Without political union, euro can't last 20-30 years (2)

France and Germany

Here, all eyes may be on Germany, but today it is really France that will play the central role in deciding the euro's fate. Germany cannot carry the euro on its shoulders alone indefinitely. France needs to become a second anchor of growth and stability.

Temporary Keynesian demand measures may help to sustain short-run internal growth, but they will not solve France's long-run competitiveness problems. At the same time, France and Germany must both come to terms with an approach that leads to far greater political union within a couple of decades.

As my colleague Jeffrey Frankel has remarked, for more than 20 years, Germany's elites have insisted that the eurozone will not be a transfer union. But, in the end, ordinary Germans have been proved right. Indeed, if the eurozone is to survive, the northern countries will have to continue to help the periphery with new loans until access to private markets is restored.

So, given that Germany will be picking up many more bills, how can it best use the strength of its balance sheet to alleviate Europe's growth problems?

Certainly, Germany must continue to acquiesce in an ever-larger role for the European Central Bank, despite the obvious implicit fiscal risks. There is no safe path forward.

or meaningful burden-sharing to work, however, eurozone leaders must stop dreaming that the single currency can survive another 20 or 30 years without much greater political union.

Debt write-downs and guarantees will inevitably bloat Germany's government debt, as the authorities are forced to bail out German banks (and probably some neighboring countries' banks). But the sooner the underlying reality is made transparent and becomes widely recognized, the lower the long-run cost will be.

To my mind, using Germany's balance sheet to help its neighbors directly is far more likely to work than is the presumed "trickle-down" effect of a German-led fiscal expansion.

This is what has been lost in the debate about Europe of late: However loud the anti-austerity movement becomes, there still will be no simple Keynesian cure for the single currency's debt and growth woes.

Kenneth Rogoff, a former chief economist of the IMF, is professor of economics and public policy at Harvard University. Copyright: Project Syndicate, 2013.www.project-syndicate.org. Shanghai Daily condensed the article.

We recommend:
Photo of the innocent childhood	17th Gay Pride Parade held in Sao Paulo	Polar bear Inuka into new enclosure in Singapore Zoo
'50th Madaraka Day marked in Kenya	International Children's Day marked around world	Sudden rain hits Hyderabad, India