Barry Eichengreen: so long as the ECB maintains its asset purchase program, there's no reason to be seriously concerned about the integrity of the Eurozone

English2020. jún. 15.Harsányi Péter

The professor at the University of California, Berkeley and former senior adviser of the IMF told növekedés.hu that in the longer run, European economies are going to have to restructure in order to grow successfully. A positive for GDP growth prospects is that Europe recognizes the reality of climate change and has green growth plans. According to Barry Eichengreen the ECB is the most independent central bank in the world.

In your view, how much does the coronavirus and the imbalances of peripheral states threaten the integrity of the eurozone?

The virus-related drop in output and rise in government debt poses a challenge for many eurozone countries.

So long as the ECB is there with its PEPP of asset purchases, there's no reason to be seriously concerned about the integrity of the Eurozone. The dual questions are when the ECB winds down PEPP.

I suspect that it will continue long after the end of this year, which was initially thought to be the terminal date. 

Then there will be the possibility that PEPP, if it continues into next year or beyond, will come under challenge from national politicians or the German Constitutional Court.  What happens then is anyone's guess.

What do you think about the independence of the European Central Bank and the future of the euro?

The ECB is the most independent central bank in the world, according to the criteria economists use.  I don't expect that to change.

As for "the future of the euro", that's too be a question to answer in short compass.  I've always believed that the euro was forever.  As a Californian, I regularly use the analogy of the Eagles song Hotel California: "you can check in but you can't check out."

In my view, the Covid-19 crisis is another indication that history doesn't run in reverse. The euro is here to stay.  I strongly suspect that financial volatility in Europe would have been substantially greater had the euro not existed. Informed Europeans have drawn the same conclusion.

How effective do you consider the fiscal and monetary policy measures taken so far in the European Union?

The ECB has prevented liquidity problems and excessive volatility in financial markets.  National governments have prevented unnecessary furloughs and bankruptcies. 

Now the EU needs to use fiscal policy to help the member states hit hardest by the crisis.  The Commission has a broadly sensible proposal.  However, some Northern European countries are resisting.  Something along the lines of what the Commission is proposing will be needed, so we will be able to gauge the effectiveness of European fiscal policy by whether or not this happens.

In your opinion, what are the short- and medium-term GDP growth prospects in the euro area?

In the short run, everything hinges on whether there is a second or third wave of the virus. So your question here is better posed to an epidemiologist than an economist.

In the longer run, European economies are going to have to restructure in order to grow successfully.  A positive for GDP growth prospects is that Europe recognizes the reality of climate change and has green growth plans, whereas the U.S. doesn't.

A negative for GDP growth in Europe is that governments' payroll support policies are keeping workers in place, where the reality is that many of them will ultimately have to move to new jobs in different sectors. 

Hotel, hospitality, restaurant and travel work is going to be permanently less, and many of those workers are going to have to move to health care, elder care, child care and so forth in order for GDP and employment to grow.

In many European countries, policy has and will slow that process.

What do you think about the role of the IMF and the World Bank? Do you believe these institutions provide enough help?

No. These institutions have not taken the lead in organizing the restructuring of the debts of low- and middle-income countries to private investors, instead delegating responsibility for that to the Institute of International Finance, the investors' cartel.

The IMF has used only about a quarter of its financial resources.  Why not more IMF lending?  What's it waiting for?

In the European Union, the share of equities in the balance sheet of households is too low compared to bonds. What is the American experience like?

It's still the case that only a minority of Americans actually hold equities.  So I wouldn't exaggerate the difference.