21
Jun

Mr IMF says: More Europe, please

Written on June 21, 2011 by Ángeles Figueroa-Alcorta in Americas, Europe, Globalization & International Trade, Political Economy

So it takes an American to remind Europeans about the importance of economic integration, at a time when many of them are losing faith in the viability of the European project. That the American in question should be John Lipsky, the man who has been running the IMF since the downfall of Dominique Strauss-Kahn, somehow adds to the power of his words.

Few people normally pay attention to the IMF’s “article IV” mission to the euro area, a sort of annual health check. But coming at a time when the euro area is in fibrillation, the opinion of an external expert is bound to draw some attention. Mr Lipsky took the opportunity to deliver two strong messages.

Firstly, the Europeans need to get a grip on the sovereign-debt crisis, which is threatening to “overwhelm” the euro area’s recent economic gains and cause “large global spillovers”. In other words, contagion could spread from the “periphery” to core European states, and could infect other economies too. (Conversely, resolving the crisis would help the global economy.)

Secondly, and more interestingly, the way to deal with the problem is not by restructuring the debt of troubled European states, but by greater economic integration. In other words, “more Europe”. Mr Lipsky concluded his remarks by chiding Europeans for losing their sense of history and ambition.

Looking ahead, it is important to learn from the crisis and define a clear vision for the future. The story of European integration since WWII has been an incredible success—not least because the leaders who built the European Union and the euro area looked beyond the crises of their day. Indeed, if the euro area is to be more stable and resilient and live up to its growth potential, it will have to press ahead with a broad reform agenda now. Many welcome initiatives are under way, but in our view in nearly all areas a few crucial additional steps are needed to make them add up to a consistent set up.

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As published in www.economist.com on June 21, 2011.

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