Greece's debt troubles strengthen the case for a fiscal union in Europe
Yan Shaohua says the debt crisis must serve as a lesson for the EU that a united monetary policy alone carries with it built-in drawbacks that only true integration can solve
The Greek debt crisis has evolved in a dramatic way over the past weeks. Despite a Greek referendum voting no to the reform proposal, the European creditors have insisted on even harsher austerity measures as precondition for a third bailout, which Greek Prime Minister Alexis Tsipras finally accepted with deep reservations.
The once-feared danger of a disastrous "Grexit" seems to be removed for the time being, yet how the bailout negotiation unfolds in the following weeks remains to be seen. No matter what comes out of the negotiation, the EU has important lessons to learn from this crisis, which has been rumbling on since 2010. And these lessons are as much political as they are economic.
A focal point of discussion is whether the doctrine of austerity measures works for the Greek economy. The European Union believes in it and blames Greece for failing in economic reform, but the debt crisis also points to a political problem that lies at the heart of the European project - a currency union without a common fiscal policy.
The adoption of the euro marked a bold and significant step in European integration. Under the monetary union, monetary policy is centralised under the authority of the European Central Bank, but fiscal policy (taxing and spending, etc.) remains largely in the hands of each country.
The debt crisis also points to a political problem that lies at the heart of the European project - a currency union without a common fiscal policy
This institutional design has brought hidden troubles for both sides of the Greek issue. On the one hand, the European authorities do not have the means to effectively check the "health" of euro-zone members' fiscal conditions, which is illustrated by the fact that Greece managed to hide a huge budgetary deficit from European authorities, with the help of Goldman Sachs.