By Gokhan Kurtaran
The European Union must integrate its economic policy or abandon monetary union, Massachusetts Institute of Technology (MIT) Economics Professor Daron Acemoglu said on Tuesday.
“I don't think we have seen the last of the European crisis. European policymakers are continuing to try to put a band-aid on a huge problem,” Acemoglu said in an exclusive interview with Anadolu Agency.
Greece is a case in point, Acemoglu said. Although Greece's actions have major consequences for the rest of Europe, the European Parliament and the Commission lack instruments to directly affect Greek government policy choices.
“Combine this with the terrible state of Greek institutions, and the clientelistic nature of its politics, and you have an implosion waiting to happen,” he warned.
The problem of Europe lies in the institutional foundations of the union, and Greece is just a symptom of this deeper trouble, Acemoglu said.
“The majority of experts understand that the only way forward for Europe is to have greater fiscal and banking integration or to abandon monetary integration.” Acemoglu said.“But it is less widely acknowledged that you cannot have effective fiscal and banking integration without political integration. The problem of Greece is lack of EU political integration.”
In regard to the coming interest rate increase from the U.S. Federal Reserve, Acemoglu said many emerging economies have been benefiting from low interest rates and high commodity prices. So a change of course in those areas would certainly cause hardship for emerging economies.
“They are already experiencing much tougher economic times because of the fall in commodity prices. Higher U.S. interest rates will make life even harder for them,” he said.
Acemoglu warned that Turkey needs to make fundamental changes through structural reforms and to strengthen economic institutions to bolster the economy.
“For the Turkish economy to find its footing again, all of this needs to change. Turkey needs to clean up its act and embark on productivity-enhancing structural reforms and steps to reintroduce and strengthen the rule of law,” he said.
Acemoglu came out strongly for maintaining the central bank’s independence as an economic institution -- this status has been a subject of debate among Turkish policy makers. Acemoglu said that stripping the central bank of its independence would be disastrous for the Turkish economy.