The plus points of this crisis

The plus points of this crisis

There are a few possible benefits, though all of them could disappear.



Are things really as bad as they seem in the European Union? Or are we allowing the mood, as well as policies, to be dictated by hostile commentary and nervous financial markets? There is certainly no shortage of expert opinion telling us that the ‘European dream’ is over and our social model under severe threat. Could the Union be drifting into feeble intergovernmentalism?

Doubts are multiplying about the eurozone’s ability to recapture and hold investor confidence when its only policy prescriptions for its highly indebted members are stinging tax increases accompanied by highly deflationary cuts in public employment, pensions and welfare policies.

Indeed, many argue that the economic growth so ardently desired in national capitals can only be secured by real wage cuts of 20%-30% (in Spain, Portugal, Greece and probably Italy), though they acknowledge that these cuts would make the recessionary plunge much steeper.

Peering through the present policy mist, commentators from Paul Krugman (New York Times) to Wolfgang Munchau (Financial Times) see economic crash landings in southern Europe, with potentially dire consequences for the survival of the eurozone.

There is no doubt this is one of the worst economic and political crises in the Union’s history, if not the worst. How it will end is unclear, not least because some governments may submit to the power of the street and back away from full implementation of the swingeing fiscal programmes and structural reforms that are being prescribed by the EU.

However, the €750 billion stabilisation programme has bought the Union time to nail together a realistic debt-reduction strategy as well as measures needed to restore a semblance of fiscal discipline, growth and stability. There are some positives on which it can build, though each stands on very shaky ground.

First, the EU retains, and indeed has demonstrated, a capacity for bold and determined collective action. Inevitably, its decision-making was accompanied by disagreements between member states and it would have been better to adopt crisis measures sooner. Still, Angela Merkel’s dislike of Nicolas Sarkozy was not allowed to derail the process: neither the package for Greece nor the much larger stabilisation fund would have been possible without Paris and Berlin working together.

However, the political benefits of unity in the face of this crisis were tarnished by Germany’s unilateral ban on naked short selling. There is now considerable disarray and uncertainty about the Union’s approach to reforming the regulation of financial markets.

Second, the Lisbon treaty has proved a help, not a hindrance. Herman Van Rompuy, the president of the European Council, and José Manuel Barroso, the president of the European Commission, have wisely decided to consult and collaborate rather than compete for power and position.

Those who fear that Van Rompuy wants to turn the European Council and the governance of the EU into an intergovernmental system do not know their Christian Democrat Flemish politicians. They are as likely to steer in that direction as they are to propose that French should be Belgium’s national language. Van Rompuy is harnessing his office with Barroso’s to defend the Community system, not to deform it. However, neither man has the authority and standing to hold the European Council together if the eurozone countries cannot agree on a new approach to imposing fiscal discipline.

Third, Greece, Spain and Portugal are putting policies in place to reassure creditors. But they need to do more in the way of structural reforms: they cannot duck freeing up their labour markets and cutting back public-sector workers’ privileges, especially if they seek access to the stabilisation funds.

The fourth positive is economic – the slide in the euro’s value. The euro was launched ten years ago at around $1.18 and has been as low as 84 cents. Currencies rise and fall and the euro’s current value should provide a very welcome stimulus, especially for the German economy, which may yet become the eurozone’s locomotive if southern products become more competitive and German companies go shopping in that region. However, at present there is little reason to believe that German demand will be strong enough to haul the southern countries out of recession.

Fifthly, crisis is good for the Union. It reminds member states why they are bound together and how little they can do by themselves to fashion and implement successful exit strategies. However, if Germany and a reluctant France were to conclude that the euro could be saved only via treaty changes, would they be able to persuade the rest of the eurozone and those member states that do not use the euro? This seems very unlikely, and raises the possibility of a new treaty signed only by the 16 countries that use the euro.

The shrill voices lamenting the absence of strong leadership rather miss the point that, in their different ways, Merkel, Sarkozy, Greece’s George Papandreou, Portugal’s José Socrates and others are trying to persuade voters to accept a variety of very unpalatable solutions.

What they have to do now is translate national measures into a collective vision for European reform and recovery. They cannot avoid thinking nationally, but they must soon make the leap to thinking also in European terms.

John Wyles is the chief strategy co-ordinator at the European Policy Centre in Brussels.

John Wyles 

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