Athanasios Orphanides, former governor of the Central Bank of Cyprus and member of the Governing Council of the European Central Bank, argued during a two-hour study group at the Center of European Studies Friday that the main cause of the current financial crisis in the Euro Zone was political rather than economic in nature.
“When I look at why it is that we have this persistent situation that remains unresolved in the Euro area, I want to turn to something somewhat deeper—the Euro area’s structure and governance,” said Orphanides during the study group. “But why is it that having identified the problem we still have nothing to solve it? And there I go to the politics of the situation.”
Orphanides is currently a senior lecturer at MIT’s Sloan School of Management.
During his talk, Orphanides acknowledged that economic factors such as divergence in growth, competitiveness, sovereign bond yields, and unemployment figures in Euro Zone countries were in part to blame for the ongoing problems in Europe’s financial system. However, Orphanides said he thinks the situation was in large part caused by weak economic governance structures due to political mismanagement.
The 1992 treaty that created the Euro requires unanimous agreement among all member states in order to adjust the treaty so that it would allow for a long-term solution to a financial crisis.
Because of differing electoral cycles in each of the countries, important political decisions that could have mitigated problems in Europe’s economic climate were postponed, said Orphanides.
“The more countries you have, the more problems you are going to run into in finding the correct time when well-meaning governments could actually have agreed to [reach a decision] together,” Orphanides said.
The study session, entitled “Politics, Economics and the Euro Area Crises,” was part of a series of talks hosted by the Center of European Studies’ Greek Study Group throughout the semester.
The discussion drew a mixture of American and European citizens who, following Orphanides presentation, discussed the future of the European project.
Martin Møller Boje Rasmussen, a visiting Ph.D. student from Copenhagen Business School in Denmark, said he was impressed by the study group’s ability to conduct a high level and quality discussion on the causes and the future of the crisis in the Euro Zone.
Yannis M. Ioannides, a professor at Tufts and a co-chair of the Greek Study Group. echoed Rasmussen’s sentiments.
“Sometimes you have Harvard undergraduates who stun you with the depth of their knowledge,” Ioannides said. “That is why it is great to be at a university like this.”
—Staff writer Anja C. Nilsson can be reached at email@example.com.