Can The Euro Be Saved? by Malcolm Sawyer

The Blurb On The Back:

The economies of the Eurozone countries are plagued by multiple crises, which cast major doubts over the future of the euro.  In this engaging new book, leading economist Malcolm Sawyer argues that the entire policy framework of the Eurozone was fundamentally flawed from its foundation.  He shows how these ‘design faults’ intensified the crisis and are now locking in perpetual self-defeating austerity.

Sawyer proposed a bold alternative agenda for reviving the continent’s economic prosperity and saving the euro.  He argues, however, that the required solutions are certain to encounter huge obstacles.  He therefore concludes that Europe faces a bleak economic future, blighted by low growth, high unemployment and social division. 

The Review (Cut For Spoilers):

Malcolm Sawyer is Emeritus Professor of Economics at Leeds University and in this fascinating book that’s a must-read for anyone interested in the Euro he analyses how flaws in the policy framework underpinning the Eurozone has intensified the effects of the world economic crisis and exacerbated inequality between countries in the Eurozone, increasing political resentment and ensuring a self-perpetuating austerity cycle.

The central thrust of the book is that because the policymakers who created the Euro had a focus on containing budget deficits and public debt, controlling inflation (without a corresponding mechanism to address inflationary conditions) and the stability of the exchange rate, the seeds were set for a mechanism that – inevitably – continues to work in favour of the richer Euro countries (notably Germany, who had significant input into the structures) while essentially trapping weaker countries such as Greece and Spain into permanent austerity measures that further weaken their economies.  Sawyer points out that it did not help that the exchange rates were not set at an appropriate level at the start of the Euro project and that the design flaws were exacerbated by the Stability and Growth Pact and the role and relationship of the European Central Bank with the member countries and notably its reluctance to act as a lender of last resort in the event of a crisis.

What particularly interested me was the analysis on the role of the ECB and how its place in the Eurozone means that it cannot, by its nature, serve the normal functions of a central bank because it does not control the issue of currency and does not have to accept Eurozone government debt (historically only doing so where the debt has a high credit rating) while at the same for macroeconomic purposes Eurozone governments also do not create the Euro currency, which means that their debts are treated as falling within a ‘foreign’ currency.  Also interesting was Sawyer’s analysis of the affect of the Euro on exacerbating unemployment and inflation within the weaker Eurozone countries and creating further disparity between the zone members.

Sawyer proposes a number of mechanisms to try and resolve these design problems, including adjusting fiscal policy to specifically enhance output levels and employment rather than budget targets that are tailored to the requirements of each member nation rather than using a one-size-fits-all approach and adopting federal fiscal policies similar to those in the USA to allow for rebalancing between Eurozone member states (although Sawyer acknowledges the political hurdles involved in trying to get this adopted).  He also considers arguments relating to splitting the Euro into a north and south currency, which seemed to me to be even more complicated than trying to resolve the single currency issues.

There is – by its nature – a degree of economic and fiscal theory in this book but even though I am not an economist by training and my only knowledge of the Euro comes from what I have read in newspapers, I found that I was able to follow Sawyers points and arguments easily enough to be able to feel that I had a better understanding of the complexities surrounding it.  As such, if you want to know more about the subject I think this would be a good place to start as it’s accessible, readable and informative.

Thanks to the Amazon Vine Programme for the review copy of this book.

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