by ISABEL ARRIAGA E CUNHA (translated by ANETTE DUJISIN
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The narrative that Germans told themselves about the Euro crisis having to do with the south needing their money is incorrect, says the ex- advisor of Durão Barroso.
Philippe Legrain was an independent economic advisor of José Manuel Durão Barroso, president of the European Commission, between February 2011 and February of this year. This permitted him an insider’s perspective on the key dealings of the management of the Euro crisis. His highly critical opinion on what was done by the leaders of the Euro is now published in his new book “European Spring: Why Our Economies and Politics are in a Mess – and How to Put Them Right”.
ISABEL ARRIAGA E CUNHA: The thesis of your book is that the management of the debt crisis, or the Euro crisis, was completely inept, wrong and irresponsible and that all the economic and social consequences could have been avoided. Why did it happen this way? What happened?
PHILIPPE LEGRAIN: A big part of the explanation is that the banking sector dominated the governments in all countries and the institutions of the Euro zone. That is why when the financial crisis exploded everyone ran to save the banks, with very serious consequences for public finances and without solving the problems of the banking sector. The problem became European when the issues regarding Greece’s public debt came into light. What would have been the sensible thing to do – and what many people said in private at the IMF, something that the IMF then publicly said last year – was to restructure the Greek debt.
The treaty of the European Union (EU) has a “no bailout” rule [it’s forbidden to take on the debt of Euro countries by its partners] – which is the base of the creation of the Euro, which should have been respected. The IMF should have solved the problem of Greece, which would have put Greece into default, restructure the debt and lend money so that they could get back on track. It’s what is usually done in any other country, anywhere else. But this was not done, partially because of arrogance – and a discourse such as ‘we are Europe, we are different, and we don’t want the IMF to interfere in our affairs’ – but mainly because of the political power of the French and German banks. It’s worth underlining that at that time there were three Frenchmen at key leadership positions; the European Central Bank (ECB) – Jean-Claude Trichet ; the IMF – Dominique Strauss-Kahn; and from France – Nikolas Sarkozy. These three Frenchmen wanted to limit the losses of French banks. Angela Merkel, who initially was very reluctant about breaking the “no bailout” rule, ended up letting herself be convinced by the lobbies of German banks and by the persuasion of these three Frenchmen. This is what provoked the Euro crisis.
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