Following her colleague David Martin’s post on a similar subject a couple of months ago, Catherine Stihler MEP takes a fresh look at the Eurozone crisis and wonders if there’s a little of an Aesop’s Fable in the story…
The crisis in the eurozone reminds me of the story of the hare and the tortoise. The European Commissioner for Economic and Monetary Affairs, Oli Rehn, spoke about the millisecond decision making of financial markets compared to the months of lengthy negotiating which takes place between those involved in the euro-crisis decision making. Democracy works differently from the financial markets. The speedy hare of the financial markets is pitted against the democratic tortoise of European institutions.
The 21st July meeting of eurozone national governments which was heralded as setting in place a new Marshall Plan for Greece was quickly followed not by implementation of the decisions made, but by another crisis in the eurozone this time with Spain and Italy taking centre stage. If it had not been for the quick intervention of the European Central Bank (ECB) this turbulence would have resulted in a hurricane across not just the eurozone but the whole of the European Union and world. Although the August fall in financial markets was tough with the credit downgrade of the USA, how worse would it have been if there had been a sovereign default? Lehman brothers was bad, a country going under would be much worse.
Currently national governments are attempting to implement the decisions made in July concerning the funding of the European Financial Stability Framework and their commitments to funding the sovereign bailouts. Yet the solidarity that is required across the eurozone and European Union as a whole is weak if non existant. Finland, seen as a democratic beacon, a progressive small country home of Nokia and the Moomins, is becoming deeply eurosceptic with their equivalent of UKIP doing well in their recent elections. This prevailing undercurrent has led to Finland seeking it’s own assurances with Greece bilaterally asking for direct Greek collateral in exchange for Finnish taxpayers money. What this amounts to is around 40% of Finland’s share of the loan, around half a billion euros. This would be invested in low risk state bonds. Now Austria, Slovenia and Slovakia are asking for similar assurances from Greece. How could an agreement in the eurozone from the 21st July now be unpicked by Finland? Does this not contradict the principle of equal treatment of all euro countries? Is Finland just exercising its democratic right as a nation or is this populist nationalist agenda neglecting the greater good of the whole of Europe not just the eurozone?
The German Parliament will have a vote on the bailout on the 7th September and Angela Merkel’s coalition looks divided on the subject. In Germany the ruling of their constitutional court on the legalities of the bailout could place a spanner in the works. The bilateral meetings between France and Germany does nothing to promote eurozone solidarity. It is no wonder within this eurozone culture of bilateralism, that European leadership is being questioned. Who is caring for the European good? United we stand, divided we fall.
One aspect of this has been the plethora of individuals who hold responsibility for European economic policy. Is it the Commission, the Council, just those in the eurozone, individual nation states or the broader European Union? Decisions made in the eurozone impact directly on those who are not members of the eurozone. How do Britain, Sweden, Denmark and Poland see their place in these discussions? As the Polish Finance Minister described, a collapse of the eurozone would be catastrophic for those non- members and we should not kid ourselves that this would be otherwise. One idea which is being touted is that just as we have a High Representative for Foreign Affairs who overseas the European coordination across institutions, so too there should be an Economic High Representative who can transcend nationalists agendas and act on behalf of the European good. One person with one policy area results in less confusion and clearer decision making providing the leadership which is so lacking.
The crisis in the eurozone is real and dangerous to all, members and non- members alike. Without stability, the growth we need across the European Union to create jobs and support our public services, will be jeopardised. The need to consider the long term,to be democratically accountable but also honest about the future is essential. Already growth forecasts are being downgraded across the Western world and this combined with austerity measures cutting public spending has the potential to ruin the economic recovery which is already fragile. The tortoise of European democratic decision making has to succeed to solve the euro-zone crisis. The race is on and currently the winner is uncertain.
You can also follow Catherine Stihler MEP on Twitter @C_Stihler_MEP.
#1 by Ken on September 1, 2011 - 10:57 am
“One idea which is being touted is that just as we have a High Representative for Foreign Affairs who overseas the European coordination across institutions, so too there should be an Economic High Representative who can transcend nationalists agendas and act on behalf of the European good.”
Using Cathy Ashton’s position as a comparison or role model is probably the worst thing to do if support for such a position is being looked for!
Unless the proposal is for a neutered position, constantly undermined by the Member States, criticised at every turn for equal inaction and action, who nobody ends up listening to anyway….
#2 by James on September 1, 2011 - 11:24 am
It all sounds pretty doomed to me. The markets have no democratic accountability, they’re constantly looking for margins and cracks, and they act immediately. The European institutions have limited democratic accountability but are certainly held back by the need for unity, they’re constantly trying to find enough paper to cover the cracks, and they, as Catherine says, act slowly and unreliably.
The single currency would “work” economically and practically with a single unitary European state, despite the problems having a single interest rate for Leipzig and Lesbos would cause, but surely that’s not on the cards.
