Last week, I discussed the latest response by European leaders to the Eurozone debt crisis, which emerged from the European Council summit of 21st July. Since then, much coverage of the crisis has continued to evaluate the impact of the deal reached there on the situation in Greece and other peripheral countries, as well as the wider Eurozone and the European Union (EU) as a whole. Opinions have ranged from unimpressed to negative about the latest deal and its potential as a long-term solution, and onlookers have already started asking when the next bail out might come and what it might entail. With regard to the wider EU, questions are being asked about how those states outside the currency union and/or opposed to deeper integration will react if, as increasingly appears necessary, much deeper integration takes place amongst Eurozone states. The need for some form of debt mutualisation, for instance in the shape of common Eurobonds, is widely discussed and the Commission is expected to propose such a measure this autumn. Although opinion is divided over whether this would require Treaty change, the German Chancellor argues that it would, and this is an experience most will not want to revisit so soon after the fraught process of gaining union-wide approval for the Lisbon Treaty, which only came into force in late 2009.
If passing the Lisbon Treaty wasn’t hard enough, add to the mix a rise in Euro-scepticism, and the increasing presence of far-right, anti-EU parties in several northern European member states, and the debt crisis could be dwarfed by a political crisis before the Treaty change meant to address the former comes through. Even mainstream parties, such as the Conservative coalition leaders in Britain have vowed to fight against ceding any new powers to Brussels, in favour of repatriating some that are already there if possible. Perhaps, then, measures requiring Treaty change should be avoided to the advantage of others, subject only to elite agreement, but then what of the democratic deficit? It does not appear that political will exists to carry out the changes to economic governance that are necessary for safeguarding the future of the Eurozone, though this does not mean that leaders should thus proceed as far as possible behind closed doors, as a result of economic exigency. Rather, leaders should prioritise the goal of changing national moods, making citizens aware not only of the risks to the periphery from a failure to resolve the debt crisis, but to the core of the Eurozone as well.
In Germany, for example, it does no good for politicians and the media to emphasise one side of the story, that is the costs of bailing out the profligate Greeks and the risks that Greece and others will continue to borrow beyond their means as long as they are bailed out, while ignoring the side of the story where the German financial system could hardly withstand a Greek default. Neither is it sensible for the French and German leaders to harp on about the injustice of bailing out Ireland when Ireland could raise its corporate tax rate to increase revenue and, incidentally, make it easier on France and Germany to compete for foreign business. In fact, the justice or otherwise of bailing out indebted states is probably less relevant than the likelihood that even French bonds could loose their AAA rating if this crisis is not soon contained.
It is not only to avoid risks to their national economies that Europe’s citizens should be in favour of saving the euro, but also to benefit from a more symmetrical economic and monetary union. For example, the success of the European Central Bank (ECB) in maintaining price stability is a real achievement especially considering the twelve to seventeen distinct fiscal policies it has had to contend with in doing so. What great possibilities, then, if there were a European finance ministry to coordinate a complementary Eurozone fiscal policy to ECB monetary policy. There would probably not be the same need for certain states to face inflation while others suffocated under too high rates. None of this is to mention the dire situation, comparatively speaking, if a return to the days of hedging bets on currency movements and budgeting for conversion costs in the import/export markets were in the offing.
The main point to take away from this is that Europe’s leaders have shown themselves to be painfully aware of the need to save the euro, compromising on personal preferences and in the face of politically sensitive national objections. Why, then, do they pretend to their national audiences that a choice has been made? The choice for the Germans over whether to consign the Greeks to failure or continue to provide them with aid is little different than the choice over whether the Germans wish to consign themselves to relative failure as well. It is crucial that Europe’s citizens come to understand this, so that political will might be reconciled with the deeper economic integration that may take place regardless.