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2020 | Buch

Introduction Kapitel lesen Erstes Kapitel lesen

Walking the Highwire

Rebalancing the European Economy in Crisis

verfasst von: Dr. Olli Rehn

Verlag: Springer International Publishing

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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Über dieses Buch

Walking the Highwire tells the story of the Eurozone Crisis from the perspective of the former Vice-President of the European Commission who was responsible for Economic and Monetary Affairs in 2010-2014. It is a comprehensive European account that covers both events and decisions in Brussels and Frankfurt and in the member states, both in distressed countries and creditor states. It also provides an economic-political analysis of the crisis and its management, recognising that the Euro was created politically, and saved politically.

Thoroughly researched and based on economic analysis of the time, reports on various meetings and the author's own speaking notes and diary, this book begins with a narrative of crisis management 2009-2012, before moving on to address the beginning of the recovery from 2013-2014. It concludes with the lessons learnt from the crisis and a programme for reform of the Eurozone in the 2020s, with contemporary policy relevance.

This is an entertaining and engaging account which will be of interest to a wide audience: scholars and students, practitioners and commentators of the Eurozone.

Inhaltsverzeichnis

Frontmatter

Setting the Scene

Frontmatter
Chapter 1. Introduction
Abstract
In Europe, the collapse of financial stability in 2007–8 was a crucial factor that triggered market turbulence and uncertainty. The most intense period of the Eurozone crisis occurred in between the years 2010 and 2013. The European Commission became the broker of compromise among three key players: the German Federal Government in Berlin, the ECB in Frankfurt and the IMF in Washington, DC, which the author started to call the Eurozone’s “Impossible Triangle”. The silent transformation of the ECB “from a Bundesbank to a Federal Reserve” over the years 2010–15 was critical for saving the euro. It was a pragmatic change but turned into a silent philosophical transformation in monetary economics and European central banking—though it is still contested.
Olli Rehn
Chapter 2. A Peripheral Finn in the Capital of Europe
Abstract
“Who is Olli Rehn?” asked the Belgian Minister Paul Magnette in 2012. He likely was not referring to me personally, but as a representative of the European Commission. The Commission’s mandate in economic governance is legislated jointly by the EU member states and the European Parliament, which is where its legitimacy stems from. I was not supposed to be one of Europe’s firefighters during the Eurozone debt crisis. My native country Finland was not yet even a member of the EU/EC when the Euro was conceived in 1990–92. For small states, the value of European integration is better understood: in the EU, might is not the only right. The euro crisis became a personal stress test for everyone who spent many years in its epicentre.
Olli Rehn