Less seriously, is the second instance of the word “nationalist” here a Freudian you-know-what?
#3 by DougtheDug on September 1, 2011 - 6:49 pm
There seems to be an obsession with saving the banks. Ireland is in a bad way with sovereign debt because it took on all the debts of the banks who at the end of the day are private companies and it’s not the only country which has put itself in hock to save the bankers.
In any case sovereign default is neither new nor the end of the world as plenty countries have either defaulted or undergone debt restructuring over the years after being unable to pay their creditors. I say let the banks take the hit because they’re the ones who caused all this trouble in the first case.
I can quite understand states like Finland looking askance at being asked to prop up Greece with huge loans which may never be repaid in order to save the banks and if there is an, “Economic High Representative who can transcend nationalists agendas and act on behalf of the European good”, would this High Representative have power over the UK’s economic policy, central bank and interest rates as well as those countries in the Euro-zone, all for the European good?
As far as I can make out there has been no change to the underlying problems of the banking system in Europe and all this massive inflow of cash into Greece is just to push the inevitable collapse a short way into the future.
By your use of the word, “nationalist”, as a pejorative term I take it that you believe in a single United States of Europe closely modeled on the United States of America as a precursor to one world government. Strangely enough calls for closer political integration with Europe with this aim in mind such as being part of the Schengen Agreement and to quickly become part of the Euro in order to help shore it up are strangely absent from Labour Party policies just now.
Perhaps the scariest part of this article is the use of the phrase, “the greater good”, as applied to nations and peoples because almost anything can be justified when it is for, “the greater good”. In this case the Finns’ standard of living and economy is the sacrifice required to keep the basket case Greek economy alive for a year or so more when Greece should plan to default now and restructure its debt in an orderly fashion before it is forced to default.
The Euro is finished as a common European currency and the question is now not if but simply when.
#4 by cynicalHighlander on September 1, 2011 - 6:56 pm
When oh when will politicians learn that throwing more money into the bottomless pit of the banks will only make matters worse now and in the future. The banks are insolvent as are countries. Europe’s Web of Debt When in a hole stop digging and face up to the fact we are in a recession with no hope of economic growth to get us out on a finite planet.
A Time Frame For Systemic Collapse
#5 by CassiusClaymore on September 1, 2011 - 7:06 pm
Eurozone leadership is non-existent, hence the crisis. They’d be better off with Jenny Dawe in charge…..
There are three options. One is a fiscal union across the Eurozone. The second is the end of the Euro as we currently know it. Merkozy thinks there’s a middle way, but they are wrong – as the market will shortly demonstrate for them.
By the way, I loved this bit – “transcend nationalists agendas and act on behalf of the European good”
Translation – “let’s ignore sovereign governments and national democratic processes – we, the self-appointed and largely unelected Euro Elite, know best”!
CC
#6 by Barbarian on September 1, 2011 - 8:59 pm
What about the EU accounts never being ratified by the auditors according to some sources.
Then there is the ludicrous situation where about 30% of the entire budget goes on farm subsidies.
I think the EU is a waste of money. What started as a trading bloc has turned out to be a job for the boys (and girls) with unelected officials making stupid rules that benefit nobody.
The quicker the Euro disintegrates the better.
#7 by cynicalHighlander on September 1, 2011 - 10:23 pm
Managing Collapse
If the international financial system is so fragile that it can only survive with constant infusion of mammoth amounts of public money, then IT IS ALREADY IN A STATE OF COLLAPSE. And as any mining engineer knows, propping it up is not only expensive, it is dangerous.
Time for our elected representatives to support their voters not the flawed financial system.
#8 by Ben Achie on September 1, 2011 - 11:31 pm
Whoa, this is outlandishly dangerous stuff! “High Representative” sounds like something out of Flash Gordon or Star Wars (to put it kindly). Last time I was in Brussels the EU estate did have an out of this world feel about it, and that maybe best sums up Ms Stihler’s comments. The EU simply doesn’t have the political power to impose such a proposal, and a good thing too. This stuff smacks of dictatorship as being the best means of resolving crises – now, where have I heard that before?
The Germans will tough it out (they know plenty about the downside of dictatorship), and a Euro core will survive. Peripheral smaller economies may pull out, but could continue to use the Euro, at least short term, until some kind of stability is re-established. The Finns have made a good job of looking after themselves, and have the highest GDP per capita in Euroland, so they have a lot to lose on the alter of supposed European unity.
#9 by douglas clark on September 2, 2011 - 4:58 am
It seems odd to me that a sensible attempt to stop Europeans starting World Wars, which do no-one any good whatsoever, is reflected here in the horribly defensive rhetoric of nationalism writ wrong.
Could it be the case that the good folk, known as the founding fathers, had to overcome similar bigotry back in 1776?
