Transcript

Is the European Union on the brink?

Stefan AuerStefan Auer
s.auer@latrobe.edu.au

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Matt Smith:

Welcome to the LaTrobe University podcast. I would be your host, Matt Smith and with me today is Doctor Stefan Auer. He's the director of the Innovative Universities European Union Center at La Trobe University. Thank you for joining me, Stefan.

Stefan Auer:

I'm very pleased to be here.

Matt Smith:

You're here today to talk to me about the European Union and the current situation it finds itself in. So firstly, I thought we might step in to the hot air balloon that I've conveniently set up here. We'll go up. You aren't scared of heights, are you Stefan?

Stefan Auer:

No. I love flying.

Matt Smith:

OK, then. Watch out for the bird over there. OK, if you man the bellows. What are we looking at here? We're right above Europe here. What's the situation that we've got here?

Stefan Auer:

Complicated.

Matt Smith:

Complicated?

Stefan Auer:

I don't think that anyone can say in any certainty where Europe is heading right now. Will the eurozone disintegrate? I don't know. But I think that we should expect the unexpected. A year ago also most people would think that the very question is fanciful for these days, mainstream media in Germany, in France are openly debating that question. So everything is possible.

Matt Smith:

Tell me a little bit about the European Union. We've got all these countries down there below us. Whereabouts did this story start?

Stefan Auer:

It started immediately after the Second World War. When there was a growing realization in Europe amongst the elite of Europe that some kind of supernatural governance was needed for Europe for it to sustain peace. And that was the story of the two devastating wars. So there was the Treaty of Paris in 1951 that created European Steel Community. That basically created a precedence of supernatural governance where key industrial sectors that are crucial for fighting in wars, coal and steel, were subordinated to a supernatural authority.

And in that way the economy of Germany and France were bound together, six founding members alongside France, Italy, the Benelux countries were there at the beginning. And that was the European Coal and Steel Community. But the real beginning I think for what is today called the European Union, the creation of a common market for Europe was the treaty of Rome, which is in 1957. And in some ways, many scholars would argue that these two different treaties created two different projects, which continue to compete for dominance in the structures of the European Union.

Matt Smith:

What have been the benefits of the European Union since then?

Stefan Auer:

There are obvious economic advantages to gain through common market. But the political stability that has been insured in Europe is also not to be taken for granted. That is a tremendous achievement that one should not ignore even today. Then Europe faces this difficulties. In fact, I think that it would be very useful for Europeans to remind themselves on the key aim of European integration which was to save our peace in Europe and ensure political and economic stability. I suspect that the problem with the eurozone is that it was made to strengthen these aims or the delivery of these aims. But it seems to be backfiring.

I mean what we are witnessing now is strengthening of more egocentric nationalist sentiments where Greeks feel badly treated by Germany and France. German voters are objecting to having the responsibility for the mismanagement of Greek public funds etcetera. This is, I think, one of the key problems that the eurozone and the European Union is facing right now. That the project that was meant to cement Europe's unity. That was really like the crown on that ambitious project of Europe unity. The common currency seems to be now working against that very ideal of unity.

Matt Smith:

Is the Euro at risk of collapsing at all? And what will be the implications be if it did collapse?

Stefan Auer:

I really don't know the answer to that question and I don't think anyone does. But I do think that even politicians in Europe need to openly discuss these scenarios. It seems to me that we can now say that the introduction of the eurozone was probably a big mistake. A very costly mistake, but I see no easy solutions as to how that can be unmade, as it were, to unravel that common currency. There will not be an easy process but to stick to it against any kind of economic sense is also not sensible and sustainable.

I don't know. It is always possible to undo it. I witnessed something similar quite recently in these so-called times in my own homeland Czechoslovakia, which was a multi-national federation. That is integrated in January 1993.

Slovakia and the Czech Republic became two independent countries and the leader of both countries where adamant that they will preserve the currency. The Czechoslovak crown. And yet a couple of weeks later both countries started printing their own currencies and new currencies were introduced. I must say that the whole process of disintegration of Czechoslovakia. Most people would probably see that it wasn't such a tragic step to take. In hindsight, it probably helped both nations in ensuring the kind of democratic self-governance that all European nations strive for. 06:04 I think everything is possible. No one expected communism to collapse in 1989 and it happened. Few people expected Czechoslovakia to disintegrate immediately after the collapse of communism and it happened. And people who predicted that would be the demise of both countries economically and politically are also proven wrong. I think it would useful to think realistically about the possibilities of undoing the common currency. And it will be probably better to sacrifice the common currency to ensure the adherence of the European Union. As the project of European unity.

Matt Smith:

So tell me about the problems that Greece are facing now? And how could their situation has gone unnoticed?

Stefan Auer:

The problems that the Greek government or Greek society is facing now, massive. That is they had to adopt this radical saving measures lead by all civil servants although have no salaries dramatically reduced in many privileges. They are also been reduced.

