Eurozone crisis: European Union prepares for the ‘great leap forward’
By Julian Coman
As EU politicians desperately try to save euro, plans emerge to deepen the union, widening Brussels regulatory powers
As the skies over euroland darken, at least the jokes in Brussels are getting better. At a recent gathering to discuss the crisis that threatens to unravel the euro, one former member of the European parliament observed acidly: “They ought to give this year’s Charlemagne prize [for services to European unity] to the bond markets. Who has done more for the cause?”
The black humour was a way of stating a bald truth: in the de facto capital of the European Union, the ongoing near-death experience of the European single currency is concentrating minds in unprecedented fashion. As governments across southern Europe buckle under the pressure of paying back their debts at ever-higher rates of interest, and even formerly “respectable” economies such as France and the Netherlands feel the chill wind of market scrutiny, the custodians of Europe’s future have belatedly found their voice.
Last week the normally dour and pragmatic German chancellor, Angela Merkel, announced that the EU faces “perhaps the toughest hour since the second world war. If the euro fails, then Europe fails, and we want to prevent and we will prevent this. This is what we are working for, because it is such a huge historic project.”
As the stakes rise higher than anyone thought they could, the British are increasingly seen as an irritation and even an irrelevance. On Friday David Cameron rushed between overseas meetings with three key players in this monetary psychodrama: Angela Merkel, leader of the only country with the economic heft to sort the mess out; José Manuel Barroso, the Portuguese president of the European commission which is charged with giving Brussels a plan for salvation; and Herman Van Rompuy, the hitherto invisible president of the European Council, the inter-governmental body that will adopt that plan.
Cameron hoped to extract a promise that the City will not be targeted by a future financial transactions tax and a pledge that countries such as Britain that are outside the eurozone will retain their influence in the turbulent times ahead. The prime minister will have discovered that, as the European dream of integration via monetary union teeters on the brink of catastrophe, the concerns of the semi-detached are at the top of no one’s agenda. The UK’s decision not to directly assist bailout funds for Greece and Portugal went down badly; the subsequent exhortations from Downing Street to sort the euro mess out were greeted with exasperation.
So Downing Street will be no more than a spectator as the eurozone launches itself, in the context of crisis, into a new era. After a tumultuous late autumn, Brussels, Paris and Berlin are agreed that radical reforms are unavoidable. November 2011 will be remembered as the month when Italy nearly went under as the bond markets targeted its sovereign debt, when the Greek government came perilously close to exiting the euro altogether, and when France, for five decades in the vanguard of European integration, saw its own economic credibility questioned.
The counter-offensive is to be a risky route march to a form of economic and political union; it is likely to be deep, far-reaching and for many, whether on the political left or right, deeply problematic. Brussels officials will exercise unprecedented powers of intervention over national budgets, tax policies, labour markets. The scrutiny may extend even to a country’s schools, universities and courts. Dissent, whether expressed through referendums, elections or the debating chambers of national parliaments, will have only a limited impact. The direction of travel is non-negotiable. For “Europe” – the idea rather than the geographical entity – it is now or never.
The European Union has known crises before. There was an enormous row in the 1960s, when Charles De Gaulle’s France vetoed British entry, which eventually took place in 1973. In 1999 all 20 commissioners resigned after allegations of corruption in high places, prompted by revelations from a Dutch whistleblower named Paul van Buitenen. In 2005, there were the disastrous results of referendums held in France and the Netherlands, when no-voters scuppered a new EU constitutional treaty, which led to a prolonged bout of navel-gazing in Brussels. But there has never been anything like the current crisis over the euro.
“We are quite worried, to use the British manner of understating things,” one senior EU diplomat said. “We need to get through Christmas and keep this ship afloat.”
Assuming that can be done, the heavy lifting will only just have begun. One European diplomat paraphrases the EU’s Luxembourgish-French founding father, Robert Schuman: “The size of the solution has to be in proportion to the problem we’re solving.” Twelve months of bailouts, Greek riots, toppled governments and a market meltdown have been alarming enough, but a crisis of sovereign debt could soon be replaced by a crisis of democracy.
