Is the sustainable – and what if not?

March 14, 2018 ESMT Berlin,

Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Considerable actions at the EU level and by the European Central Bank have- beentak en to make the economically resilient. While the economic risks may have been banned, electoral events in recent years, including the Brexit vote, have made it clear that the euro system might come under attack from other directions. The probability of such political shocks occuring might have diminished in recent years, but the possibility of such events to threaten the system cannot be completely excluded. It is therefore important to understand the adverse impacts that such events can entail. This high-level international conference addresses the question of political resilience, the devastating economic experi- ences from comparable events in the past, and actions and remedies that should be taken in case such events occur in the future.

Organizers

Kai A. Konrad Jörg Rocholl received his PhD from the Ludwig received a PhD in finance and economics Maximilian University of Munich (1990). from Columbia Business School in New He was a professor of public economics York (2004). He is president of ESMT Ber- at the Freie Universität Berlin (until 2009). lin (since 2011), professor and EY Chair in He is director at the Max Planck Institute Governance and Compliance (since 2010). for Tax Law and Public Finance in Munich He is a member of the Economic Advisory (since 2011) and a distinguished affili- Board to the German Ministry of Finance ate professor at ESMT Berlin. He was the (since 2011). chairman of the Council of Scientific Ad- visors to the German Ministry of Finance (2011–2014).

1 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

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2 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Program

10:15 registration

10:45 welcome and opening Kai A. Konrad, MPI for Tax Law and Public Finance Jörg Rocholl, ESMT Berlin

11:00 session I - Keynotes Stabilizing the euro: Where do we stand? Christoph M. Schmidt, RWI - Leibniz Institute for Economic Research

Political risk: A view from public opinion research Bruce Stokes, Pew Research Center

12:15 lunch

13:30 session II - Keynote How to cope with target imbalances Hans-Werner Sinn, ifo Institute - Leibniz Institute for Economic Research at the LMU Munich

14:30 Panel I - What can we learn from history? moderator: Philip Plickert, Frankfurter Allgemeine Zeitung

Luca Einaudi The Latin Monetary Union Albrecht Ritschl How the aftermath of a Eurozone breakup could look like if history is any guide Jeromin Zettelmeyer The Argentinian disaster/experience

16:00 coffee break

16:30 Panel II - Thinking about the unthinkable moderator: Ursula Weidenfeld, Economics Journalist

Clemens Fuest [Art 50] ways to leave the euro – does the Eurozone need an exit clause? Costas Lapavitsas How and why did Greece stay in the EMU? Xavier Ragot Saving the Eurozone. Why and how?

18:00 closing Kai A. Konrad, MPI for Tax Law and Public Finance Jörg Rocholl, ESMT Berlin

18:15 Drinks reception 3 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Session I 11:00-12:15

Keynote Stabilizing the euro: Where do we stand? Christoph M. Schmidt

In its coalition agreement, the prospective new grand coalition German government is providing strong indications that Euro- pean issues will take center stage on its political agenda. In principle, this is good news for European integration. Yet, the quality of the actual steps taken under this heading will be decisive for its success. Ultimately, only an incentive-compatible European architecture will constitute a Christoph M. Schmidt sustainable engine of peace and prosper- received a PhD from Princeton University ity. The key to ascertaining this stable ar- (1991) and obtained his habilitation from chitecture will be the adamant insistence the University of Munich (1995). He was a on a healthy balance between principles professor at the University of Heidelberg and pragmatism. The current political (until 2002) and then became a professor discourse on reforming the Eurozone ar- of economics and econometrics at Ruhr chitecture is highly polyphonic, though, University Bochum. He is president of the and therefore offers little guidance. In the RWI – Leibniz Institute for Economic Re- reality of political developments, this ar- search (since 2002) and is serving as chitecture has been transformed in the member (since 2009) and chairman (since direction of the concept proposed by the 2013) of the German Council of Economic GCEE as “Maastricht 2.0.” By contrast, Experts (GCEE). prominent political rhetoric has empha- sized quite different themes, evidenced for instance by the Five Presidents’ Re- port. This presentation aims at sorting out this variegated argumentative spectrum.

