What do recent events mean for the EU and economic policy in the eurozone ? (part I)

In the last two weeks, three key events occurred that could significantly alter the course of developments in the European Union as a whole and in the eurozone in particular:

I.   The Nobel Peace Prize 2012 awarded to the EU;
II.  Mr. Steinbrueck's candidacy for chancellor in Germany; and
III. Mr. Schäuble's recent pronouncements about Greece.

I. The Nobel Peace Prize 2012 awarded to the European Union - a brilliant move !

Much can be read into the Nobel Peace Prize for the EU, awarded "for over six decades contributed to the advancement of peace and reconciliation, democracy and human rights in Europe": Some view the prize as a symbol of wishful thinking for a peaceful future, just like the Nobel Peace Prize bestowed on President Obama less than a year after he took office. Others interpret the award as a last ditch plea and admonition to EU policymakers not to destroy the hard-won peace in Europe over conflicts about the financial rescue of Greece, the austerity policies imposed in the eurozone, and the distribution of the costs of the euro crisis. Conflicts that have the potential to destroy the euro project and tear apart the European Union.

The evidence supports the latter interpretation. As reported by the New New York Times, the chairman of the Nobel Prize panel commented after the announcement of the award: "We see already now an increase of extremism and nationalistic attitudes" (see my post "Bravo, Mr. Andor). He continued, "There is a real danger that Europe will start disintegrating. Therefore, we should focus again on the fundamental aims of the organization." As noted in my posts "Don't Shock the Countries, Shock the Banks/ters", Part I and II, the economic austerity policies demanded by the eurozone's creditor countries (mainly Germany) unfairly put the burden on the weakest members of the debtor countries (mainly Greece, Portugal, Ireland, and Spain) and have caused immeasurable human pain and suffering, leading to social unrest not seen in Europe for a generation. It is no wonder that such harsh treatment of fellow-Europeans in the rich eurozone not only causes ill will but hatred toward those who seem to ignore the agony they cause, bringing back to mind the horrors of World War II.

Viewed in this context, the award of the Nobel Peace Prize to the European Union is a brilliant move, using positive reinforcement to shame the eurozone's creditor countries into a more fruitful cooperation with their less-than-perfect eurozone partners by rewarding them for the EU's historic achievement of 60 years of peace in Europe. It remains to be seen whether the positive reinforcement approach will be more effective  than the reverse psychology approach by Heiner Flassbeck who argues that eurozone members should separate and dissolve the euro project now to prevent the destruction of the political integration attained over the last 60 years. 

While Ms. Merkel says that she views the award of the Nobel Peace Prize as an inducement and an obligation, her government is not planning to halt the inhumane austerity policies imposed on Southern Europeans, increasing the risk of political and economic disintegration in the eurozone. In this situation, Flassbeck views the attempt to move toward more integration in the form of a banking union or even a fiscal union as an illusion. In contrast to Flassbeck, however, I do see an alternative to the dissolution of the euro project:  a 180° turn in economic policy for the eurozone, initiated by a new German government without Merkel !

In my next post, I will discuss the likeliness of such an alternative, either with Steinbrueck as the next German chancellor or a completely different option.