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5 to 1 Conversation - Dr.Erik Jones Director of European Studies at SAIS

ERIK JONES is Director of European Studies at the Paul H. Nitze School of Advanced International Studies and Director of the Bologna Institute for Policy Research of the Johns Hopkins University. He is also Senior Advisor at Oxford Analytica. In addition, Professor Jones is a Senior Research Fellow at Nuffield College in Oxford, United Kingdom. Jones is author of The Politics of Economic and Monetary Union (2002), Economic Adjustment and Political Transformation in Small States (2008), and, together with Dana Allin, Weary Policeman: American Power in an Age of Austerity (2012). He is editor or co-editor of more than twenty books or special issues of journals on topics related to European politics and political economy including The Oxford Handbook of the European Union (2012). He is also a regular columnist with E!Sharp. Professor Jones teaches on topics in international and comparative political economy with a particular focus on Europe and the transatlantic relationship. A US citizen, Professor Jones has lived in Europe for the last twenty years; he is married with three children.

How do you assess the current situation in the Eurozone?

The current situation is not terrific but it is better than we have seen for a while.  Europe is out of recession, at least in the northern parts of the Continent.  The declines in output in southern Europe are abating.  Unfortunately, unemployment only tends to improve with a delay.  That means we will continue to see increases in joblessness for some time.  So there is only very muted cause for celebration.  Moreover, we should keep an eye out for negative shocks from the outside world – the US and China in particular.  So far the US has managed to avoid an unnecessary fiscal crisis and China seems to have avoided a hard landing.  These are both good news for Europe.  If the US political situation deteriorates again or the Chinese growth numbers prove to be inaccurate, we could get a negative shock that slows any improvement in the European economy or sends it headed back in the wrong direction.

How do you assess the current economic in Greece, do you believe that Greece has avoided the danger of exiting the Eurozone?

I think most commentators both inside and outside Greece has finally reconciled themselves to the fact that the euro is irreversible.  The Greek d will continue to pay a high cost in terms of lost benefits, high unemployment, and reduced incomes.  The people who invested in Greek sovereign debt will probably experience some re-profiling that lowers the real value of their assets.  And everyone will lose out from the innovation, talent, goods and services that Greece is not producing at the moment.  The economics term is ‘opportunity cost’ but the reality is that whatever does not happen when it should is lost forever in some sense.  This has been a very painful crisis.  But the worst appears to be over and the existential threat to the single European currency has receded along with it.

Do you believe that a new ‘haircut’ is going to be introduced to reduce the Greek sovereign debt?

Greece has a small funding gap in the near future and a larger one in the medium term.  There are many ways to fill that gap.  All of them are painful for someone.  The question you are asking is whether official sector lenders will share in the pain.  I believe they will, even if they choose to try and hide that fact.  They will accept lower regular interest payments (or coupons) and longer repayment persios (or maturities).  Such re-profiling of Greek debt will reduce its net present value.  In that sense, it works as a ‘haircut’.  However, I do not think that there will be much enthusiasm for lowering the nominal face value of the debt.  That would be hard to sell politically both to electorates of other countries and at the international level.

What do you think of the idea of the Eurobonds? Would they be an effective measure in facing the Eurozone crisis? 

I think that the ‘stability bond’ green paper that the European Commission floated in November 2011 offered a good starting point for a serious conversation about creating a common sovereign debt instrument for European countries.  We have not had that conversation yet.  Until we do, we don’t really have a solid proposal to evaluate.  We have a number of different and intriguing ideas; but the devil is always in the details.  That said, I think we need to mutualize sovereign debt in Europe for a number of different reasons.  It is important to have a common ‘risk free’ asset; we need more transparency in sovereign debt markets if we want to benefit from ‘market discipline’; and we need to sever the link between national financial institutions and sovereign finances.  These are all important lessons we have learned from the Eurozone crisis; mutualized sovereign debt instruments are one possible policy implication.  We should start having that serious conversation about Eurobonds now.

How do you evaluate the current economic situation of France? Do you believe that France faces an imminent danger in economic terms?

The French economy suffers from three problems with different degrees of urgency attached to them.  The problem of rigid labor markets and welfare state institutions is not the most urgent.  It is a serious problem and yet it is also a very old one.  France has managed to achieve impressive performance despite the friction that these rigid institutions can create.  Then there is the problem of France’s fiscal posture.  The government is running a deficit.  That is not such an urgent problem either.  The debt-to-GDP levels are manageable and a little flexibility on this issue would not hurt much over the longer term.  Indeed, it may even stimulate the economy to perform better, quicker.  I tend to be more Keynesian on that front.  So what is urgent in France is the fact that there is an open crisis of legitimacy surrounding economic institutions and performance.  No-one has a clear plan to offer the French people and the French themselves are divided over what to do next.  This lack of consensus is undermining confidence both with France’s partners and, more important, in the business community.  It is also creating a pretext for politicians to do things that do not make much sense.  I would put much of the overtly nationalist state interventions into that bucket.  So we need a coherent conversation about economic policymaking in France so that both the politicians and the people can overcome their strategy deficit.  Once they figure out where they want to go, we can start talking seriously about what are the priorities for getting there.  Without that sense of mission, the country is not going to collapse but it is not going to improve much either.  France is suffering from a kind of fin-du-siecle decadence.  They need to wake up from that stupor or they will continue to decline as a European economy.

Do you see Croatia’s accession to the European Union as a positive step towards the promotion of stability in the Balkan States?

It is great that Croatia has joined the EU.  It is even more important that Croatia and Slovenia finally reconciled many of their historic differences.  In that sense, I would agree that this is a step in the right direction.  The question is whether Croatia is going to move from strength to strength or whether it is going to begin backsliding.  Many other Central and East European countries have faced that choice; not all of them have made the decision I would have preferred.  Croatia’s first moves as an EU member state have not been auspicious.  The fight over the European arrest warrant is particularly unedifying.  It is early days to make a solid assessment.  I think there are many who believe the jury is still out on Germany as well.  Some conflicts are so painful for the participants that it takes generations of good behavior to restore trust.  The civil wars that raged across the Balkan Peninsula in the early 1990s probably fall into that camp.

Do you believe that Turkey is going to access the European Union in the near future?

I am a big supporter of Turkey’s eventual accession into Europe.  I am also a big supporting of dialog.  Therefore, I think it is good that Turkey is a candidate ‘like any other’ and I would like to see more progress in the accession negotiations.  I am also a realist.  Right now, many countries are divided about the merits of Turkish accession; Turkey is divided between secular and conservative communities as well.  These are not healthy divisions for the European project.  It will take time to build consensus.  Everyone has their homework.  European politicians need to make the case for Turkish accession; Turkish politicians need to reconcile their differences.  I do not see any of that happening quickly.  If anything, political discourse on both sides is becoming more polarized.  So while I believe in Turkey’s eventual accession, I do not expect it to happen in the near future – and I worry that it might be counterproductive if it did.  You only need to look at the sorry treatment of migrant workers from Romania and Bulgaria in other countries of the European Union to get a sense of the potential for social conflict.  We have a lot of work ahead of us to build the kind of solidarity necessary to widen the European Union much further than it already is.


Επιμέλεια: Πάρις Γκαρτζονίκας

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