Mario Draghi Provides the Right Analysis, But the Wrong Solution
Mario Draghi, the President of the European Central Bank, has said that the eurozone faces "disintegration" and that the eurozone's set up is "unsustainable unless further steps are taken." The comments made to the European Parliament betrayed a frustration Draghi has been fostering for the lack of political will paralyzing Europe. It is refreshing to hear someone from the European financial establishment admit that the survival of the euro is not some historical inevitability. For too long European politicians have been willing to rely on bailouts from the ECB rather than engage is meaningful fiscal reforms. Unfortunately, while it is refreshing to hear Draghi break the europhilic taboo, the implementation of his own recommendations would diminish national autonomy and increase the democratic deficit.
Draghi's comments come as Spain's economic situation worsens and replaces Greece as the epicenter of the European crisis. The situation in Spain is so serious that the government had to deny that an IMF bailout was being considered. While Mediterranean governments have failed to tackle their own problems, Draghi's attack on inaction was a poorly disguised glare in Germany's direction.
For some time the idea of an ever closer fiscal union has been proposed as a possible solution to the crisis savaging Europe. Without unity in the banking sector, it is argued, Europe will not be able to recover with the eurozone intact. So far Germany has resisted calls for such an ever-closer union. It looks unlikely that the Germans will change their mind on some sort of banking union, although Merkel has said that there should be no taboos when dealing with the current crisis. A move towards closer European integration and union is largely to blame for the current crisis; there is no reason to think that further integration would somehow help.
Recent polling indicates that the pro-bailout Greek party, New Democracy, and the hard-left anti-austerity party, Syriza, are neck-a-neck at the polls. No one knows what the outcome of this month's Greek election will be or how long the euro will survive afterwards. What should be worrying the people of Europe more than a Greek exit of the eurozone is what sort of union will be in place afterwards. As hard as it might be to believe, many in Europe still think that the best way to avoid these sorts of crises is an increase in government, regulation, and a unified banking sector.