I am a member of the SNP but even I find our more fundamentalist wing an embarrassment. For those of us that think that almost any price is worth paying in order to stop WW3, short of totalitarianism, then the route to independence ought not to be scatterred with clichés the likes of currency pride, flags like us and similar sad nonsense.
It is odd, to say the least, that Gordon Brown chose to write a book on Britishness when he comes from a bit of Scotland that prides itself on it’s own identity, albeit narrowcasted around a king sitting in Dunfermline town and other extreme localism.
I suppose the ‘mighty dollar’ had precedents. Much as the Euro might do too. Will many folk recall the Deutsche Mark or the French Frank apart from as a pub quiz question a hundred years from now? OK, I’ll take a wild guess that most folk here are a tad unfamiliar with pre decimal currency. Without checking it out, how much is a florin? In the interests of transparency I too had forgotten that there was such a thing as a florin.
#10 by Dougthedug on September 2, 2011 - 10:11 pm
Are you reading the same comments as me Douglas? I see no bigotry in any of them and they’re more against the banks than anything.
Where did you get the sentiments about, “Currency pride” and “flags like us”. It’s fairly obvious that the Euro works well when the economies of all countries are working well but in the case of Greece it’s a disaster when things go wrong and individual countries have no room to manouever with interest rates and devaluation.
I’ve never seen a United States of Europe as the route out of conflict, more of a headlong rush into it.
#11 by GMcM on September 2, 2011 - 9:18 am
Anyone who thinks we should have let the banks collapse needs their head examined.
It’s easy enough to say ‘it’s all their fault they should be left to sort themselves out’, but you forget one very critical point here; taxpayers (who didn’t cause this problem) have their savings in and mortgages with these same banks. If they go to the wall think of how much worse it would be for the taxpayer.
#12 by Dougthedug on September 2, 2011 - 10:22 pm
Anyone who thinks we should have let the banks collapse needs their head examined.
We should have done what Iceland did and guaranteed the depositors and let the banks’ creditors take the hit for the money they had lent the banks not the public and created new banks out of the ruins of the old ones
We should have made it Private Profit, Private Risk not Private Profit, Public Risk where the bail out of the casino banking system was done with public money to ensure that there was no private loss amongst the big finance houses of Europe.
Arni Pall Arnason, 44, Iceland’s minister of economic affairs, says the decision to make debt holders share the pain saved the country’s future.
“If we’d guaranteed all the banks’ liabilities, we’d be in the same situation as Ireland,†says Arnason, whose Social Democratic Alliance was a junior coalition partner in the Haarde government.
http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html
#13 by douglas clark on September 3, 2011 - 10:34 am
Dougthedug,
You do not engage with my main point. Since 1945 Europeans have been trying, very hard, to stop Europe being the source of a third world war. That is the whole point of the project.
You have ridiculous little localists in England in particular that argue for the pound, as though the relative position of that currency is a viagra moment for them. Well, it isn’t for me. If we subsume the GBP into the Euro tomorrow then I’ll not have a problem with that.
My point is merely that the founding fathers probably had to put up with this sort of nonsense too.
As far as I am concerned, nationalism of the British, Germanic or French sort is an affront to the rest of us.
I agree with the thrust of your post @ 12 – especially the private profit private risk bit – shades of Darien? However the situation in Iceland isn’t that clear cut.
#14 by Doug Daniel on September 5, 2011 - 12:37 pm
The origins of the EU may have been in order to stop WW3, but surely we’ve long since reached the point where a recurrence of the events of the first half of the 20th century are not just unlikely, but nigh on impossible? We do not need to converge all sovereign powers of EU states in order to avoid conflict – Germany is hardly likely to declare war on France just because they have differing interest rates. Of course, if individual countries start feeling aggrieved at what they perceive to be a loss of sovereignty in order to make up for other countries’ mistakes, and start electing rather unsavoury characters as their leadership as a result, then conflict is actually more likely – it would just be called the European Civil War, rather than World War 3.
The fact is, the EU is no longer about just avoiding conflict in Europe. If that were indeed the whole point of the project, then maintaining good diplomatic relations and trade agreements between countries would be the extent of its dealings. But we’ve gone way beyond that, and the purpose of the EU has become about increasingly tighter integration between EU nations, with no end in sight. On reflection, this was an inevitable consequence of creating a European parliament, as politicians are always looking to increase their power. They were never going to be satisfied with just keeping the peace.
I understand what you’re saying about the British, German and French nationalism being embarrassing. However, it’s not unexpected as all three have been major powers at various times in history, and as such, do not like to feel they are being neutered. The British government refuses to accept that the British Empire is no more, and I daresay the governments of France and Germany probably have similar fears regarding loss of stature. As a result, trying to work towards a genuine United States of Europe will always be fraught with problems.