President of Poland's central bank, Marek Belka, discusses the effects of the Euro during the global economic crisis.
President of the National Bank of Poland and former Prime Minister of Poland Marek M. Belka, speaking at the Minda de Gunzburg Center for European Studies Monday, called for a more centralized European Union that he said would ameliorate the continent’s current economic problems.
“In order to have a single economy, you have to have solid institutions that have the attributes of a state,” said Belka, who also served as the nation’s finance minister in 1997.
Belka said that the central problem facing the EU today is that it does not have an effective way to guarantee its debt. According to Belka, without a binding structure, it is unclear which country’s taxpayers will pay the debt, effectively leaving the EU without a budget.
Belka also noted that the advent of the euro led to a temporary economic boom in the poorer nations in the Union, which engendered high inflation rates.
During the boom, the poorer countries in the EU invested in industries such as construction and real estate, leaving behind goods that could be exported. This change in economic strategy caused the poor countries to become less competitive, according to Belka.
“These changes caused the nations of the EU to diverge rather than converge,” said Belka.
Despite the failings of the EU, Belka maintained that the crisis was fundamentally due to poor bank management. “It’s not to say that without the euro, the European economy wouldn’t be in a crisis. Italy, Portugal and Greece would still have currency crises.”
According to Belka, the failings of the euro exacerbated the individual crises in select European countries.
Belka outlined three possible solutions for the EU to emerge from the financial crisis, favoring the approach he deemed “muddling through.”
In order to “muddle through,” as Belka put it, the EU needs to put pressure on the countries that are suffering economically in order to force them to raise to the ranks of the other countries in the eurozone.
“Let the Greeks make some sacrifices,” Belka said.
Belka rejected the possibility that the EU may let Greece default on its debt. “Everybody in Europe is afraid of contagion,” said Belka, noting that many fear that Portugal may be the next nation in the Union to face a severe economic crisis.
The third possibility that Belka suggested was that the EU could monetize the debt.
“Inflation is the best way to get rid of the debt,” he said.
But Belka said he thought this was not a feasible option, since such high levels of inflation might cause Germany to leave the EU, as it might not want to carry the burden for the rest of the union.
“[Belka’s talk] was extremely topical and had special insights on the global financial crisis,” said Executive Director of CES Trisha Craig.
Belka’s lecture was part of the August Zaleski series at CES and was co-sponsered by the Davis Center for Russian and Eurasian Studies and the Harvard Club of Poland.