The debt crisis that has divided the eurozone into debtor and creditor nations has also seen the emergence of the unelected technocrat with very dangerous consequences, he said.
Prof O’Rourke said the “men in the white coats” from the European Commission and the ECB, among other EU institutions, had incorrectly diagnosed the cause of the crisis and prescribed inappropriate remedial measures with disastrous results.
The former Trinity economics lecturer was speaking at the ‘European Democracy in Crisis’ conference in Dublin organised by UCD’s Dublin European Institute.
When the subprime crisis erupted in 2008, EU technocrats mistakenly believed that it was a US banking problem that would not affect Europe. Then they believed that it was a fiscal crisis and forced through a series of pro-cyclical policies on periphery countries that made the economic contraction even more severe. Moreover, the EU technocrats believed that it was a country specific crisis rather than a systemic problem, said the Oxford academic.
The response to the crisis has been riven with policy errors introduced by a politically driven agenda that has accelerated the “race to the bottom”, he added.
“Look at the ECB, for example. These people are supposed to be politically neutral, but they are not.”
The response to the crisis has been shaped by economic falsehoods, including the belief that austerity is expansionary; that there will be severe economic repercussions if debt levels exceed 90% of GDP; and, that budgetary consolidation should fall on spending cuts rather than tax increases. “There is no empirical evidence to support this.”
There are two possible directions the eurozone could take, he argued. The positive outcome would be full political, fiscal and banking union. However, the growing euroscepticism among the EU electorate made this outcome difficult to achieve.
The less positive outcome is a more intrusive approach to national budget-setting without closer union. “It will be carrots and sticks with no end in sight. There will be no recovery.”
“Decision making is being taken away more and more from the national level, but it is not being replaced at the federal level. This is very dangerous.”