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Strengthen the euro and reform the European Commission

At a time of European debt crisis, when some see a common currency as a straightjacket, Europe must follow through and strengthen the euro. Europe must also move on political reform. One place to start: Elect the president of the European Commission, the EU's executive arm.

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The German position has greatly evolved over the past 18 months in regard to the nature, extent, and duration of financial assistance to be offered to eurozone members actually or potentially in difficulty. Nor is there any reason to believe that this evolution has yet come to an end. In common with her predecessors in the German chancellery, Ms. Merkel firmly believes that Germany’s economic and political future lies within the European Union, of which the euro is such a central expression.

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But she does not yet appear to have found a sustainable political balance between the imperative need to stabilize the eurozone and the understandable reluctance of her electors (and those of other core states) to support financially members of the eurozone that, to some extent at least, are the authors of their own misfortunes. Merkel is not wrong to argue that economic reform in countries such as Greece should be a precondition of financial support from the rest of the eurozone. But it is an argument that if carried to its logical extreme could easily provoke irreparable short-term damage in the supposed interests of long-term improvement.

OPINION: Gerhard  Schroeder: Don't strangle Europe with austerity

When the euro was introduced in 1999, national governments sought to keep for themselves the greatest possible national autonomy for economic decision-making. Looking back, we can see that this was an inadequate approach. Much of the past 18 months has been devoted to repairing the gaps in the euro’s original structure of governance. The process is not yet complete, but remarkable changes of approach from all member states of the eurozone are already plain for all to see. Now we must look to growth and how it can be re-established on a sustainable basis, particularly in the periphery

The Fiscal Compact [in response to the European debt crisis] is a necessary part of the future. However, the process needs to go further if the future of the euro is to be assured. In the minds of some honest outside observers, there is still a genuine question mark over the long-term future of the eurozone.

But the placing of a question mark is emphatically not the same as the giving of an answer. After all, none of the predictions of destruction frequently expressed in the past have been fulfilled to date. In fact, our progress, though faltering, has increasingly brought home to us all that we must unite more rather than less if Europe is to prosper in the future. This must mean that we should combine economic analysis and prescription with political advocacy of a true union of the peoples of Europe. This will entail a degree of cohesion between eurozone states that reflects a political union rather than a temporary marriage of convenience.

Global markets are not yet convinced about the lengths to which the eurozone core countries will really go to maintain the currency, recognizing that to achieve this end will require not merely discipline in the periphery but also growth. There has been, for example, a relative silence about the mechanisms, let alone their implementation, that might be used to provide aid (perhaps through loans for infrastructure expenditure). Also, there is a lack of clarity about the prospects and conditions for any “mutualization” of public debt. In the latter regard there has been what has been described as “conditional” mutualization of sovereign debt in the European Monetary Union, but the debt overhang problem has had less attention than is required.

So, much remains to be done in both the political and economic spheres, and both of course overlap. To maintain general support for the project, firefighting is indispensable but not sufficient. We need a vision of a future that expresses an unambiguous support for ongoing integration.


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