Gordon Brown: History will charge Europe's leaders with West's decline
Europe doesn't just have a debt problem. It has a banking and growth problem. And leaders must recognize this as not just a Greek or Irish emergency, but a European crisis that needs cooperative, comprehensive solutions.
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While a strong and passionate pro-European, I stood out from conventional economic opinion in doubting whether Britain’s best interests lay in joining the euro. The UK Shadow Chancellor Ed Balls led 19 separate assessments of the euro. Our major finding was that inside the euro there was insufficient flexibility to achieve sustainable and durable convergence between nations.Skip to next paragraph
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But we also demonstrated that the euro had no crisis prevention or crisis resolution plan in the event of convergence not being achieved. For under a single currency no nation – even one completely uncompetitive with the rest of the euro zone – can adjust its exchange rate, or benefit from an interest rate tailored to their specific needs. But nor had Europe adopted the US crisis-prevention model for damping down disparities in a single currency area – by labor mobility and wage adjustments, or by transfers to areas of need.
So if I am right, we must now exchange panic-driven responses for a long-term reconstruction, or we will face a lost decade of high unemployment with social discontent, anti-immigrant feeling, and secessionist movements.
Europe's 'moment of truth'
We must now achieve for Europe the same “moment of truth” that the world found with the pivotal G20 summit in 2009. As happened with the G20, Europe’s politicians should lead market sentiment by boldly and simultaneously agreeing to a Brady-bond-style solution for Greece and a European bank recapitalization. They must agree to a new Euro area debt facility (responsible for, say, the first 60 percent of each country’s debt) as part of a coordinated fiscal and monetary policy that permits, like the US, fiscal transfers.
And, above all, they must agree to a pro-growth, pro-enterprise strategy I call "Global Europe: Europe’s energies redirected outwards to exporting to the emerging economies", and re-equipping ourselves to do so with a clear timetable for – and inbuilt incentives and penalties to guarantee – labor, capital, and financial market flexibilities.
Why would Germany support this? Because far from being against their interests, it now has a European reason to restructure its banks; can set tough terms on economic reform; and, by acting now, it avoids far bigger costs later. Indeed, I would argue that without my concurrent plan to restructure Europe’s banks and insurance companies and to go for growth, the status quo or even a Brady plan for Greece still risks Europe-wide financial contagion.
History books about the “decline of the West” are not inevitable. But only a reconstruction that attacks deficits, banking liabilities, and low growth together will avoid the deadening grip of an inward-looking protectionism – and barren but avoidable years of unemployment and wasted lives.
Gordon Brown is the former prime minister of Great Britain.