I was an expert witness to the House of Lords’ European Union Committee report into completing Europe’s economic and monetary union. In the final report published in May 2016, I am quoted several times.
Philippe Legrain… argued, in contrast, that this reduction in Germany’s surplus with the eurozone meant “that it is exporting its capital elsewhere, draining demand from the eurozone and exporting deflation to the rest of the eurozone.”… Philippe Legrain was disappointed that the Five Presidents’ Report did nothing to “tackle the issue of a mercantilist German core and the deflationary impact of that.”93
Other witnesses also criticised the narrow focus on competitiveness in the Five Presidents’ Report. Philippe Legrain said that competitiveness was irrelevant in responding to the eurozone’s challenges, and favoured “boosting productivity growth”. Focusing on ‘competitiveness’ meant: “you end up specialising in lower-end production rather than dynamically moving up the value chain and producing better goods for higher wages.”102
Philippe Legrain and Professor Jones drew attention to the structure of deposit insurance currently in place. Professor Jones noted that “the different types of German banks have different deposit insurance. That is the biggest part of the problem. Sparkassen and Landesbanken do not want to get implicated in a European system because they have their own preferential arrangements.”165 Philippe Legrain predicted that one could imagine a ‘carve out’ for the very politically powerful Sparkassen banks, similar to their arrangements under the Banking Union.166 Should EDIS be developed, the BBA supported it being embedded into the Banking Union framework, so that “the scope of banks mirrors closely the scope of single supervisory and resolution mechanism.”167
Philippe Legrain summarised the problem facing the eurozone: “We have election after election in the eurozone in which voters reject the outgoing Government, and the first thing that happens is that voters are told that they have to stick to the old policies of the government they have just rejected because EU rules say so, and I do not think that is desirable or sustainable.”210
Philippe Legrain considered that, in the immediate term, “there is little prospect of eurozone members caucusing together, simply because they disagree on so much.227
Philippe Legrain thought that the European Parliament would resist the creation of a new and separate parliament: “Such is the power of the European Parliament that it is inconceivable that you would create a separate structure … a eurozone parliament, if such a parliament were to emerge, would basically start off as a committee made up of members of the European Parliament from eurozone countries.”238