Saving the Euro

In his book Saving Europe, Carlo Bastasin, a Senior Fellow at the LUISS School of European Political Economy and a Non-Resident Fellow at the Brookings Institution, analyzes what happened behind the scenes in European negotiations. He argues that the crisis in the euro zone actually has a political origin, having emerged from the self-interested abuses of national politics. AGI’s seminar with Mr. Bastasin took on January 8th  stock of the past few years in order to look ahead and try to anticipate what 2015 will mean for the European project and what will be necessary to save the euro.

The premise of Bastasin’s book is that the euro crisis is, in its essence, the first war of interdependence in Europe. After the financial crisis of 2008-2009, each country felt it needed to protect itself from weaker partners. As a result of this mindset, a new way of governing developed throughout Europe. Member states began to focus on self-sufficiency rather than mutual interdependence between the euro zone states. Mr. Bastasin argues that member states must pay respect to the principle of self-sufficiency but that this must not interfere with the idea of mutual interdependency. What happened during the crisis changed the way institutions operate. A rules-based, technocratic approach has pushed aside the more democratically legitimated political approach of the past. This led to deepening mistrust among members of the European Union. The credibility of each country’s government depends on the success of the economy—but the success of each country’s economy depends on the entire EU.

With the announcement from the European Central Bank (ECB) about the expansion of its program of asset purchases, also known as quantitative easing, Mr. Bastasin argued that the following few weeks would be decisive for the future of the euro zone. One question that will be answered is whether self-sufficiency or interdependency will prevail. Looking forward, a number of different scenarios are possible; Mr. Bastasin addressed two scenarios in his seminar:

1. National banks taking responsibility for purchasing sovereign bonds
2. Rudimental Sovereign quantitative easing

However, unconventional monetary policies alone will not solve Europe’s problem. When combined with an EU stimulus package, economic revitalization may be possible. There is a significant psychological component to the crisis that also needs to be addressed. The notion and possibility that countries can exit the euro zone is incredibly detrimental to the currency. Talk of countries exiting needs to be eliminated from the prose of euro zone recovery.

Carlo Bastasin is a Visiting Fellow in Global Economy and Development and Foreign Policy at Brookings and Senior Fellow at the School of European Political Economy, LUISS University. As an economist and editoralist, Bastasin’s work focuses on European political and economic analysis.