Two of the currently most popular hashtags on Twitter reflect Britain’s debate on whether to leave the EU (#Brexit) and the possibility of Greece leaving the euro (#Grexit). But although they differ only by their first letter, those two topics are by no means the same. In this post, Filipa Figueira, Teaching Fellow in Economics at UCL, explores how the two are nonetheless closely linked and how addressing one may help resolve the other.
A decision on being part of the European Union is very different from a decision on being part of a common currency. Although the word ‘euro’ makes the common currency sound like a core aspect of ‘Europeanness’, it is in fact only one of the EU’s many policies. And, as the British example shows, it is perfectly possible to be an EU member without participating in the euro currency.
Yet confusion reigns. When, in early July, a Greek exit of the euro seemed possible, many jumped to the conclusion that the country would need to leave the European Union too. This included, for example, the President of the European Parliament Martin Schulz – who really should know better, as that would of course not have been the case.
Others point to the EU Treaty to claim that EU membership is linked to euro membership. But while the Treaty does mention that EU countries should work towards a common currency, it is clear that the UK, Denmark and Sweden will be allowed to keep their own currency for as long as they wish. Thus, as in many other EU areas, the strict wording of the Treaty is effectively superseded by the complex realities of European integration.
Although both debates have assumed similar prominence in the media, #Brexit (leaving the Union) would have a much greater and long-lasting impact than #Grexit (leaving a common currency). While #Grexit would have only short-term (albeit potentially brutal) economic consequences, #Brexit would drastically and permanently change the UK’s (geo)political situation.
The word ‘Euroscepticism’ adds to the confusion, as it could be understood as meaning being sceptical of the European Union as well as being sceptical of the euro currency. This has led to a mistaken but widespread belief that one implies the other, which is by no means the case. It is certainly possible to be pro-European but to believe that a common currency for Europe is economically inefficient – as exemplified by the German political party Alternative für Deutschland (AfD) …and by a majority of UK politicians.
The argument made by some in Britain that the Greek crisis should make us question whether the EU can function is therefore deeply flawed. The Greek crisis was about whether the common currency could function, not the EU as a whole. It can be seen as an argument for Euro(currency)scepticism, but not as a valid argument for Euro(pean Union)scepticism.
Nonetheless, France and the UK have recently made a tactical choice to link #Brexit with the #Grexit debate. This is not due to any confusion, but because solving one may help solve the other. Here is how.
One of Britain’s major concerns regarding the EU is the fear of an ‘ever closer union’. This expression in its literal form, in the preamble of the EU Treaty, is more lyrical than legal – and David Cameron’s insistence on revising the Treaty just to remove it is little more than posturing. But behind it is a genuine and understandable concern of the British people that the EU is integrating further and further without democratic control.
Here is where #Brexit and #Grexit can helpfully come together. The only way to make a common currency work in Europe is, as any economist will tell you, to have further fiscal integration in the Eurozone. The governments of France, Germany and Italy have recently announced that they support moves in that direction. We are therefore faced with a situation in which some countries feel that there isn’t sufficient EU integration (Eurozone members) while others feel that there is too much of it. The clear solution is to revive another euro-jargon favourite: a ‘two-speed Europe’.
For years, there has been quiet talk of the idea that Europe could progress at two speeds, one for countries that want closer integration, and another for those who prefer a looser, more trade-based, Union. Now Britain and France have expressed a willingness to formalise this idea.
If successful, this plan could address both debates, precisely by differentiating them. Perhaps the time has come to make this clear cut – allowing the core Eurozone countries to speed up integration (thus addressing #Grexit) while allowing Britain to slow it down (thus addressing #Brexit). #ticked.
Dr Filipa Figueira is a Teaching Fellow in Economics at the UCL School of Slavonic & East European Studies.
Note: The views expressed in this post are those of the author, and not of the UCL European Institute, nor of UCL.