Jean-Claude Juncker, the prime minister of Luxembourg and current president of the Euro-Group, once joked: “We all know what to do, but we don’t know how to get re-elected once we have done it.” The quip has gained a frightening new relevance ahead of a “great leap forward” to an economic union that can keep the markets at bay. The hardcore eurozone countries, led by Germany, have made it clear that the sovereign debt crisis leaves politicians no room for manoeuvre, however far their poll ratings fall.
Democratic accountability has become a secondary virtue, desirable but expendable. In Italy and Greece, the former Goldman Sachs bankers Mario Monti and Lucas Papademos, having been parachuted into highest political office, are set to raise retirement ages and cut state spending without having to canvass for a single vote. George Papandreou’s attempt to hold a Greek referendum over a new bail-out package led to his ejection from office before the ballot date was even set. In Rome, Monti has not even bothered to include a single elected politician in a cabinet which must perform the most painful economic transformation in Italian postwar history.
The restlessness is already palpable. Whistles and jeers, from both right and left, greeted Monti as soon as he took his prime ministerial seat. Italians are bemused at the speed and nature of the “takeover”, however much they delight in the fall of Silvio Berlusconi.
Elsewhere, in the battle to save the euro, democratic proprieties are destined to be similarly ignored, as Brussels declares a state of economic emergency. Mariano Rajoy, the man almost certain to become Spain’s next prime minister after today’s general election, has already claimed he will be his own man. But that illusion is likely to be dispelled well before the new year.
The buzzwords in the corridors of the commission’s Berlaymont building in Brussels are “discipline, surveillance and enforcement”. Countries that fail to follow the austerity writ from Berlin and Brussels are liable to be subject to harsh sanctions – perhaps fines of 0.2%-0.5% of GDP, and the withdrawal of wealth transfers from the richer regions of the EU to the poorer ones.
Fines will be complemented by intrusive “supervision”. Last week Barroso told the European parliament in Strasbourg that those countries struggling to lower excessive levels of debt will also be subject to intervention from Brussels in “domains previously restricted to national governments or parliaments”.
Eurozone governments pondering the meaning of that ominous turn of phrase would do well to peruse the letter sent to Rome by the Finnish economic and monetary commissioner, Olli Rehn, in the last days of Silvio Berlusconi’s government. Now notorious, after being published in the Italian media, the letter contained 39 questions about Italy’s economic plans. Rehn’s curiosity ranged far and wide.
Brussels is up for a fight – both with the markets and with recalcitrant national governments. But in the end, all will depend on Germany. A crisis that took the EU unawares has laid bare the overwhelming hegemony of its largest, most important and most successful economy. Even the French, who for decades ran the EU as equal partners with the Germans, are acquiring something of an inferiority complex. As bond yields on French sovereign debt began to rise alarmingly, the German magazine Der Spiegel ran a gently condescending feature on the French economy, entitled “Bonjour Tristesse” (Hello, sadness). It observed that France had been “living beyond its means for 37 years [since] the last balanced budget in 1974″. On French TV, Opel car adverts are now broadcast with the voiceover in German, now a signifier of efficiency even in Paris. “No need to be ashamed of speaking German abroad any more,” chortled the Süddeutsche Zeitung.
But the shadows of the past are still there, particularly when it comes to money matters. After yet another EU summit last month, one German tabloid headline read: “Hands off! Failed states are still going to get our gold!” The economic collapse of the 1920s and 30s, hyperinflation and its aftermath, are still influencing German calculations in 2011.
Without a new disciplinary apparatus, designed to keep the “reckless and feckless” on the straight and narrow, and policed by the European commission, there is not a chance that Berlin will compromise its own finances by pooling its debt with beleaguered neighbours. It would far prefer to strike out in a new elite monetary grouping, probably including the Netherlands, Austria and France. And Merkel will not countenance a massive and inflationary intervention by the European Central Bank.
So after all the half-measures, partial solutions and months of “kicking the can down the road”, the eurobond route, and all that goes with it, may be the only way left to save the euro. According to Verhofstadt, “Either we do this or it’s the end of the single currency.”
Will the eurozone’s population ultimately be reconciled to emasculated national parliaments enacting austerity programmes that may take their countries back into recession? Barroso has taken to quoting the wisdom of another of the founding fathers of the EU, Jean Monnet: “People are ready to change when they understand there is no alternative.”