Can Europe Make It?

Greek and European paradoxes

Europe's handling of Greece reveals the crisis of its own project, which is even more serious in the context of accelerating global changes. 

Ernesto Gallo Giovanni Biava
28 July 2015

Prince Tancredi, a character in The Leopard, a famous novel set in 19th century Sicily, reckoned that "if we want things to stay as they are, things will have to change". In the case of Greece’s financial troubles, a lot of things have changed since they broke into public view in 2010; and yet the problems seem to be always the same. But if Athens still cannot repay its debts, neither can the eurozone of the European Union as a whole find any resolution, as bailout follows bailout. The euro’s future itself remains uncertain, to say the very least. 19th-century Sicily was enduring a long, slow, and in the end unstoppable decline; is Europe on the same course?

Like it or not, Europe’s key problem is that a currency union without a political union is not sustainable. There have been and indeed there are many cases of monetary unions, but they have survived only when they included small countries (e.g. Switzerland and Liechtenstein) or when one of them was a colonial (or formerly colonial) metropole (e.g. France and the franc zone in western and central Africa). Optimal currency areas function well only if there is a fiscal union and the possibility of transfers from wealthier to poorer countries. This is not the case for the eurozone. To paraphrase a famous sentence from the American revolution, we could say "no euro without representation" - that is, no euro is possible without a (democratic) political union. Why then have we reached a stage in which the destiny of eurozone citizens is mainly decided by unelected bodies and technocratic authorities?

A flawed model

European integration grew out of the second world war, and began as a political project that would make impossible a repetition of that tragedy. Within a few years, the economic and functionalist aspects won over the early federalist drive, but a cluster of institutions was anyway established in an attempt to combine liberal and social elements, and progressively move from technical to political integration. Increasingly since the end of the cold war, however, the newly-born European Union has gradually become an ever more hybrid institution trying to desperately to catch up with neoliberal globalisation, principally by creating an ever larger number of bodies, policies, and organs with awkward names and little democratic content.

The European parliament, which directly represents EU citizens, is one. It has 751 members; the turnout at its 2014 elections was 42.54%. These two figures declare its complex composition and weak legitimacy, despite efforts to enhance its powers and visibility. "Hard politics" is managed by the heads of the bigger member-states; in particular, by France and Germany, and increasingly by the latter alone. 

Germany is the eurozone’s largest economy and its most populous state, but is in no way entitled to make decisions for other countries or for the EU as a whole. In addition, some Nordic and eastern European countries which have taken a critical stance on the Greek crisis and are often presented by the EU/IMF/western media as "model students", have in fact questionable economic records.

There is no denying that some countries in the former Soviet bloc have created competitive business environments, invested in new sectors (e.g. IT and software), and achieved reasonably high growth rates. Yet unemployment (or underemployment), in particular for young people, has not been defeated. Slovakia, the "Tatra tiger" has an unemployment rate of 12.1%; Slovenia is slightly better off with 9.2%, and Latvia, a reputed success story after an IMF bailout, has about 9.9%.

So instead of accusing Greece, EU countries ought to think about common economic and political solutions. The French president's proposal of a eurozone government is a step in the right direction, though it also raises the question of how credible and authoritative is the French presidency at the moment. After all, it was the French people and politicians who have several times rejected the possibilities of further integration (including the EU constitutional treaty in the May 2005 referendum).

A slow lane

It is ever more clear that the current EU mainly acts on behalf of powerful lobbies and interests (such as financial sectors, oil industries and defence companies). Rather than "bailing out" the Greeks, it has shifted onto them the problems of French and German banks (as an IMF director reveals). The fact that the eurozone banks are undercapitalised is an open secret; as of 16 March 2015, for example, the market capitalisations of Deutsche Bank and Credit Agricole were respectively $45.1 billion and $36.1bn vis-à-vis $160.5bn and $84.9bn for HSBC and Lloyds, two UK-based giants. Since the inception of the crisis, German, French, and Italian banks have felt under pressure because of the mainly regional scope of their activities: that is, their focus on Europe (including the ex-Soviet bloc), and relative weakness in emerging markets such as China, India, and southeast Asia.

In Greece itself, the crisis officially started on 23 April 2010 with the request of a €45 bn ($49bn) loan from the EU and the IMF. After five years, what initially was a circumscribed problem has not been resolved. Is this really Greece’s fault? Despite the corruption and mismanagement which certainly characterised Athens’s government, this crisis did not originate in Greece. It has its roots in the inability of the eurozone as a whole to address its economic and political issues in a moment of financial, economic, and social crisis in the western world.

The Greeks have been often derided as "lazy" or "corrupt" when the key responsibilities lay elsewhere. The current EU has benefited from extremely low interest rates (still 0.05%), but will hardly survive without a political union. In addition, the rest of the world is moving fast. The United States has promoted a much coveted deal with Iran, also with the support of Moscow, as President Obama has recognised. Russia has hosted the summits of the BRIC states and the Shanghai Cooperation Organisation (SCO), which is opening to Pakistan and India. The European Union, not the Greeks, is as usual on holiday.

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