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The Euro - stepping back from the brink?

The recent summit marks an important turning point in building a genuine economic union in Europe and averting market attacks on weaker members. Closer fiscal union should not be feared, provided the political and, critically, democratic frameworks are developed to underlay this significant advance of the European project.

John Palmer
3 July 2012

“The Euro is on the brink of collapse and with it, perhaps, the European Union as we know it.” With these words Open Democracy has invited responses to the Euro-area turmoil and to George Soros’ analysis which places the travails of the single European currency within a wider crisis of conventional economics.

Following the Brussels European Union summit last week the Euro-area has taken a step – no, several important steps – back from the brink. Having had a good look over the edge, EU leaders have finally acted to relieve the immediate financial pressure on troubled Euro-area economies – notably Spain, Italy and Ireland – and will try to offset the crippling austerity strategy with modest growth initiatives.

The Euro-area states have also begun to sketch a road map designed to lead to a banking, regulatory and, eventually, fiscal union. There is talk about parallel preparations for a more democratic, European political union over the next couple of years.

In reacting to these developments, two obvious dangers are to be avoided. Political rhetoric should not be confused with concrete decisions. But it would also be quite wrong to dismiss what has been agreed as mere PR and unlikely to prevent eventual disaster overtaking both the Euro-area and the wider European Union.

Talk before the Brussels meeting of how an authoritarian, Angela Merkel led government was trying to impose a “German dominated Europe” was offensive and ludicrous. So too were the tired clichés drawn from the football world after the summit that Merkel “lost one goal to nil” at the hands of the southern Europeans.

The truth is that an outline compromise is emerging which would create an economic government in the Euro-area at the heart of the EU. In return for German agreement to “mutualise” Euro-area country debts – putting German credit worthiness behind economies under threat – the others would have to accept that final authority on banking, regulatory and budget policy would move from national to the Euro-area institutions.

If this plan is acted on, financial market speculators will have to think twice before launching a full scale attack on vulnerable Euro-area currencies or risk getting their fingers badly burned. If the plan fails at any stage then the financial Armageddon which has for now been averted, would be unleashed again with even greater force.

Other weaknesses in the Euro-area’s economic armoury remain. The pledge of a Euro 400 billion boost for investment led recovery prioritising the hardest hit countries is welcome. Bit it still falls far short of what is required. The debt burden remains crippling and will almost certainly eventually demand re-structuring (longer repayment periods and lower interest rates) and also some element of debt forgiveness.

Member states wrestling with massive budget deficits should be expected to collect taxation – particularly from the rich and some of the professional classes who have long ago made tax evasion and avoidance into an anti-social art form. A drastic reduction in the astronomic Greek military and armaments budget should have been imposed years ago. But Greece now should get significant relief from an unacceptable collapse of living standards.

There are also references in the Brussels summit communiqué about the responsibilities of Germany and other northern states running surpluses to balance austerity measures demanded elsewhere in the Euro-area with a boost to domestic economic demand.  This would represent a much needed move a greater symmetry in Euro-area economic policy.

By starting to alter economic course, the Euro-area is responding George Soros’s warning about “misguided economic policies feeding a negative economic feedback loop, squeezing the life from Europe’s economies.” But it will take mass campaigning by civil society forces – including trade unions and political progressives – to force the Euro-area ship of state to further, necessary changes.

George Soros is less convincing when he complains about the European political project itself being “over ambitious.” The degree of ambition is made necessary by the nature of the economic, political social and global challenges facing the European people.

But Soros is surely right to complain about a process of market driven European integration which has not been matched by a deeper democratic political integration. Tony Curzon-Price is also spot-on when he states:

The game is up not because Europe has won, but because the powerlessness of the nation is being revealed. Watch Rajoy, Hollande, Merkel, Holande, Tsipras and more trip form crisis to crisis as they try to wear the myth of power to the very end.

Although I disagree with David Malone when he dismisses “saving the Euro” as of no great importance, he is right that: “Our present crisis is one of democracy even more than it is of finance.”  Too many Europeans feel that EU/Euro-area integration is something “done to them by others” rather than the result of decisions they have taken or approved of.

There is an understandable – but deeply misguided view – that European democratic accountability is something which can only be exercised through national Parliaments and governments. It is forgotten that before the first direct elections to the European Parliament in 1979 there was a part time European Assembly composed of appointed national MPs. It proved to be a complete irrelevance.

As the Euro-area moves uncertainly towards political union there can be no ducking the challenge to create a genuine supra-national European democratic politics. This will require the embryo EU parties to secure real autonomy of action at the European level. New parties may also emerge to respond to new European challenges.

Some EU governments are already proposing that in future not only should Commission Presidents be elected by MEPs but that the posts of President of the Commission and the European Council should eventually be merged and elected directly by the people. These developments may prove a recipe for political conflict over the direction the Union should now take. But political conflict at the European level will give substance to political choice, without which voter participation in European elections will remain problematic.

What then of the UK or what may emerge as a rump “England” after the Scottish referendum? Some Euro-sceptics demand a referendum on immediate withdrawal from the EU. Others want to negotiate a more marginal role for Britain mainly confined to the single European market. Neither faction seems aware that single market participation – even for non-EU states – involves obligations to observe EU set standards and help finance the EU budget.  The coming referendum seems unlikely to raise the lamentable level of the European debate in Britain. 

 

 

 

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