The crisis in the eurozone is part of a wider political problem that can only be solved by creating the right environment for sustainable growth and greater harmonisation of economic and financial policies, EBRD President Thomas Mirow said.
In a speech entitled “Ways out of the debt crisis” held at a conference in Frankfurt arranged by German weekly newspaper Die Zeit, President Mirow said that so far the discussion surrounding the debt crisis has often been too narrow.
The debt crisis was not a crisis of just a few isolated countries. It was in fact a pan-European problem, indeed a global problem affecting the industrial world.
President Mirow argued that the crisis was also not simply a fiscal problem. Seeing the crisis only in this light ignored the importance of economic growth and underplayed the connection between private and public indebtedness. “The growth of public debt in the EU…is a result of the fact that in Europe as well as globally we have lived beyond our means.”
He stressed that the crisis increasingly reflected the failure of political systems to act effectively. But he also pointed to a generational gap that made it harder to drive home the importance of European cohesion to younger people for whom previous European catastrophes were a thing of the past.
The way to deal with this problem was firstly to outline the fact that the alternative to this route would result in the economic and political disintegration of Europe but also to make clear that any such sacrifices had to be fairly distributed.
Referring to the current discussion about the use of eurobond issues to address the debt problem, President Mirow said it would be risky to undertake such a move in the middle of a crisis. “The time for this proposal is politically not ripe,” he said. Such a move was only conceivable at the end of a process of integration of economic and financial policies – not at the beginning. Eurobond issues would have to ensure that incentives for sound fiscal policies were strengthened not weakened.
The President argued that it was not sufficient to work towards such convergence simply via numerical targets for debt or deficit ceilings. “There has to be an agreement not just on macro targets but on common rules, laws and institutional structures at the national level,” he said.
President Mirow conceded that it was more difficult to agree on such common approaches than ‘on a few numbers’. “But we should not shy away from this,” he said.
Countries could learn from each other and the European Commission could make a contribution by defining best practices. An example of such best practice could be the introduction of balanced budget rules in national constitutions which would be a very concrete step if it were gradually introduced in all European countries.
Three of the EBRD countries of operations – Estonia, the Slovak Republic and Slovenia – are members of the eurozone. The EBRD has warned repeatedly that failure to deal with the problems within the eurozone could have severe economic consequences for much of the area in which the EBRD invests.