As the euro crisis has begun to re-intensify, as stresses around Greece’s position increased, I pulled off my bookshelves and read several recent books on the crisis.
Jean Pisani-Ferry is adviser to the Prime Minister of France, and is a former adviser at the European Commission and former director of the Brussels-based think tank Bruugel. His book The Euro Crisis and its Aftermath comes with blurbs from the great and good of the social democratic economics elite – Olivier Blanchard, Charles Goodhart, Dani Rodrik, and Larry Summers. For those without much background in the euro, it is a worthwhile and pretty succinct account of how things came to be, and has some suggestions on the way forward. But they are all quite technocratic perspectives, that don’t seem to really engage with the political stresses, which reflect the fact – captured in opinion polls – that most people in euro-area countries see their primary identity as national rather than European. The elites might wish it was otherwise, but if there is any movement in the data in the last decade it has been more towards national than supranational identity. In a mild form, that is what Martin Feldstein warned about long ago.
Vito Tanzi has written Dollars, Euros, and Debt: How We Got into the Fiscal Crisis, and How We Get Out of It, ostensibly about fiscal stresses across the advanced world, but really focused on the euro crisis. Tanzi was director of the IMF’s Fiscal Affairs Department for almost 20 years, and has(among many other things) co-authored two fascinating books on the long-term evolution of public spending in advanced economies. The old joke was that IMF stood for “it’s mostly fiscal”, and that is certainly how Tanzi interprets the euro crisis. He makes some useful points about how the differences between the euro area and the US, as monetary unions, can be overstated (in particular there is no “transfer union” in the US). The biggest single difference is that the US Federal government (but was not in, say, the 1930s) while any European central spending is small. That makes a lot of difference, and Tanzi reasonably notes that no one has ever set up a strong central government to do macro-stabilisation. I suspect Tanzi overstates the significance of the fiscal institutional issues, and understates the importance of bringing together countries with quite different neutral interest rates.
The last of the three books was The Euro Trap: On Bursting Bubbles, Budgets, and Beliefs, by Hans-Werner Sinn, a leading German academic and economic advisor. For my money, it is the best of books (and the longest and most richly detailed), but that partly reflects my Eurosceptic biases. Sinn has been a key contributor to the German debate and played a leading role in highlighting the role of the clearing and settlement system, TARGET. He argues that through it, capital flight from the periphery has been accommodated by the ECB, both delaying adjustment and incurring considerable risk for taxpayers in creditor countries. A pan-European centralist might, of course, argue that that is exactly what it was supposed to do. I can’t do justice to the book in a singe paragraph, but if you want to learn more about the crisis – from an author who wanted (and I think still wants) the euro to succeed – this is the one to read. As ever, whether one agrees with the author in the end should be incidental.