Helmut Schmidt and the narrative of the Eurozone crisis

Helmut Schmidt was one of the key architects of modern Europe post World War II. He passed away in Nov 2015.

Athanasios Orphanides, former head of Bank of Cyprus writes a piece remembering the Chancellor and his vision for Europe. Being a German he was critical of the role Germany has played in building Europe and in the recent crisis:

I think it is a great time to reflect on thinking and policies of all these European leaders elected after World Wars. The idea is to see what they thought of the Union and figure why did all this get so messed up.
For instance, Schmidt says in his recent speeches:

Opposing the dominant narrative of the European elites, Schmidt voiced concern about the risks inherent in calls for economic austerity in member states already weakened by the Crisis:    

“We should also avoid advocating an extreme deflationary policy for the whole of Europe.  . . . No country can consolidate its budget without growth and without new jobs.” (Schmidt 2011b)

Helmut Schmidt was concerned that Europe had lost its way and risked “a self-inflicted marginalisation”. The EU could degenerate into a “mere confederation”, he warned, leading to continued decline of Europe’s influence in the world, which he felt would harm Germany and Europe alike. He recognised that the crisis Europe faced transcended simple economic challenges. 

Europe’s inability to tackle the Eurozone Crisis fundamentally reflected a failure in political leadership. Schmidt had emphasised as much a few weeks earlier in Frankfurt.  Speaking to an audience that included numerous European leaders, he stressed:

 “What we have, in fact, is a crisis of the ability of the EU’s political bodies to act. This glaring weakness of action is a much greater threat to the future of Europe than the excessive debt levels of individual Eurozone countries.”  (Schmidt 2011a, emphasis in the original)

The problems faced by the Eurozone could be traced to the flawed, incomplete framework of the Maastricht Treaty. 

“But there was a failure to set down the economic and legal rules of the game for the currency union. A powerful authority with responsibility for fiscal and economic policy was not set up subsequently either. And there was also a failure to assign the necessary legal status to the Stability and Growth Pact, which Germany and France violated long before Greece did.”  (Schmidt 2011a, emphasis in the original)

However, Schmidt warned, the shortcomings of the framework should not be used as an excuse to avoid fulfilling mutual obligations.

It is not as if these basic lessons of economic governance were not known to the politicians. Just that they were ignored to just start the Union asap and keep looking for band aids for what was a deepening and painful wound..


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