Europe against the people?
Efforts to save the euro cannot run against the will of the voters indefinitely
EUROPE has claimed the scalps of two leaders in almost as many days.
First George Papandreou, the Greek prime minister, promised to resign,
and then Italy’s Silvio Berlusconi did the same. Both leaders have been
in trouble for some time, but the immediate cause of their downfall is
plain: the ultimatum they received from euro-zone leaders at the G20
summit in Cannes to reform their economies—or else.
Mr Papandreou was instructed to approve the last European bail-out
deal or risk losing his loans and being ejected from the euro. He
scrapped his call for a referendum, and agreed on November 6th to make
way for a government of national unity. With Italy’s bond yields
reaching danger levels, Mr Berlusconi was told he lacked credibility and
was made to “invite” the IMF to supervise his reforms. On November 8th,
though, Mr Berlusconi lost his majority in parliament, and agreed to
step down once the reforms are passed.
Two taboos were broken in Cannes. It was the first time euro-zone
leaders accepted that a member could default and leave the euro. (And
once the unthinkable is possible, why stop at Greece?) It was also the
first time leaders intruded so deliberately into the internal politics
of other countries.
True, the European Union has long influenced national politics. Think
of how Conservative divisions over Europe contributed to the
resignation of Britain’s Margaret Thatcher in 1990, or how new members
have transformed themselves to join the EU, or how Italy reformed its
public finances to qualify for the euro in 1999. In the past year the
crisis has brought down the prime ministers of Ireland and Portugal
after they needed to be bailed out.
Yet something has changed. Europeans see themselves as a family; they
have rows, but nobody questions a member’s right to be part of the
clan. But at Cannes euro-zone leaders made plain that family members
could be forsaken, even disinherited. Some see this as an assault on
national democracies by the European elite, be it unelected or
self-appointed (as in the case of the German-French duo of “Merkozy”,
Angela Merkel and Nicolas Sarkozy). Much has been written about the
subjugation of Greece, the cradle of democracy, under a second German
occupation.
And much of it is nonsense. Italy and Greece chose freely to join the
euro, and every club has norms of behaviour. In a monetary union,
irresponsibility by one member endangers the well-being of others. If
Italy and Greece had not been so over-indebted and sclerotic, they would
not be in such trouble today. Countries that extend financial help have
a right to impose conditions to ensure that their loans are repaid. The
alternative to euro-zone diktat is being abandoned to the market. And
if a response is needed, it will inevitably be led by Germany and
France.
Yet there is something to the critics’ charges. For many countries,
such as Spain, the EU has been an anchor of democracy. But as the crisis
persists, austerity drags on and the euro zone integrates to save
itself, the legitimacy of the enterprise will suffer. The pain would be
more acceptable if the creditors acted as if they believed they faced an
existential threat. But rather than commit their full resources to the
crisis, they are seeking to limit their liability. This raises a sense
of double standards: one kind of democracy for creditors, another for
debtors.
Everybody must understand the constraints on Mrs Merkel. But Mr
Papandreou commits a “breach of trust” if he calls a referendum.
The debtors, moreover, bear the cost of the creditors’ mistakes. In
Greece the IMF (rightly) wanted the adjustment programme to focus more
on growth-promoting structural reforms; the Europeans prioritised
deficit-reduction. A deeper-than-forecast recession means Greece must
chase ever-receding fiscal targets with ever more austerity. Its first
bail-out gave it three-year loans at punitive interest rates, with no
debt reduction. The latest rescue offers Greece cheap rates for up to 30
years, with a 50% haircut on private bondholders. At least one of these
options was wrong, and neither may be enough to save Greece. Germany
belatedly accepted the need for the rescue fund to be larger and more
flexible. Had all this been done sooner, the crisis might have been
contained more easily, and at lower cost.
First fight the fire
Right now the emphasis needs to be on firefighting. Italy is burning,
and the rest of the euro area could be consumed with it. Decisions
cannot be hostage to the vicissitudes of 17 national parliaments. And
Germany restraining the European Central Bank is like insisting that
water buckets are used instead of fire engines.
In the longer term, though, the euro zone will need a new fire code.
The EU’s treaties are likely to be reopened, again. Euro members will
have to abide by stricter fiscal rules and accept intrusive inspection
by outsiders. The loss of sovereignty would be more acceptable to
debtors if the creditors were to accept the need, eventually, to issue
joint Eurobonds.
Independent institutions are needed to make the system work. Most
would prefer the unelected European Commission over an intergovernmental
body dominated by Merkozy. The commission, moreover, would act as a
vital link between the 17 euro “ins” and the ten non-euro “outs”,
preventing the sort of two-speed Europe now openly advocated by France.
More Europe should not mean more Sarkozy and less single market.
Saving the euro requires more pain for some, more generosity from
others and fundamental change for all. Is it worth it? Sooner or later,
citizens must be asked. Without their support, no reform can last. And a
real choice must include the option of leaving the euro. Now that this
taboo has been breached, the euro zone should start thinking about how
best to arrange the departure of those that cannot, or will not, live by
Germanic rules.
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