Friday, 24 May 2013

Two Quick Comments on Draghi's "Building stability and sustained prosperity in Europe" Speech

In Mario Draghi's speech at an event in London yesterday he says, among other things, in his concluding remarks,
After a deep financial and economic crisis, we now see the restart of the European process, building on the agreement of the June 2012 Summit. This process ultimately entails some transfer of national sovereignty in the areas of budget and structural policies. And the efforts made by Germany and France in this regard are particularly encouraging.
Last summer, speaking here in London, I said that “[w]hen people talk about the fragility of the euro, [they] underestimate the amount of political capital that is being invested in [it].” Since then, even more political capital has been mobilised. The answer to the crisis has not been less Europe but more Europe. 
Firstly, why should Europeans be ruled my unelected bureaucrats by giving up areas of their sovereignty? This issue, amongst others, is already creating turmoil in Europe, especially in the Mediterranean countries, but now also in the UK (see here). Why in the world would the European countries give up their sovereignty, or even a part of it, when most of them have fought for centuries to attain it? Transferring (parts of) national sovereignty to the EU is nothing short of reducing the freedom of those countries - it will not work and it is not a sustainable solution and it cannot lead to anything good. We also know very well that any economy run from an ivory tower is bound to fail (look now further than the Soviet Union).

Secondly, yes, a lot of "political capital" has been mobilised over the years on the euro and EU project, paid for by tax payers. But, has Draghi not heard about an economic concept called "sunk cost"? Money and time spent in the past is largely irrelevant when it comes to deciding whether a project should be continued going forward. What is more important however is that economies are allowed to prosper. The EU has failed in most aspects in assisting such progress. Not discussing these issues only further serves to reduce Draghi's and ECB's credibility and again highlights that they are both highly political.

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