Managing the Crisis

Frontmatter
Chapter 3. Fire Brigade to Athens
Abstract
The economic mood in Europe in early 2010 was very nervous, fragile and turbulent. Greece was in a free fall due to her past fiscal irresponsibility and statistical fraud that had begun to surface to the public awareness. Financial stability of the whole Eurozone was soon in danger, as the Greek bush fire threatened to turn into a European forest fire, with damaging ramifications to the nascent recovery—and there was no existing fire brigade, nor fire extinguishers. Even worse, we had just experienced the most severe global financial crisis since the 1930s, which had badly damaged growth and jobs and led to an increase in fiscal deficits and public debt. Almost all European economies were vulnerable.
Olli Rehn
Chapter 4. Big Bazooka by Night
Abstract
The Eurozone Summit on 7 May 2010 focused on the establishment of a European stability fund. The Summit threw the task to their finance ministers. The European Commission took initiative to propose a “big bazooka” for the Eurozone. The decision of the Ecofin Council on 9–10 May 2010 underlined the rigorous implementation of the Greek programme and the commitment of all member states to the balancing of their public finances, and it specifically mentioned Portugal’s and Spain’s commitment to new measures. In return, the European Financial Stability Mechanism and Facility (EFSM/EFSF) was set up, with the total volume of 500 billion euros.
Olli Rehn
Chapter 5. Deauville Doomsday and Voldemort in Ireland
Abstract
Ireland’s crisis was a banking crisis emerging from macroeconomic imbalances and the overheating of the real estate markets, which ultimately brought the public economy to its knees. By autumn 2010, Ireland’s economic state was bleak to begin with, but it soon turned even more horrendous. This was due to the weekend meeting in mid-October by German and French leaders in the coastal town of Deauville, which decided to set private sector involvement as the mainstay of the EFSF, repelling even the last investors from Ireland. Market literacy was in short supply that weekend. In December 2010, an 85 billion euro conditional financial assistance programme for Ireland was decided, also to recapitalize banks after the dead wood had been cleared.
Olli Rehn
Chapter 6. Comprehensive Crisis Response
Abstract
By the summer of 2010, it had eventually become clear to virtually everybody that the Eurozone debt crisis was a systemic one, not cyclical or idiosyncratic. The Commission was preparing a systemic response. It was high time to begin correcting the systemic shortcomings of the euro by strengthening the economic union and by creating of a permanent stability fund. These came together under the working title “Comprehensive Crisis Response”, thus named because action was required on all policy fronts. My cabinet christened it as the “CCR”, in due reverence to the Creedence Clearwater Revival, the legendary blues-rock band from the 1960s and 1970s.
Olli Rehn
Chapter 7. Summertime Blues in Italy
Abstract
Those who said there would be no contagion effect from Greece and Ireland were proven wrong latest in the summer of 2011. Contagion was in full steam in July 2011. The uncertainty surrounding Greece, obstacles to the Portuguese programme, Italy’s stalling reforms and the crumbling credibility of the bank stress tests amplified the distrust that drew Italy and Spain towards the edge of the cliff. The debt crisis had turned to a euro crisis—it was a truly systemic crisis that would require an equally matching systemic response. The recovery turned weaker over the summer, and it was further weakened by the premature rate hikes of 2011 by the ECB to show its rigour.
Olli Rehn
Chapter 8. The Hour of Obama—And Don Camillo
Abstract
After the stormy August of 2011 arrived an equally turbulent autumn, and it kept getting worse until November. In September, the IMF issued a warning about larger than assumed gaps in the capitalization of European banks, which gave the markets a new reason to be scared. In October, disconcerting news emerged on the Spanish government finances and the banking sector. Furthermore, Italy faced rising yields particularly until Monti’s government took office in November. In the Cannes G20 Summit, US President Barack Obama held several multilateral meetings in three days with the Europeans. After the gathering, I wondered how come the US President was essentially chairing the Eurogroup meeting! And what’s more, he did it rather well.
Olli Rehn
Chapter 9. Flexing the Six-Pack
Abstract
Post-war Germany was lucky to have two leaders like Konrad Adenauer and Ludwig Erhard, the first one as the constitutional leader and the second one as the economic reformer. One of the lessons of Erhard is that governance and growth are intertwined. Thanks to the reform of economic governance in 2010–2013, the Eurozone has been able to significantly improve its public finances by reducing fiscal deficits. The Eurozone now in principle has the necessary toolbox to identify early on any accumulating macroeconomic imbalances and worsening differences in competitiveness, and also has the powers to make proposals for their correction.
Olli Rehn
Chapter 10. Gasp of Air Before the Plunge
Abstract
Sic transit gloria mundi—“thus passes the glory of the world”. This was true to the efforts and effects of the Eurozone’s comprehensive crisis response in 2011–12. Because of the long political vacuum, implementation of the Greek programme was halted for months in spring 2012, as there was no functioning government, and the administration was not very operable. Usually in a severe crisis in small states, a necessary national consensus is found to overcome the crisis, but not in Greece. However, many Greeks have succeeded in various spheres of life, so the country has plenty of human innovative and entrepreneurial potential. But we underestimated the leadership vacuum and management challenge in Greece.
Olli Rehn

Turning the Tide

Frontmatter
Chapter 11. “Whatever It Takes” and the Banking Union
Abstract
In June 2012, we entered the final turning point of the crisis, even though we couldn’t realize it yet then. In the Eurozone Summit in Brussels on 28–29 June 2012, the euro area leaders decided on building a banking union, which should dismantle the toxic link between banks and sovereign debt. As the heavy turbulence in the markets continued, the member states—and market forces—began to look to the ECB for help. During the London Olympic Games in July 2012, Mario Draghi gave speech in which he pledged the ECB’s willingness to do “whatever it takes” for the euro to survive. “Believe me, it will be enough”, he stated—and the markets took him by his words.
Olli Rehn
Chapter 12. Recovery Arrives by Stealth
Abstract
The sign of times: “I am not as worried today as last year”, said Chancellor Angela Merkel in a conference in Berlin on 8 January 2013. Early 2013, in my speeches I stressed that staying the course of reform is key for stability and growth. By early May 2013, the discourse of realistic optimism about the state of the European economy had been properly established and noted in the markets. The ECB’s determined action to go for negative policy rates in June 2014 and for quantitative easing in 2015 was a sine qua non for containing the danger of deflation. In the light of the recent years’ economic recovery and job creation, the ECB’s pragmatism has thus been vindicated.
Olli Rehn
Chapter 13. Basta!: Austerians vs. Spendanigans
Abstract
“Basta!”—“You need no earphones”, shouted Elisa Ferreira, a socialist member of the European Parliament from Portugal. “You just need to memorize a single word: Basta! This is enough!” Public debate on fiscal policy during the crisis was a fierce battle between the Austerians and the Spendanigans. The former refer to those who believe that fiscal sustainability—or “austerity”—is the way to a healthy economy. The latter refer to those who believe that deficit spending without debt worries should be used to stimulate growth. But there was no silver bullet. Besides, to focus only on fiscal policy misses the point because, in reality, the financial repair and the pursuit of structural reforms were equally important to boost growth.
Olli Rehn
Chapter 14. The Great Rebalancing: France and Germany
Abstract
You cannot talk about modern Europe without the post-war reconciliation between France and Germany. Hence, the euro has always been also a political project. That’s also the reason why the Eurozone reform cannot be reduced only to a technical matter, but should be seen in the wider historical context of Franco-German reconciliation and European unification. We need to build bridges between the “German” and “French” way of economic thinking by combining stability and rules, and governance and growth. By encouraging Germany to take steps to lift domestic demand and investment, while France embracing reforms in its labour market and business environment would trickle down to the rest of the Eurozone and provide stronger growth as well jobs.
Olli Rehn
Chapter 15. Baltic States Set Sail Against the Wind
Abstract
While the Eurozone was burning, the Baltic states were moving on and kept on bringing their economies back to growth. All three of them, Estonia, Latvia and Lithuania, became members of the Eurozone in 2011–15: Estonia in 2011, Latvia in 2014 and Lithuania in 2015. As no Grexit or other exits from the Eurozone took place during the crisis, contrary to what many Cassandras were predicting, the Eurozone’s membership actually grew from 16 to 19 members. The past three decades in the Baltics are an inspiring era of freedom and progress. Their EU membership has been a key building block for their successful democratic and economic transformation.
Olli Rehn
Chapter 16. Aftershocks That Didn’t Explode—And the Brexit Bomb
Abstract
While the explosive years of the Eurozone crisis were over by spring 2013, many aftershocks still popped up in 2013–15 that endangered progress made. However, none of them exploded nor shook the still fragile recovery. The first of them was the Cyprus banking crisis in the winter of 2012–13. There is much to learn from it on how to deal and not to deal with banking crises. The other aftershocks were Slovenia in 2012–13 and Greece (again) in 2015. Brexit was a flanking explosion with its own post-imperial origins. A customs union would serve as a bridge until the UK decides to return to the European community of nations—during the next generation.
Olli Rehn

