If you’ve been losing sleep over the Eurozone, then the last person you probably want to turn to is a leftwing Greek economist. Nevertheless, Yanis Varoufakis’s article for Eurointelligence is worthy of attention.
He begins with a pretty clearsighted view of the situation:
- “Europe’s strategy for dealing with the Euro Crisis has been to ringfence, at first Greece, then Ireland, then Portugal, then Greece again, nowadays Spain etc. Unfortunately, a deep seated crisis, raging simultaneously in the realms of public debt, under-investment & internal imbalances and banking, makes it impossible for such ringfencing to succeed.”
He predicts that the “Eurozone will continue along a path that has already led it to an advanced stage of disintegration” – unless that is “Europe as a whole [is] ringfenced.”
He describes his scheme for doing just that as “nothing less than a New Deal for Europe” – as well he might, since it amounts to a massive, Europe-wide programme of fiscal and monetary stimulus.
Leaving aside the questionable wisdom of an almighty go-for-broke Keynesian gamble, Varoufakis's key point is that such a programme could be implemented using existing EU institutions, exercising existing powers – therefore it wouldn't count as a formal transfer union, with all the procedural and political hurdles that would entail.
Technically, he might just be right. Certainly, the EU has a long history of using technicalities to tear up its self-imposed limits. In otherwords, something like the Varoufakis plan may be a goer in the not too distant future. Instead of leading to an immediate collapse of the single currency, the failure of the Eurozone’s Plan A (austerity with bailouts) could lead instead to a Plan B (bailouts without austerity). This, in turn, would likely lead to Plan C (China, please lend us some money).
What happens after that is anyone’s guess.