I have decided that i will start extending what i comment on beyond the issue of eurozone governance and extend this blog to broader issues – all probably with a euro theme – covering politics, culture, people and anything else I take a view on!

Why am i broadening the scope? – Well one positive reason and one less positive.

The positive reason first – I am a fan of Willem Buiter’s blog on FT.com and his reason for blogging struck a chord with me. He finds it a useful way to record his thoughts and test his ideas – in other words it’s a kind of “thinking out loud” process. I would also say this is my reason (although I add thoughts a lot less frequently than Buiter!). It is obviously an added bonus where people read my blog and comment so that I can add to my own knowledge but the primary reason is to record my thoughts and views.

The less positive reason – As a believer in closer eurozone integration I am finding this downturn depressing. The commission is largely irrelevant and governments seem to be making every effort to disagree rather than co-operate. I realise this should be a reason to increase my calls for closer integration – and am sure I will continue to do this – but it’s depressing to watch.

John

Reading various comments on the eurozone and how the spread widening is the beginning of the end….. Then read the economist leader where it said that the crisis may lead to greater integration…. Glad magazines (or newspapers as the economist calls itself!) are starting to state what i have believed….it’s time to get serious, time to get integrated, and time to realise you can’t have succesful monetary union without political union….so let’s use this time to get the goverance and structure right…

Ok so been listening to a lot (too much!) of the UK media comment on prospective UK membership of the eurozone now that the pound is collapsing….consensus seems to be (consistnent with my previous posts) that UK citizens continue to feel pride in the picture of the sovereign on their notes and imaginery bridges simply will not work!

The UK view also seems to be that UK membership would be a major boost to the eurozone and create a (true) European alternative to wall street…..how true is this?

First, London is an important euro financial centre even if not in the eurozone – in fact i would guess (ok, not really a guess!) that a majority of the transactions carried out in London financial centres are € denominated

I don’t accept that UK membership of the eurozone is key to euro zone financial success – this is not a question of eurozone governance – this has been covered in my last post. The eurozone as it is current constituted is a major economic force (sizee, trade links, etc). It can keep that position based on current membership (if, as per my prior posts, the eurozone starts acting as a single monetary area)

But basically my view is that the constant obsession about UK membership is a distraction from getting the eurozone properly structured – in other words delaying the proper governance of the eurozone until the UK joins simply postpones what is key for euro sucess – and pointlessly because the UK isn’t joining!

So an important European country ( the UK) isn’t important to the future of the eurozone…..

J

First – happy new year!

I have been looking at the FT columnist predictions for 2009 and saw John Thornhill’s prediction that while it made sense 2009 would not be the year that President Sarkozy launched his euro group. You will not be surprised to learn I hope this prediction is wrong…..

We have seen from the UK again today that as per my last post the EU and eurozone will never be the same grouping. The UK Conservative party – the likely next government in London – have effectively ruled out joininig the euro ever and an opinion poll shows 70% of UK voters still object to joining. Therefore we need to stop this complacent attitude that the eurozone doesn’t need any specific governance structure because the EU has all appropriate structures already.

So my hope for 2009…….we stop wondering whether the UK or any other country will or will not join the euro – let’s make life easy for us all and assume they don’t – and we start working as a euro group on how a monetary union among 16 countries should be structured.

President Sarkozy – don’t give up!

First – apologies for delay in getting to this post – my trip abroad was longer than planned and then got into the Christmas holiday period…

Second – I am a ‘lay’ person intersted in eurozone goverance but am not an expert in all of the fine print of EU law so I may get a couple of things wrong in these posts! If my mistake is small and does not invalidate my point then let it be! If, however, my mistake completely invalidates my point then please let me know!

Ok, the post….

The first head of government eurozone meeting took place in the second half of 2008 – and indeed with the addition of the UK’s Brown perhaps this does not constitute a eurozone meeting. I think this point is worth emphasising – the eurozone came into existence in 1999 and the first head of government meeting took place in the second half of 2008…..

I understand the arguments against such meetings – 1) there are already institutions and goverance within the EU and therefore we don’t need to create new ones. 2) All EU countries (who do not have opt outs) are commited to joining the eurozone so it isn’t a separate organisation requiring goverance – just a case of early mover status by some countries.

I think this is wrong and the eurozone needs a proper governing framework and I think this is urgent. why?

