Source: Voice of Russia

Voice of Russia: Basically this is the nineteenth Summit since December 2009. Everyone is saying that this Summit is, like they put it, an integration Summit but on the other hand we all know that many capitals are finding it rather difficult to give up part of their sovereignty. So, do you think that the integration is the best solution in this case?

Jan Techau: Well, in the end the Europeans have to make a decision. They have to decide whether they want more integration and a common currency, and an integrated economic space, and the political union that needs to come with that, and then they can’t have sovereignty, at least not all of it, or they want to have sovereignty as much as they can but then they can’t have an integrated economy and can’t have a common currency, and the political union. So, it is one way or the other and I think the EU is now at the exact point where that decision needs to be made.

In my opinion I think we need more integration for a number of reasons. That is economically important for us. And on the other hand it is also imperative because globalization is marginalizing European nations because they are too small and not mingled, and not strong enough to compete and to retain the level of freedom and the standard of living in a globalized kind of competition. If they don’t work together more, we have a number of reasons that speak for it. But that doesn’t mean that it is easy, it is very difficult, sovereignty is the thing that nations grab the most obviously. But at the same time it is imperative and I don’t think that there is any way around it, at least not in the long run if we want to stay where we are. So, a truly historic moment and I hope that the reason and the rational kind of decision making will prevail over the next few days and then hopefully over the next few months as well.

Voice of Russia: But in the current model of integration it looks like that strongest players take on the biggest burden. So, Germany seems to be carrying most of the burden in bailing out the EU members and it is definitely not very happy with that. But what else could it do perhaps to get things going, apart from giving more money for bailout?

Jan Techau: What Germany has been doing, it has been trying to explain to the world over the last few months that it is not only insisting on harsh reform measures and austerity but that it is also willing to go for more integration which means losing sovereignty for Germany as well. And so, Germany is willing to pay a price politically, to go ahead with the European integration. So, I think the image that Germany has at the moment of being the very ungenerous kind of debt domino effect of Europe is not really justified.

There is very little I think that the Germans can do in terms of doing it alone. They need to forge a compromise with funds obviously, that’s the most important thing. I think in the end Hollande will have to give in more than the Germans will have to because the German economic ideas are more sound than his own are. But I think that’s the most crucial kind of thing now is to consistently and persistently press for the right kind of makes of solidarity, reform and integration, and hopefully get the financial growth rate for it. If they manage to do this, they have exercised strong leadership.

Voice of Russia: Curiously enough, since there has been a lot of speculation in the world press about the coming Summit, yesterday I ran an opinion published by the New York Times. There are two American scholars – Mr. Griffin and Mr. Keyshop – who are coming up with a paradox idea, they are saying that Germany might reintroduce the mark which would cause the euro to decline in value and that would give the troubled economies the financial flexibility they need to stabilize themselves. So, how valid this idea is? What do you think about that?

Jan Techau: Well, I don’t think it is very well at all because there is no scenario under which Germany can get out of the euro alone and then the rest of the bunch will just continue, they will devalue the euro and then all of the economic woes and all the economic discrepancies that have caused the crisis will be gone over night. It is true that Germany causes the biggest imbalance because Germany is currently very strong economically, very competitive and everybody else benefits from this because they are getting all of these wonderful interest rates on the capital markets.

And so the imbalance that is there is a true problem but for Germany to go out alone, that would certainly trigger the Dutch and the Austrians to leave because they are very closely tied to the German economy, plus they are also in favour of German policies, so we would have an unraveling effect and we would have a political fallout coming from this. That sounds unreasonable, if you have a team of players and they have a quarrel inside the team, to kick out the strongest of them doesn’t make offer or sense to me. So, I’m rather skeptical when I hear about those suggestions.

Voice of Russia: And as far as I understand we are now talking about revising the financial architecture of the EU. Do you think you could expand a little bit on that?

Jan Techau: There are three elements in all of this that need to come together. There is a banking union, there is a fiscal union and then on top of that some kind of political union. And it is very technical and I’m not an economist, so I can’t really give a judgment on every single aspect of it. But it seems to be very clear that in the end some kind of communalization of debt, the one thing that the Germans don’t want and that Angela Merkel is mostly opposed to, but something of that kind must come in the end because as I said earlier that the imbalances are very strong in the EU and if you want to stick together, if you want to work together politically – in the end some kind of solidarity in terms of debt communalization will have to happen.

I think it completely opens the question as to what kind of instruments they will find, whether that is some kind of a redemption fund or Eurobonds, or the other instruments that have been put on the table. But I think in the end that will come. I think also in the end the Germans will have to budge, they will have to accept it and Merkel I think will much rather do it than kill the euro. So, in the end she will have to give in but before that point comes my feeling is that she wants to drive the political price for that kind of German change very, very high, she wants to receive as much in return as control over fiscal policies and structural reforms in the receiving countries. So, it is a big political game and it is a war of attrition because in the end I think Merkel realizes that the Germans will have to pay more but she doesn’t want to give it away easily and so we are in the midst of that huge battle.

Voice of Russia: And who are the main adversaries in that battle? Is it France or is it the whole of the European Union?

Jan Techau: Well, it is not the whole of the EU because Merkel is not isolated as sometimes it is claimed in the press and elsewhere. As I said the Dutch and the Poles, who are a non-euro country, most of the Scandinavians, the Balts, the Austrians, they are all in line with Mrs. Merkel’s policies and they support her very strongly. The strongest opponent, I won’t say enemy because it is too harsh, the strongest opponent at the moment is Mr. Hollande because obviously he has the second biggest EU economy that he is leading, his political opinions carry a lot of weight. But there is also a number of receiving countries with the people in Spain and Italy that look at Merkel and Germany in a very hopeful kind of way. So, they are the ones that also need to be incorporated into a solution.

But then Merkel faces another couple of opponents out there, almost the entire commentary at the newspapers and in the media, a lot of economists, a lot of pundits, a lot of international analysts including Mr. Soros. What is interesting though, maybe that’s the final point, is that the narrative that these people use, that used to be a very strong Germany needs to pay more narrative, has now changed. They say, yes, Germany still needs to pay more but at the same time that the German requests for reform are reasonable and the discourse has changed, and that is already a bit of success for Merkel. How this is going to play out in the end remains to be seen and I don’t think that we will see the end of it during the upcoming Summit over the next few days.