Japanese Views on the Euro – or Whether the Plane will Eventually Fly

by Daniela Schwarzer

During a recent symposium on global governance held in Tokyo, a Japanese moderator said: “Flights and reforms have something in common, both in Japan and in Europe. First, a delay is announced, because no one dares to say the truth. Later, it turns out that the flight has been cancelled.”

I found this rather thought provoking. The other thing was that the European participants, who spent most of the time explaining crisis management in the euro area, were much more optimistic about the economic and financial perspectives of the EU than the Japanese participants were of their own and the euro zone’s future.

It is a frequent phenomenon that external observers are more ready to address weaknesses and raise the taboo issues. And indeed, we discussed eurozone dissolution or temporary exits of Member States and the deep risks attached to both options, back and forth. One of the main factors that seemed to shape my Japanese interlocutors’ perceptions about the euro were bond spread movements. The fact that market movements rather than economic fundamentals shape the perceptions of many observers is an expression of Europe’s biggest problem: we are in the midst of a self-fulfilling crisis in which market perceptions determine collective behaviour – and tend to make the worst expectations come true. Europe is particularly vulnerable to such effects, due to its complex decision-making system, the lack of clear crisis communication and, most of all, because it has not been able to solve the sovereign debt crisis in more than two years. Very recently, political developments add to the critical external perception of the crisis, the inability to form a new Greek government being the most obvious one.

There is a double problem of information and interpretation. In general, the further away one travels from the EU, the less information is available about the profound reforms that are on their way in several EU Member States, consider for instance in Spain or Italy. European self-perceptions stand in a stark contrast to external views. Enjoy this one: a senior Japanese speaker found that some European states were showing elements of Chinese-style state capitalism.

Moreover, the complex reforms that have reshaped the euro area governance system are even less understood outside the euro area than they are within. The complexity of the new rules and mechanisms is generally acknowledged in the EU. But its consequences are not considered rigorously enough. Tackling the sovereign debt crisis means re-establishing confidence, not only in public finances of Member States, but also in a governance system still in the making. The EU with all its complexity and lack of political leadership is not up for the challenge. Outside observers note that the eurozone has not been able to tackle the sovereign debt and banking crisis. Indeed, measuring the eurozone by whether the crises have been solved leaves it with a bad record. Measured by relative progress, we score much better. But this is not the criterion for many observers, given the complexity of things.

This is part of Europe’s Catch 22 situation: the eurozone needs to re-establish confidence among the outside world (investors, corporates, policy makers, journalists, think tankers, academics…) in order to solve the crises. But what if those observers want to see success in crisis management before they are willing to trust the euro area? The task for the eurozone is clear though not easy to fulfil. As good as it can, it has to overcome the problems of communicating political progress made in a complex multi-level system with a structural leadership problem.

All of this has to do with the plane and the question whether a signalled delay implies a cancellation. Things take longer round here, and all too often and to our own misfortune, progress is well hidden. We can comfort ourselves, as we know: it eventually happens, somehow. But: to the outside world we need to make positive European dynamics known, immediately and much more determined.

Dr. Daniela Schwarzer is head European integration research division, Stiftung Wissenschaft und Politik (German Institute for International and Security Affairs), Berlin.