1) There are clear fault lines in the euro area – the absence of a unified fiscal union is the main one. Therefore goverance is even more important. The stability and growth pact (as a subsitute for for proper fiscal authorities) will need defending and fixing – and it is the job of the eurozone members to do this

2) The eurozone hasn’t dealt with its end state – or to be more accurate it hasn’t dealt with its structures once all members (theoretically) join. At the moment all members of the eurozone sit on the ECB council. So if (being optomistic) all current members of the EU join the eurozone the governing council of the ECB will be a 27+ body. As we have seen from the Lisbon treaty ratification process, “taking” a member’s representative away is a controversial issue so it seems the rule is the ECB governing council will be as big as the eurozone. As a comparison the US FOMC (Federal Open Market Committee) has 12 members. This is a far more appropriate structure for decisions as important as interest rates and the ECB needs to work towards a system that is not nation specific. My point here is that we are repeating history – enlarge, use existing rules only to discover at some point that decision making is impossible, panic and seek to set new rules before further expansion – as noted it’s called ‘Lisbon’. Let’s not repeat it with the eurozone – get the structure right BEFORE further expansion.

3) Simply put the eurozone is different – Sharing a currency is not the same as agreeing on a more unified fisheries policy! It is a major decision to abandon independent monetary policy. Perhaps this is unpopular now as a confidence lacking EU doesn’t say things like “sovereignty sharing” but that is what the eurozone is – a major level of sovereignty sharing. Unfortunately we went half way -we did the monetary union without the political (meaning fiscal) union and it is therefore less than satisfactory. Therefore governance is even more important.

4) we cannot wait for all EU coutries to join – look, let’s be realistic – there will never be ‘union’ between EU membership and eurozone membership (if only because the EU doesn’t seem to ever want to stop enalarging!). The UK is still not ready psychologically (actually the current discussion in the UK on euro membership is quite bizzare – there is no way Germany, France or Ireland would support UK membership at the current exchange rate!) to join and based on the economic situation of many of the eastern european countries it will be many years before qualification is met. Therefore we will almost certainly never reach a stage in which the membership of the eurozone and the EU are the same. What does this mean? It means the eurozone needs to look after its membership – to repeat, sharing a currency is a major step and a major sharing of sovereignty – it needs a proper governance structure.

I will expand on all of these points in further posts but key points are:

a) the eurozone is a major step – stop pretneding it is not a significant sharing of sovereignty – it is

b) there will always be a difference between EU membership and eurozone membership – i.e it is and will always be a different group

c) without political union (fiscal union) the eurozone is a risk (like the sovereignty issue let’s not be afraid to say the word risk). If we are not going to pool fiscal policy then we need proper goverance and we need it at the eurozone level only

d) stop the ever expanding ECB governing council – get the 15 to agree the right size – the US model involves a partial rotating system, perhaps this is the way forward. In any case we cannot go on expanding the ECB council and expect proper decision making

In summary therefore, we have taken a risk with monetary union without political union – let’s get the goverance right or let’s unwind it altogether because the current state being allowed to drift is actually dengerous and not in the long term interest of Europe or its citizens. A proper functioning eurozone can, however, leverage the size and wealth of the region to take its proper place in the world – particularly after China / India emergence!

’till next time

John

Hi

This will be a short first blog as I have just set it up and will be away for a week from tomorrow (19th Nov). However, I wanted to give a brief summary of why I was writing this blog.

Basic point – I live in the UK but am from Ireland and believe that for Europe to have any relevance (in a world of continuing US power, rising China and rising India) it must increasingly integrate its voice so that Europe continues to play a role consistent with its size and wealth. (I mention location and origin in the first setence because I believe Europe needs to integrate further despite living in a country that is still deeply sceptical and grew up in one that seems to be increasingly following that road!

My rationale is therfore very simple. It’s not that Europe is one continent and is destined to unite, it is not a shared history or a people ‘ethnically’ united. It is simply that there is no country in Europe that individually could honestly expect a seat at the top table (and more importantly be listened to at this table!). However, as a collective union its voice will remain one of the most important.

The goverance part is in my title / tag becasue I think getting this right is key – and getting right before any further expansion. We are now in the EU dealing with the consequence of putting enlargement before getting the institutional framework in place. This is a mistake that cannot be made with something as fundamental as a shared currency. I plan to expand on this in future blogs. 

So that’s the introduction – be back soon with the first full blog!

John 

I will add further writings here over the next weeks and link to anything I consider relevant to the topic (and that I am allowed link to!). But am also keen to get feedback from those who have comments that add to the topics I cover or of course correct obvious errors I may make!