From The Journal of Turkish Weekly
Helmut Schmidt’s European vision as Germany’s chancellor during the Cold War, and his subsequent contributions, helped shape the continent and promote European integration. With his passing in 2015, Europe lost a great leader. Germany’s Schmidt and France’s Valéry Giscard d’Estaing were the grandfathers of the euro, a project finalised by their successors in Germany and France, Helmut Kohl and François Mitterrand. Franco-German cooperation and leadership for Europe has been crucial to the advancement of the European project. Similarly, leadership voids have been at the crux of Europe’s failings.
Schmidt’s insights are especially missed at a time when the future of Europe is in question, not least due to the mismanagement of the Eurozone Crisis, where his advice went unheeded. Six years after the Crisis began, it remains unresolved. And worse yet, Europe’s elite disputes its true causes.
Understanding the EZ Crisis
Understanding why the Crisis occurred is critical for a consensus on remedies, which is a prerequisite for salvaging the European project. Recent analysis has identified key economic factors that contributed to the Crisis (Baldwin et al. 2015). Establishment of the euro fuelled current account imbalances and made a number of Eurozone member states vulnerable to a sudden stop. Greece became the first victim in early 2010. Economic analysis also explains the risks of fiscal profligacy, which was an important aspect of the problem in Greece but—contrary to a narrative prevalent among the European elite—was not the main cause of the Crisis overall. Although these points are important, economic analysis alone cannot explain the gross mismanagement of the Crisis in the six years since early 2010. It also cannot explain the actions taken by European governments and institutions that caused a small initial shock to turn into an existential crisis for the Eurozone. This requires understanding the political dimension.
Read the full post at The Journal of Turkish Weekly.
Athanasios Orphanides is a Professor of the Practice of Global Economics and Management at the MIT Sloan School of Management.