4 Is the euro sustainable – March 14, 2018 and what if it not? ESMT Berlin

Session I 11:00-12:15

Keynote Political risk: A view from public opinion research Bruce Stokes

The reputation of the and Europeans’ commitment to the European Project suffered in the wake of the global financial crisis a decade ago, especially in southern Europe. The economic down- turn only reinforced Europeans’ frustra- tion with Brussels’ inefficiency and intru- siveness. Nevertheless, support for the euro remained strong in most euro area countries, with the exception of Italy. And Bruce Stokes Europeans also continued to believe that is director of global economic attitudes the European Project had contributed to at the Pew Research Center, where he as- peace in Europe, reaffirming the founding sesses public views about economic con- ideals of the European Community. The ditions, foreign policy, and values. He is refugee crisis and the perceived mishan- also a non-resident fellow at the German dling of this issue have led to new public Marshall Fund and an associate fellow at criticism of the EU. This challenge to Euro- Chatham House. He is the former interna- pean solidarity has fueled the rise of right- tional economics correspondent for the wing populist parties, whose adherents National Journal, a former senior trans- are often Euroskeptical. At the same time, atlantic fellow at the German Marshall while in none of the euro area countries Fund, and a former senior fellow at the does the population want to leave the EU, Council on Foreign Relations, where he is strong majorities now express a desire for a member. Stokes is author of the recent more direct voting through referenda on Pew Research Center studies: U.S. Image issues of major national importance, in- Suffers as Publics Around the World Ques- cluding on continued participation in the tion Trump’s Leadership; Post Brexit, Euro- European Project. Bruce Stokes, director peans More Favorable Toward EU; Global- of global economic attitudes at the Pew ly, Broad Support for Representative and Research Center, will discuss trends in Direct Democracy. Stokes is a graduate of European public views in the wake of the Georgetown University’s School of For- euro crisis based on Pew’s annual survey eign Service and Johns Hopkins Univer- of European countries. sity’s School for Advanced International Studies.

5 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Session II 13:30-14:30

Keynote How to cope with target imbalances Hans-Werner Sinn

In recent years, the target balances of the euro countries, which represent public international credit drawn from the Eu- rosystem, have risen to unprecedented levels. The lecture will present their ori- gins and alternative ways of coping with them while trying to draw lessons from alternative currency systems.

Hans-Werner Sinn obtained a doctorate (1978) and his ha- bilitation (1983) from the . He was appointed professor of economics and public finance at the Ludwig Maximilian University of Mu- nich (1984) and president of the ifo In- stitute in Munich (1999), retaining both titles until his retirement (2016). He founded and governed the Center for Economic Studies and the international CESifo Research Network.

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Panel I 14:30-16:00

What can we learn from history?

the Latin Monetary Union

The Latin Monetary Union (LMU 1865– 1926) was formed between France, Italy, Belgium, Switzerland, and Greece, initially Luca Einaudi with the view to facilitate trade. However, is an economist and a historian. He holds a during its first five years of existence, the PhD in economic history from the Univer- LMU acquired a more ambitious geopo- sity of Cambridge, is a research associate litical role, with an attempted expansion of the Centre for History and Economics, throughout Europe. The defeat of France Cambridge, and was a visiting professor at in the Franco-Prussian War of 1870 and the Institut de Sciences Politiques in Paris the slow movement from its bimetallist and a visiting fellow at the University of base (gold and silver on an equal footing Princeton and at Harvard University. He is with a monetary base) toward a growing currently a general director in the Depart- international gold standard stalled the ment for Economic Policy and Planning LMU’s expansion. of the Italian Prime Minister’s Office. He The management of the LMU proved that was an economic advisor to Prime Minis- the initial agreement was very incom- ter Romano Prodi in 1998, a member of plete. Continuous negotiations and adap- the Cabinet of the Minister for the Gov- tation of rules were necessary to maintain ernmental Programme in 2006–2008 and the monetary union, backed by the threat a senior economist in the Italian G8/G20 of the cost of dissolution for weaker office in 2008–2009. members but also through forms of flex- ibility that allowed the weakest states to suspend or limit the extent of their par- ticipation in the LMU until their financial situations improved. In the end, the LMU proved long-lasting but with a declining role before ultimately succumbing to the shock of WWI and to the divergent na- tional policies implemented for postwar monetary stabilization.

7 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Panel I 14:30-16:00

What can we learn from history?

how the aftermath of a Eurozone breakup could look like if history is any guide Fault lines appear across currency areas and currency unions some time before they disintegrate. The aftermath is strong Albrecht Ritschl, and appears to be regionally clustered. born in Munich, Germany, in 1959, is a This short panel presentation will look professor of economic history at the Lon- into historical evidence on the gold stan- don School of Economics and a fellow at dard and its eventual breakdown, as well the Centre for Economic and Policy Re- as further evidence on currency union search (CEPR). He was previously a pro- breakups. None of the evidence exam- fessor of economics at Humboldt Univer- ined bodes very well for the immediate sity of Berlin, at the University of Zurich, aftermath of a Eurozone breakup. Histori- and an associate professor of economics cal evidence on the medium-term conse- at Universitat Pompeu Fabra. He has pub- quences is mixed. lished extensively on German economic history in the 20th century, with a focus on the Great Depression and the 1930s. He received wide press coverage for his warnings against an overly strict approach toward the Greek debt problem. Ritschl has been directing a major collaborative research project on the history of Germa- ny’s economic ministries since 1918, and is currently the lead researcher in a sim- ilar project on the history of the Reichs- bank and the Bundesbank.

