Beyond the depressing, backward-looking policies that the Brexit vote and the election of Donald Trump as US president seem to have brought, there is a ray of hope.
People elsewhere in Europe, seeing the first ugly consequences of populism, might find enough motivation to go to the polls in elections just to try to keep populists out of government. I am talking about the decent people who are tired of politicians but aren’t seduced by the populists’ siren calls.
With elections looming in the Netherlands in mid-March and then later in France and Germany, this would be the best-case scenario.
If it does take place, the resulting governments will almost surely have to decide what to do about the euro. The single currency union is still young, and still needs to be completed.
This could be the best time to finalise the single currency union. It is crucial to do that, to ensure its survival. A stronger union would be the only way to ensure that a crisis as deep as that of 2010-2012 would not be repeated.
The European Central Bank will soon start to think about gradually withdrawing its unprecedented asset purchases, as inflation in the eurozone is on the rise.
“From a policy point of view, the most crucial item on the agenda should be the completion of monetary union beyond the cumbersome emergency tools such as OMT [Outright Monetary Transactions]”, Gilles Moec, an analyst from Bank of America Merrill Lynch specialising in the eurozone, wrote in a research note last week.
ECB President Mario Draghi once said the OMTs — created in September 2012 after he promised in July of that year that the ECB will do “whatever it takes” to save the euro — were the most efficient monetary policy tools, because the central bank never had to use them.
Be that as it may, this year could prove crucial in deciding whether the euro area goes forward or slides faster towards disintegration.
Moec noted that in France the focus on the country’s relationship to Europe is very sharp, with Front National leader Marine Le Pen promising to take the country out of the eurozone.
In Germany, support for eurosceptic Alternative fur Deutschland (AfD) is fading, which in his opinion “may tilt the public debate in favour of a more open attitude towards fiscal union,” he said.
He proposed three main measures to make the European monetary union more credible.
The first is a Redemption Fund — allowing legacy debt to be mutualised and thus gradually extinguished, as weaker countries would not have to live with the terror of creditors making claims that are much higher than their GDP.
The second is an Investment Fund, which would provide the eurozone with “a powerful cyclical stabilization fund” — investment in various public projects, which would help spur economic growth. It would maintain the percentage of expenditure to GDP stable.
Finally, the third measure consists of a mandatory OMT programme, under which the ECB would just step in and buy affected countries’ assets without waiting for them to ask for help. This would prevent countries from damaging the fiscal stability of the whole of the eurozone by delaying requesting support themselves.
For many Europeans, this will prove to be the year of change. Whether good change or bad change, it is entirely up to the voters.