Achieving real convergence in the Eurozone – Interview with Professor Carlos Mulas-Granados

Jun 25th, 2010 | Category: Interviews

Carlos Mulas-Granados, (Prof.), IDEAS

June 12 2010

ELIAMEP: Professor Mulas-Granados, thank you very much for giving us this interview in the context of ELIAMEP’s 7th Annual European Seminar co-organised with BRUEGEL and the support of the Jean Monet Actions of the European Union. How would you realistically expect the Eurozone to confront the internal imbalances between the North and the South? And do you think this can be done in a manner that would not make the European project and the Euro unpopular with national electorates?

Mulas-Granados: I think that probably adjustment is going to occur as follows: There is going to be an adjustment in the South, which was postponed literally when the European Monetary Union started, that means an adjustment in terms of salaries and in terms of all well all measures of competitiveness, and productivity will have to increase. That is going to be one part of the story. While in the North, especially in Germany there is going to have to be more internal spending to try to absorb also the other part of the shock. So, for the Northern part, to maintain stability there is going to have to be an adjustment because this is part of being in a Monetary Union, and in the South there is going to have to be another adjustment because that is part of being in a Monetary Union. So, probably what is going to happen is that both sides are going to feel differently, but they are both part of the same adjustment. In order for this not to be politically uncomfortable I think politicians really need to explain what the whole story is about. Being part of a project means making adjustments on both sides so there is real convergence and not only nominal convergence. We stopped at nominal convergence and now we are saying that we have to move forward and complete real convergence.

ELIAMEP: How do you see the role of the different EU institutions in this process, considering the framework of the crisis?

Mulas-Granados: The Euro itself as an institution is the currency that is going to play the role. The Commission could help and probably the Commission is able to make a proposal, for example for the next financial perspectives and link those financial perspectives to need for the adjustment. Not just by giving subsidies to the common Agricultural Policy or to the traditional problems but [also by taking] that amount of money and trying to ease the transition and the adjustment for both sides. I think that would be very helpful and the Commission could have this role. And then, at the end of the day in the current framework it is the member states the ones who have to actually adjust, but the Commission could play a more proactive role in this respect and of course the European Central Bank is the one that is going to be fighting for the euro’s stability so its role is always strong in this sense.