8 Is the euro sustainable – March 14, 2018 and what if it not? ESMT Berlin

Panel I 14:30-16:00

What can we learn from history?

the Argentinian disaster/experience

What are the parallels between Argenti- na’s 1999–2002 recession, devaluation and default, and the 2009–2012 euro cri- Jeromin Zettelmeyer sis, as experienced by Greece, in partic- is a senior fellow of the Peterson Institute ular? What lessons, if any, can we learn for International Economics, a research from this comparison about (1) the sus- fellow at the Centre for Economic and tainability of the euro, (2) the manage- Policy Research, and a member of CESifo. ment of any future euro crises? The pre- From 2014 until September of 2016, he sentation will answer these questions by served as director general for economic comparing causes, crisis management, policy at the German Federal Ministry for and outcomes of the two crises. Economic Affairs and Energy. Previous- ly, he was the director of research and deputy chief economist at the European Bank for Reconstruction and Develop- ment (2008–2014), and before that a staff member of the IMF (1994–2008). His re- search interests include financial crises, sovereign debt, and economic growth.

Moderator:

Philip Plickert, born in 1979, has studied economics and economic history at the University of Munich and graduated from the London School of Economics. In 2007 he earned a PhD from the Uni- versity of Tübingen. In the same year, he started working as an economics editor of Frankfurter Allgemeine Zeitung (FAZ), where he covers macroeconomics, monetary policy, economic science, and other topics. In addition, he has been a lecturer at Goethe-University Frankfurt and at the University of Siegen. 9 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Panel II 16:30-18:00

Thinking about the unthinkable

[Art 50] ways to leave the euro – does the Eurozone need an exit clause?

This presentation discusses the pros and cons of introducing an exit clause as an element of the reform of the Eurozone. Clemens Fuest Currently the only established procedure obtained his doctorate in economics from for EU member states to leave the euro is the (1994). He was via the Art 50 TEU procedure. Exit clauses a professor at the University of Cologne have the advantages of reducing the cost (2001–2008), the of exit if it occurs, and protect individual (2008–2013), and the University of Mann- countries against exploitation. The disad- heim (2013–2016), where he also served vantage is that they may increase the like- as president of the Centre for European lihood of inefficient exit. Exit from curren- Economic Research. He is now president cy unions may lead to runs and therefore of the ifo Institute in Munich, director of require a design which differs from the the Center for Economic Studies, and a design of other exit clauses. professor at the Ludwig Maximilian Uni- versity of Munich (since 2016).

oderator Ursula Weidenfeld M : received her doctorate from the University of Bonn. She works as an economics journalist and columnist in Berlin and Pots- dam. Prior to this, she worked as editor in chief with Impulse, deputy editor in chief (Der Tagesspiegel), companies editor (Fi- nancial Times Deutschland), and correspondent (Wirtschafts- woche). She studied economic history, economics, and German literature in Bonn and Munich. She has a regular column with Tagesspiegel and T-online. She also writes books on current economic and political issues:Gelduntergang. Wie Banken und Politik unsere Zukunft verspielen (München 2012, co-authored with Michael Sauga); Regierung ohne Volk, Warum unser poli- tisches System nicht mehr funktioniert (Berlin 2017). 10 Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin

Panel II 16:30-18:00

Thinking about the unthinkable

how and why did Greece stay in the emu?

An EMU exit will remain on the agenda for several countries in the foreseeable future. This presentation will examine the Costas Lapavitsas feasibility of an exit by considering its like- is a professor of economics at the School ly impact on the assets and liabilities of the of Oriental and African Studies, Universi- main economic sectors of the economy. A ty of London. His research during the last method of calculating this “stock” effect few years has focused on the Eurozone will be proposed and applied to Greece. and on the financialization of capitalism. The presentation will also consider some He has published widely in the academic of the legal aspects of an exit, including field and writes frequently for the -inter those referring to TARGET2. national and the Greek press. In January 2015, he was elected to the Greek Par- liament with the incoming party, but left in August 2015 when the third bailout of Greece was signed. His most recent books include Against the Troika: Crisis and in the Eurozone (Ver- so 2015, co-authored with H. Flassbeck); Profiting Without Producing(Verso 2013).

11 Is the euro sustainable – March 14, 2018 and what if it not? ESMT Berlin Is the euro sustainable – March 14, 2018 and what if not? ESMT Berlin ESMT Berlin Max Planck Institute for Tax Stiftung Geld und Währung Schlossplatz 1 Law and Public Finance Deutsches Stifungs-zentrum 10178 Berlin Marstallplatz 1 GmbH 80539 Munich Barkhovenallee 1 www.esmt.org 45239 Essen www.tax.mpg.de www.stifung-geld-und- waehrung.de