Did the European debt crisis plunge us into a European integration crisis?

Young DGAP expert talk at the Frankfurt School of Finance & Management

20/11/2012 | 18:45 - 21:15 | Frankfurt School of Finance & Management Sonnemannstraße 9 -11 Frankfurt am Main 60314 | Young DGAP Members only



On November 20, 2012, the Junge DGAP in Frankfurt welcomed European economy experts Mr. van der Mensbrugghe, director of the Europe Office of the IMF, and Dr. Linzert, deputy head of the monetary strategic division at the ECB, as well as Prof. Löchel, professor of economics at the Frankfurt School, to answer the question: “Did the European debt crisis plunge us into a European integration crisis?” Mr Balling, a journalist at the Börsenzeitung, guided us through this interesting roundtable.

iStockphoto, CC BY

The European debt crisis has been a dominant topic in politics, economics, and the media of late. The continued financial support (from the IMF, ECB, and EU) for southern European countries such as Greece, Portugal, and Spain has until now not produced the desired effects. Because of this, citizens in these countries and in neighboring European states have begun to worry about their future. A recent string of anti-Merkel protests shows that many of these countries have a strong distaste for Germany’s hard stance on austerity. One cannot ignore the deafening sound of questions being raised about what will become of the European Union and whether the concept of European integration has taken a backseat or moved beyond our reach.

Mr. van der Mensbrugghe highlighted the current challenges in Europe and pointed out that the IMF has been encouraging all of its member states to enact policies that could collectively help pull the world economy out of its weak state in an effort  to reignite growth and boost employment. Despite some efforts that have already been made during the current crisis, the European Union should continue with structural reforms and budget consolidation. European policymakers have a responsibility to put key elements in place in order to restore market and consumer confidence. A banking union is one of these elements, and it has been created in a short span of time. However, a long-term vision of the European Union is another important element that still has to be developed. 

Dr. Linzert reviewed the architecture of the European Monetary Union, which was launched in 1998 and now includes 17 member states. He outlined the importance of further reforming European governance and the urgent need for a euro area crisis management mechanism—such as the European Stability Mechanism—to foster European integration. Due to Europe’s deeply interconnected banking sectors, he presented the financial union – including the introduction of a Single Supervisory Mechanism overseeing the credit institutions in the euro area—as an indispensable part of the future economic and monetary union. Dr. Linzert also addressed the alleged conflicts of interest within the ECB as being responsible for both monetary policy and—in the future—banking supervision, and emphasized that the proposals now on the table would take account of this by having a clear separation of the two functions within the ECB. This should also be accompanied by a strong European bank resolution framework. He also stressed that the ECB’s policies alone would not be sufficient to deal with the current crisis. In the domain of fiscal policy, governments have to act responsibly at the national as well as the European level.

Prof. Löchel focused on two points: First, on the relationship between monetary and political integration in Europe and second, on political crisis management, which contrasts with the solutions posed by experts and scientists. He endorsed the idea of a banking union, but also emphasized that the ECB should not play a different role. Decision power on the euro—which is a part of the European political concept—needs to rest with European political institutions, which need to be recreated and adapted to actual conditions (for example, an enforcement mechanism is still missing). Another element that would foster political integration in Europe is the dissolution of national states, which only represent their own interests.    

Three different opinions on how to view the European debt crisis with one mutual conclusion: all three speakers were sure that the debt crises would not provoke an integration crisis within Europe. So, let´s hope for the best!

We thank ALL our guests for making this discussion happen and for sharing your expertise and your vision with the Junge DGAP!

Our special thanks go to the Frankfurt School of Finance & Management, which sponsored the event, and to Mr. Balling, who conducted the roundtable!

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