Global Agenda: The ghosts haunting Europe

The best thing that can be said about the summit underway today is that not much is expected from it.

By PINCHAS LANDAU
December 8, 2011 23:20
4 minute read.
Nicolas Sarkozy and Angel Merkel

Sarkozy Merkel 311 R. (photo credit: REUTERS/John Schults )

Another week, another “critical,” “make-or-break” European summit in the seemingly endless round of meetings and conferences, some of them scheduled and some labeled “emergency” – but all of them focused on trying to stem the worsening crisis that has engulfed country after country and has advanced relentlessly from the periphery to the core of the euro zone and the European Union.

The best thing that can be said about the summit underway today is that not much is expected from it. That is the result of the long list of failures and disappointments from the preceding summits. Time after time, the leaders have come together and talked the big talk, but have failed to deliver the actions that translate the talk into a genuine program that will address the underlying problems.

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In economic and financial terms, the simplest and most correct way to understand the flaw that has undermined all the rescue plans to date is that they have addressed liquidity problems, rather than solvency issues. From the very outset, just over two years ago when Greece owned up to being in serious trouble, the focus has been to provide Greece, Portugal and the other debt-ridden countries with the means to pay the upcoming interest and principal on their debts.

True, in tandem with the bail-out packages, there has been a concerted effort to impose “reform” on these countries – by which it is meant making their economies more efficient, less sclerotic and more attuned to the realities of the global economy in the twenty-first century. But these efforts have failed, because the austerity measures have caused economies to shrink and have thereby made the debt burden harder to bear. Austerity has also triggered fierce resistance, especially where it is viewed as a means of ensuring that foreign debtors get paid, rather than as a means of ultimately improving the lot of the average Greek or Portuguese citizen.

As the crisis has deepened, these financial and economic issues have come into clearer focus. But, instead of that making them easier to address and ultimately solve, it has made matters more difficult. That is because it has highlighted the much deeper-seated social and political issues lurking beneath the surface.

The European project has, from its outset over sixty years ago, been a political project clothed in an economic guise – first a customs union, then a free market and then a single market – and later in a financial guise – the European Monetary Union. But all of these were understood by the political elite of all the countries involved as stations on the route to the final destination, of “ever-closer union” – meaning full integration and a form of “United States of Europe.”

This was the common goal of the two main partners of the project, Germany and France, although they always differed with regard to the structure and mechanism of their respective visions: France was ever the believer in a centralized governmental system, whilst post-war Germany was committed to federalism and a less powerful and intrusive central government, at both the national and ultimately the European levels. Beyond this debate was the common goal of restraining German dominance of Europe and channeling that country’s energies via the European project, thereby breaking the pattern of Franco-German rivalry that had dominated European history for the previous hundred years.

Now, however, when the chips are down and it is plain that only Germany has the financial and economic clout and credibility to save the endangered euro and potentially the entire European project, the underlying tensions in the Franco-German relationship are coming to the fore. Germany is loth to authorize the European Central Bank to effectively print money for a massive purchase of Italian government bonds. The memories of hyperinflation in the 1920s have been handed down and preserved, and they still deeply color German thinking at every level from household to government, and therefore shape policy accordingly.

Furthermore, in return for putting its money and credibility on the line, the Germans want to be sure that the Italians, Greeks and others will not cheat, lie and ignore their commitments made in the context of the reform programs being passed by their parliaments. The chickens are coming home to roost for the Mediterranean countries that repeatedly pledged to meet German-dictated standards, but never took their pledges seriously. The only way Germany’s concerns can be assuaged is by transferring fiscal control to Brussels, in other words by complementing the monetary union with a fiscal one. But this requires almost total loss of sovereignty on the part of all the countries in the Union – especially the weaker ones, who will be forever told what to do by the stronger ones, read Germany and her allies.

So it comes back to the old European bogeyman of German control of the continent, this time by dint of controlling the purse-strings. Even if the political elite in many countries is prepared to go down this route, it is very unlikely that the general public will follow them. The gulf between the elite and the masses has been growing wider for years, but the crisis has destroyed the credibility of the European vision. It will now be all too easy for radical groups to depict the current governing class as having sold out to the Germans. That’s a line that will play well in almost every country on continental Europe, and we can expect to hear it with increasing frequency during 2012.

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