Learning the Lessons

Frontmatter
Chapter 17. The Jury Is Out: Fiscal Multiplier vs. Financial Accelerator
Abstract
The period when the Eurozone growth performance really started to weaken relative to the United States—the second half of 2011—coincides with a widening gap between the long-term interest rates of the Eurozone and the United States. Part of that is accounted for by the increase in the ECB policy rates. Eventually, a more important factor—the intensification of the euro area banking and debt crisis—caused a financial squeeze in the private sector. This corresponds to “the financial accelerator”, which is a concept developed by Ben Bernanke as a leading scholar of the Great Depression, long before becoming chairman of the US Federal Reserve.
Olli Rehn
Chapter 18. Misadventures of Dismal Science
Abstract
Underlying the euro, there were some misadventures in economics. The first misadventure was the overemphasis of the theory of optimum currency area, which focuses on asymmetric shocks stemming from the production structure. In reality, the systemic and symmetric shock stemming from macroeconomic and financial imbalances proved to be a serious problem. Most economists focused their attention on the production structure, while the real problem was left hiding in the financial system, where the Minsky moment revealed the underlying instability. In macroeconomics, the general theory of John Maynard Keynes remains a great inspiration, as does his programme, coined in the three goals of economic efficiency, social justice and individual freedom.
Olli Rehn
Chapter 19. Lessons of the Crisis for Eurozone Reform
Abstract
The euro crisis provides a wealth of lessons that should not be ignored. Financial stability was grossly neglected before the crisis. Completing the banking union is a necessary condition to achieve stability. The EMU also needed a big bazooka and a lender of last resort, and they need to be further enhanced and developed. We have to get the policy mix right for the Eurozone in the new equilibrium of low real rates and low inflation. Fiscal rules should be made more counter-cyclical and supportive of structural reforms, and encourage national ownership. In building the Eurozone as a stability union, the main responsibility for economic policies should rest with the member states, while this should be combined with the insurance provided by common structures, especially as regards ensuring financial stability.
Olli Rehn

Looking Back, Looking Forward

Frontmatter
Chapter 20. Epilogue
Abstract
Fast-forward to 2019. While living with populism, there are signs of political stabilization. But in economic development, Europe has fallen behind the G2 of the United States and China. Reforming the Eurozone is a part of a broader endeavour to strengthen Europe, also as the standard-bearer for liberal democracy and multilateralism. Europe needs to work towards sustainable growth and job creation on all fronts. Putting the real economy centre stage means that we should build such Europe that opens up our citizens’ opportunities to innovate and create new businesses and jobs. We should work for a Europe that promotes growth through the single market and free-trade agreements and for a Europe that guarantees civil rights and social justice in the digital age.
Olli Rehn
Backmatter
Metadaten
Titel
Walking the Highwire
verfasst von
Dr. Olli Rehn
Copyright-Jahr
2020
Electronic ISBN
978-3-030-34592-1
Print ISBN
978-3-030-34591-4
DOI
https://doi.org/10.1007/978-3-030-34592-1

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