European Spring: Why Our Economies and Politics are in a Mess and How to Put Them Right, by Philippe Legrain, CB Books, RRP£12.99/$12.26
Anyone who has worked in Brussels for an EU institution must have faced at some stage the accusation of living in a bubble, detached from the lives of ordinary Europeans. Yet the Belgian capital has offered a unique viewpoint from which to observe the crisis that engulfed the currency union. The trouble is that finding an insider ready to offer a dispassionate account of the eurozone’s messy response to its financial mayhem is not easy. The worst of the crisis is still too close. Most protagonists remain in the roles they held as the drama unfolded.
As a former adviser to European Commission president José Manuel Barroso from 2011 to 2014, Philippe Legrain is certainly a Brussels insider. Yet, after a bitter political split from his boss, he shows no restraint in speaking out against Brussels’ crisis response, which he calls “generally inept, often misdirected and frequently outright destructive”.
His book is a well-informed and blistering critique of errors made by European policy makers since Greece revealed the extent of its fiscal woes in 2009-10. It is essential reading for those who wonder how an economic powerhouse managed to stumble into a sovereign debt crisis that ended up threatening its very existence.
In the first six chapters the former journalist for The Economist, now an independent commentator, outlines the array of mistaken diagnoses made by the eurozone’s most senior policy makers as they faced increasingly nervous investors.
The main error was to assume all members on the continent’s periphery shared the fiscal problems seen in Greece. As Legrain argues, in several cases – most notably Spain and Ireland – the crisis had its roots in the banks. The decision to impose blanket austerity – as if the currency bloc’s main troubles were really budgetary – helped plunge the eurozone into recession without addressing the real cause of the turmoil.
Legrain spells out with clarity the deep institutional flaws that marred the eurozone when the crisis hit. In particular, the European Central Bank was forbidden by an overly restrictive interpretation of its laws to act as a lender of last resort to governments. This meant countries such as Italy or Spain were treated by investors as if they were borrowing in a foreign currency over which they had no control.
The euro had no shortage of original sins. Yet Legrain argues that its introduction was not bound to lead to the mayhem that followed. On this, he is right. True, throughout the 2000s countries such as Spain and Ireland accumulated large imbalances; but several states outside the bloc, notably Iceland, built up even larger ones. Also, in the years immediately following the fall of Lehman Brothers, eurozone member states fared better than outsiders such as Hungary and Romania that were forced to seek help from the International Monetary Fund.
The broad thesis of the book appears convincing but is stretched at times too far. Legrain claims, for example, that the problems in Britain and the eurozone are two sides of one crisis. While it is true that citizens on both sides of the Channel were forced to pay for serious mistakes and misdemeanours made in the financial system, Britain has recovered more promptly than most euro members. To the author, the UK’s growth spurt is evidence of yet another housing bubble; yes, house prices are rising steeply in parts of the country but it is still too early to conclude that the recovery must end in tears.
The main problem, however, lies in the book’s lack of political realism. The stop-go nature of the eurozone response to the crisis was the product of national politics, especially in Germany. Yet the book casually brushes aside the constraints Chancellor Angela Merkel faced at home.
Even when Legrain presents his long-term vision for Europe, it often lacks pragmatism. Giving £10,000 to every EU citizen on their 18th and 30th birthdays may help foster entrepreneurialism yet there is no clue to how governments will fund this gift.
Nonetheless, the book’s bottom line is right: almost 60 years after the Treaty of Rome, the EU must change to remain relevant to its citizens, many of whom registered their disillusionment in the European elections that ended on Sunday. Economies must be transformed, particularly through fixing the banks and raising investment levels in information technology. A political overhaul must follow, giving voters more say over what happens in Brussels.
The new European Parliament and commission, to be chosen this year, have a mammoth task on their hands. But with euroscepticism creeping up across the continent, the future of the EU as we know it hinges on whether those living in the Brussels bubble will be able to reform themselves.
The writer is the FT’s global economy news editor