Sunday, November 28, 2010

Five favorite books on the euro by Barry Eichengreen

Here is the website with Barry Eichengreen's commentary on each of the books. Worth reading, especially from such a good American, who actually believes (unlike most of his American colleagues) that the euro was a good idea.

I agree with him that "Europe will be forged in crises":

"I’d say that each time that Europe has reached a crisis and had to decide whether to go forward or go back, it goes forward toward deeper integration. Angela Merkel’s personal preferences notwithstanding, I think there will be strong pressure on her to do likewise. Jean Monnet, the father of European integration, once said something to this effect: ‘Europe will be forged in crises.’"

I have tried to explain it two days ago to an incredulous EC bueraucrat, who found it hard to believe that the current crisis was a good thing for Europe, both short-term (depreciating the euro and other EU currencies, such as the Polish zloty) and long-term (strenghtening the euro infrastructure, something that would not have happened without the crisis).

I also concur that the euro zone will not break up:

"The commission forced me to sit down and think hard about scenarios. The conclusion I reached was that countries with serious financial problems, like Greece, and, equally, countries fearing that they would have to pay for those financial problems, like Germany, would both be extremely reluctant to abandon the euro. Doing so would be equivalent to abandoning the whole European project, which, for political reasons, I regard as bordering on the inconceivable.

Also, if a crisis country abandoned the euro in order to reintroduce its own national currency with the goal of restoring its competitiveness, it would be creating more problems for itself than it solved. The more I contemplated scenarios of possible exits from the euro, the more I concluded it wouldn’t happen.

Finally, on a somewhat different topic, I also very much agree with this:

"Americans, especially, are inclined to be critical of Europe’s long holidays, inflexible labour markets, and so on. The Hall and Soskice book is an articulate statement of the view that there are different ways of cracking the same nut. There are different ways of organising market economies – different constellations of social and economic institutions that, in combination, can be equally efficient. Europe has very significant strengths in precision manufacturing. It has apprenticeship training programs and employment stability that facilitate the acquisition of skills on the job. It has patient banks to fund the operations of firms investing in their workers. It’s not obvious that this constellation of institutions is inferior, from the point of view of growth and competitiveness, to that of the United States. Ten years ago, the so-called experts would have been unanimous that the US had a leg-up on Germany in terms of innovation and export competitiveness. Now, to put an understated gloss on the point, this is no longer obvious"

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