News / 28.3.13

Why Cyprus shows that the European Union needs an alternative economic governance?

As banks in Cyprus finally reopened today, reactions across Europe show how the subject of the island nation’s bailout is a matter of critical importance for the future of EU economic governance. Diagnostics, analysis and solutions abound, with several voices calling for drastic measures to stop the bleeding.

The  economist and Nobel Prize laureate Paul Krugman stated on the New York Times that, for Cyprus, staying in the euro would mean an “incredibly severe depression”, which could potentially be prolonged for years. To him, there is but one solution:

 “Yes, Cyprus should leave the euro. Now. Leaving the euro, and letting the new currency fall sharply, would greatly accelerate that rebuilding.”

There’s undoubtedly room for concern; Cyprus has become, with this bailout, the “first ever euro-country to impose cash controls”, as the EUobserver puts it, something likely to resonate beyond Nicosia.

It certainly didn’t help that Eurogroup chief Jeroen Dijsselbloem said, after the extreme measures were agreed in Brussels, that “Cyprus’ bailout is a template for future eurozone bank re-structurings” comments which he later modified.

Other observers focus on the reforms the EU needs in order to avert the “increasingly poisonous politics of bailouts”, as The Economist’s Charlemagne blog puts it:

“The first step to preventing another southern crisis is not hectoring from snowy forests, but creating a genuine banking union.”

In line with those voices vowing for a fundamental change to successfully tackle the deepening EU crisis, the Centre Maurits Coppieters has recently launched a new publication, “An Alternative Economic Governance for the European Union”. Authored by Xavier Vence, Alberto Turnes and Alba Nogueira, a prominent strong academic team at the University of Santiago de Compostela (Galicia), this report is a positive contribution to the debate, with the underpinning idea that the time has come to clearly define what type of Union we want.

“The crisis which has hit the EU in recent years is not only economic, but is to a great extent political: the failure of a model of European integration which has been shown to be all too fragile.”

As CMC president Xabier Macias tweeted today, “An Alternative Economic Governance for the European Union” represents “a very timely” contribution.

A few days later, on Thursday 4 April,  European Central Bank chief Mario Draghi,  admitted that an initial plan to tax small savers in Cyprus was “not smart“. And advocated for quick development of a eurozone-wide banking supervisor (SSM). In what could be a first step of re-thinking the current model of european governance.