Greece and Italy could still go bankrupt and leave the eurozone. The majority of the members of EU cannot produce stable growth; currently there are only cyclical reasons why macroeconomic indexes are improving across Europe. The root of it is two unsolved problems: demographic crisis and the lack of increasing productivity. The current European system only favours Germany. However, if the French president, despite his popularity falling, can really carry out the reforms he promised, then President Macron could become on par with Angela Merkel, making the two countries the real drivers of Europe. Philippe Legrain advisor to the former President of the European Commission and visiting senior fellow at the London School of Economics’ European Institute talks about these topics in the interview he gave us.
Péter Zentai: Economic indexes are quickly improving all across Europe. Yet, you are pessimistic – at least this is what your professional analyses suggest. Could you give a reason for your pessimism?
Philippe Legrain: While Great Britain’s economy is slowing down, the EU, especially the eurozone is beginning to experience a certain recovery. This is good news actually, even if we know that the current conjuncture is only of cyclical nature in the countries of the EU. The reasons of these things are the following: the GDP per capita is hardly higher than it was before the financial crisis; unemployment rates are severely high, especially among the youth in numerous EU member countries. The legacies of the crisis: huge debts and the weakness of banks remain enormous burdens on the economy. Two significant structural problems hinder any objectively serious and stable recovery in Europe: first of all, the steady decline of demographic situation, and second of all, the weak productivity. Unfortunately, many European countries do not admit migrants, while they could fill jobs that otherwise would remain vacant. Their legal and institutionalized integration into the European labour market would also contribute to the caring of the elderly and also increase payments into pension funds. As for the productivity issue, despite the economic reforms, there are still no significant and relevant innovations in Europe: there are no investments that would support productivity and standard of living.
How long do you think Greeks and Italians can politically, financially, and socially endure the eurozone membership? Should they not leave it instead?
In Greece, the further development of the situation depends on how willing other zone members are to give generous debt reliefs to them. It seems that it is not quite likely to happen, because the members cannot politically ‘sell’ at home. Basically, Greece’s economy is dead; in political sense, it is almost like a colony. If everything stays as it is now, the only thing that would makes sense is if Greece filed for bankruptcy and left the eurozone. However, the situation has not yet reached this point. Firstly, the majority of Greeks is terrified of the unpredictable and short-term consequences of giving up euro. Secondly, they do not trust in their own politicians that they could lead the country if it became independent.
In Italy’s case, the enormous government debt has somewhat stabilized – thanks to the interventions of ECB and the artificially created zero interest rate environment. However, for the last twenty years there has been no sign of economic recovery or the reforms that are required to start it. In economic sense, the Italian situation – in theory – can still be kept under control if ECB kept purchasing Italian government bonds forever. Of course, politically it would be absurd. The Italian situation is so uncertain that one day the country would really decide to leave the eurozone, devalues its new currency, and in the meantime file for bankruptcy, which would free it from ECB management. It would be of utter significance if after the elections next year, the new Italian government became anti-euro.
Would it not be a solution for Europe – in terms of politics, finances, and economy – if Germany assumed a role of global power and became the embodiment and leader of the Union?
Germany is already the country that dominates the eurozone. However, it is true that while it can force its economic will on Greece, it does not seem to be able to make Hungary, Poland, and Slovakia admit refugees – even if just a few of them. This proves that Germany’s power is limited – in terms of politics. Germany has been doing fine without superpower status: it is an absolute beneficiary of the liberal world order, both economically and militarily. For this reason, Germans are not likely to change their attitude towards the world. The current situation is good for them the way it is. They do not even want to see that they should increase domestic consumption, which would in turn aid the export of other European countries and their economic recovery. Germany does not want to spend even a little more on military purposes; it does not take the question of an independent European army and nuclear defence system seriously. This way, – wittingly or unwittingly – Germans make Europe more vulnerable to external threats, such as Russia.
Do you think that President Macron is as talented as the international media portrays him? Are the French economy and society in such a good state that the world would really treat them as Germany’s equal partner? Is there a chance that Marcron will be treated as Merkel?
There is no doubt Emmanuel Macron is an exceptional talent. He had almost no chance when he announced he would run for president; he was not backed by any political party and he did not have too much political experience either. At 39 he managed to win majority in the National Assembly. His dynamism and optimism gives people hope, and their trust is still strong in him that he could give a boost to the French economy and society. Macron can indeed become Merkel’s French equivalent. He managed to gain good positions with President Trump and Chancellor Merkel too. Macron and Merkel together can really provide a stronger and more legitimate leadership for Europe.
Besides that, reforming the French economy will be an exceptional challenge even for Macaron – even if there are a couple of world-class French companies and the demography of France is better than Germany’s. However, the French are famous for actively opposing any reform that would negatively influence their quality of life. Emmanuel Macron’s reform proposals are thorough – hence the weakening of his popularity, which might influence his international acceptance.
Original date of Hungarian publication: August 08, 2017