconomics & Governance Date: July 26, 2017
Read article More on this topic More by this author

Blog Post

The international effects of ECB’s monetary policy

What’s at stake: the literature on monetary policy spillovers is abundant of studies investigating the impact of the US Federal Reserve’s monetary policy announcements and actions on emerging market economies. More recently, economists have been investigating the effect of the ECB’s credit easing as well.

By: Silvia Merler Topic: European Macroeconomics & Governance Date: July 24, 2017
Read about event

Past Event

Past Event

Is there a way out of non-performing loans in Europe?

At this event we looked at the issue of non-performing loans in Europe. The event also saw the launch of the latest issue of "European Economy – Banks, Regulation and the Real Sector."

Speakers: Emilios Avgouleas, Giorgio Barba Navaretti, Giacomo Calzolari, Maria Demertzis, Martin Hellwig, Helen Louri and Laura von Daniels Topic: European Macroeconomics & Governance, Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: July 6, 2017
Read about event

Past Event

Past Event

Fintech and the digital transformation of banking

FinTech is changing the financial sector. What are the challenges associated with this and what policies should we adopt in response?

Speakers: Xavier Corman, Cora van Nieuwenhuizen, Georgios Petropoulos, Ezequiel Szafir and Pēteris Zilgalvis Topic: Finance & Financial Regulation, Innovation & Competition Policy Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 20, 2017
Read about event More on this topic

Past Event

Past Event

Lessons for the future governance of financial assistance in the EU

On 14th June, Randall Henning will present his latest book on the Euro crisis and we will discuss how financial assistance should be governed in the euro area in the future.

Speakers: Servaas Deroose, C. Randall Henning, Rolf Strauch and Guntram B. Wolff Topic: European Macroeconomics & Governance Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 14, 2017
Read about event More on this topic

Past Event

Past Event

Substance requirements for financial firms moving out from the UK

In the run-up to Brexit, UK-based financial firms are considering how to organize their operations across the future divide between the UK and EU27. This event will discuss the regulatory requirements on how self-sustaining the operations in the EU should be, and implications for the single market and third countries.

Speakers: Gerry Cross, Simon Gleeson and Nicolas Véron Topic: Finance & Financial Regulation Location: Bruegel, Rue de la Charité 33, 1210 Brussels Date: June 2, 2017
Load more posts