So this is a hugely unpopular move. Yet most observers doubt whether even these measures will be sufficient to revive Greek competitiveness. And that is where the eurozone has played a crucial role in that Greek government no longer has that opportunity to devalue its own currency which is the way in which in the past countries like Italy, Greece, Portugal in Spain dealt with the competitive pressures of global economy. That avenue is no longer there. And this is something that will be very difficult to do for any democratic government. To enforce such drastic measures that resolve in reducing people's salaries.

Matt Smith:

Will Greece’s problems affect all of the European Union?

Stefan Auer:

Absolutely. I mean, this is the issue to stress. It's not only about Greece. Greece is singled out for obvious reasons because it is really facing massive financial difficulties. But when it comes to Greece's fudging the rules...Greece was not the only country doing so. When the Euro, the common currency was introduced it was done through the Treaty of Maastricht. That also very clearly stipulated a set of criteria that all countries had to fulfill to enter the eurozone and now it is claimed that the Greeks fudged the books. But it was also understood and explicitly stated that the countries had to continue to fulfill these conditions.

And even major states who insist it so much on these rules like Germany and France actually violated against those rules. I mean the rules were pretty straight forward. You are not allowed to have public debt that are higher than 60% of your GDP and you're not allowed to have a budget deficit higher than 3% of your GDP. Right now very few countries in the eurozone fulfill those criteria but Germany and France actually violated again in a couple of years ago already. In that way, those rules were never fully adhered to.

Matt Smith:

Is it a possible solution so that all the countries that don't get dragged down and perhaps something like a multitude eurozone?

Stefan Auer:

Well, that might be the result of the current difficulties.

Matt Smith:

You can tell them I came up with that idea when you go over to Europe, if you like [Laughter].

Stefan Auer:

OK. I see. No this is not just your idea with all due respect but it's a brilliant idea. But in a way the concept of multi-tier Euro or multi-levels or multiple geometries.

There's so many terms, even academic debates about it. That debate has lasted for the last 20 years I suppose. And in fact, you know, when the year it was introduced, I don't think anyone in Germany expected countries like Italy and Greece to become members because they were notorious for their public finances and disorder. So they just managed to get in the last minute.

Matt Smith:

Yeah. I suppose longer term.

Stefan Auer:

It is conceivable that eurozone will survive in shape or another but it would probably be preferable in fact if only countries that are roughly the same level of economic development but also involved with the similar kind of political culture would remain part of it. It is easier to imagine that France, Germany, the Benelux countries are a member...Austrians say...but not Portugal, Spain, Greece...I don't know.

Matt Smith:

Would the U.K. have been dragged down if they adopted the Euro as well and would they rather keep their own currency?

Stefan Auer:

I think that is absolutely the case. The fact is that Margaret Thatcher was proven right. She opposed the introduction of the common currency. She opposed the Treaty of Maastricht. That was instrumental for the accomplishment of that project.

And I think now more than 20 years later she was largely vindicated. And in fact it became the kind of consensus in Britain. I mean it was Gordon Brown, the labor party, also who opposed on some British entry to the eurozone. And of course we could see it that the first thing that happened when Britain faced these difficulties was that the value of the British Pounds was drastically reduced. And that means the factor that all people in Britain had their salaries cut by, say, 40% in terms of the global competitiveness.

But it didn't trigger social unrest because it was not implemented by the government. It was implemented by the forces of global market. That is the problem I think. A predicament that Greece found itself owing to the fact that it start in the eurozone.

Matt Smith:

Has the E.U. been over ambitious from what they've done or what they say they'd accomplished?

Stefan Auer:

I think so. I haven't thought that probably say two years ago. You know that I've been teaching the subject about the European Union for the last four years and I have always stressed to my students that in the past whenever Europe face difficulties, it came through them and it came out of them stronger. More determined to pursue the purge Europe's unity. But faced with the difficulties that Europe is right now I no longer firmly believed that that is still the case. I think that the Treaty of Maastricht the introduction of the common currency was one step too far. You simply cannot have one currency in...not only countries that have radically different levels of economic development but countries with radically different political cultures. It is not the part of the Italian political culture to be scrupulous about paying taxes. The Prime Minister is not to be paying taxes here. It is a part of political culture in countries like Germany to pay taxes

So you have very different attitudes towards the state. Towards public finances. Towards welfare state which are not easily compatible. And I think that the attempts that the E.U. leaders are pursuing now to create some kind of economic government for the whole of eurozone or for the whole of E.U. are ferocious.

Matt Smith:

What do you think the E.U. will look like in 10 years time? Do you think it will still exist or sure exist?

Stefan Auer:

I certainly hope that it will still exist. I certainly want it to exist. I think Europe needs the European Union. I don't think that the European Union necessarily needs the common currency. But I don't know how that can be undone. It will be a very different European Union from the one that we have known so far. I mean the European Union has changed over the last 50, 60 years anyway. But I think what we will be witnessing now is the process of partial disintegrations. Some of the more ambitious steps towards Europe's unity. I think we'll hopefully be undone to enable to nation's states of Europe to remain the focal points of democratic governance.

Matt Smith:

Doctor Stefan Auer, thank you for your time today.

Stefan Auer:

Thanks.

Matt Smith:

We should probably land our hot air balloon now.