So, just how fragile is the euro? Economics Prof. William Adams says that depends on what you think “fragile” means.
Students from a variety of academic disciplines gathered in the Ford School’s Annenberg Auditorium on Thursday for Adams’ presentation on the complexity of the euro crisis and its potential implications. The event was co-sponsored by the Alpha Kappa Psi business and economics fraternity and the International Policy Student Association.
Adams gave his assessment of the situation in a pseudo-medical framework — complete with diagnoses, prescriptions and prognoses for the European economy.
Adams outlined the rich historical context of how one macroeconomic issue of the European Union subsequently snowballed into another in the early 2000s. He explained that moving back to a post-World War II economy, from 1950 to 1975, European nations enjoyed a stable economic expansion and a rapid increase in living standards.
As oil crises of the mid-to-late 1970s shook the foundation of many European economies, Adams said it was becoming increasingly difficult to maintain generous labor contracts in the face of growing structural unemployment and civil unrest.
Each of the problems resulting from the 2008 recession and the beginning of the sovereign debt crisis in 2009 exacerbated longstanding issues in Europe’s monetary and fiscal regime, Adams said. The unemployment rate of the most affected countries such as Greece and Spain hovers doggedly around 25 percent, more than three times that of the United States.
While the EU maintains a united monetary policy, each nation maintains an independent fiscal policy, which has led to many coordination problems across the continent, according to Adams.
“Some people argue that the reason why there was a balance of payments problem was because there was a regulation problem,” Adams said. “And the labor market regulation problem caused the balance of payments problem, which caused the bank problem, which caused the sovereign debt problem.”
Because of the variety of different diagnoses for Europe’s central economic problems, determining appropriate prescriptions for the financial epidemic becomes more complicated.
It’s yet to be determined whether Europe needs increased government expenditure more liquidity, less liquidity or a change in regulatory policy, Adams said.
He added that because of Europe’s de facto “reverse Federalist” system, it’s sometimes difficult for Americans to understand that solutions to the economic issues may not be solved unless there is a direct change to EU policy. Since no fiscal union or constraints currently exist, the EU and European Central Bank are powerless to control the spending and debt ratios of member nations — a chief cause of the crisis.
Rackham student Caitie Goddard said she was glad for the opportunity to learn about international economics. She added that she believed Adams approached the issue in a way that would help American students understand a foreign problem.
“I think today was about an international perspective on economic issues in the European Union, but hearing a Michigan professor discuss various solutions as well as the history was beneficial,” Goddard said.
After Adams’ lecture, LSA senior Joe Centlivre, Alpha Kappa Psi Fraternity president, said he hopes the lecture gave the average student a better understanding of the complex issue.
“You hear (in) the news all the time that ‘Greece has another bailout’ or ‘The EU has a crisis,’” Centlivre said. “But to the extent that we understand the problems or the possible solutions, I don’t think there’s that great of an understanding.”