Greek crisis may sound Europe death knell

Greek crisis may sound Europe death knell

31 May 2010

stefan-auer-thumb Dr Stefan Auer

Originally published in The Australian on May 29, 2010.

Watch video interviews recorded by Dr Stefan Auer for the IUEU on La Trobe University on iTunesU.

German Chancellor Angela Merkel was right to say last week that the Greek crisis and its resolution are no longer just about the survival of the common currency, but about the survival of the EU. 

Merkel also repeated her recent mantra that the key challenge for Europe today is to assert the primacy of politics over economics. This is where she is wrong, repeating the fallacy that underpinned several ambitious recent EU projects, including the introduction of the euro, which exacerbated Europe's economic problems and exposed the unsustainability of its social model.

How did we get here in the first place? By asserting the primacy of politics over economics, Europe-wide, and with astonishing disregard for the opinions of economists and European electorates.

There was little popular support for the introduction of the euro in Germany, the key player at the heart of this project. Its aims were primarily political: to solidify the project of Europe's unity by reinforcing its underlying principle of mutual solidarity among the nations and citizens of Europe. Yet this project, which was meant to bring Europe's nations closer together, is actually pulling them apart.

Old cliches and prejudices seem to be confirmed. Even before the first cracks appeared in the eurozone, Germans viewed southern European nations with suspicion as corrupt, unreliable and lazy. Mediterranean nations, in turn, are worried about an increasingly assertive Germany. And even the French criticise Germans for their excessive diligence and thriftiness.

Yet the common currency was introduced precisely to tame German economic might. It was a classic case of primacy of politics over economics. The euro was introduced soon after German unification and was linked to it - embedding Germany even more firmly in Europe appeared a fair price to pay for the recognition of its national sovereignty and the right of Germans East and West to live in one state together.

Moreover, the introduction of a common currency was meant to lead to the United States of Europe, a federation of a peculiar kind. What European elites chose to ignore was the fact Europe is not a nation, a demos, in a way that its member states are.

European politicians calling now for more European solidarity are trying to engineer a European welfare state that is bound to fail. In fact, the inescapable, if not imminent, collapse of the eurozone is the harbinger of the collapse of the widely celebrated European social model.

The crisis in Greece has exposed its electorate's excessive reliance on a paternalistic state, a phenomenon not limited to Greece. If it proved difficult to finance the European social model within nation-states, it
is even less likely to succeed through a massive Europe-wide redistribution.

What is the meaning of the massive rescue package, amounting to the equivalent of one trillion Australian dollars? A severe violation of EU rules - Greeks never complied with the requirements of the eurozone - is rewarded with an unprecedented act of European solidarity that has been accomplished by another series of regulatory violations.

The Maastricht Treaty, which was meant to govern the eurozone, explicitly bans bailouts of member states. Furthermore, the independence of the European Central Bank has been undermined as the bank succumbed to political pressure and accepted its involvement in this package.

As much as the previous success of European integration lay in the EU's ability to create a viable regulatory framework that transcended nation-states, the abandonment of rules that Europeans imposed on themselves is a sure way to dismantle the EU.

And yet there is talk about strengthening the rules in the eurozone and giving more power and responsibility to EU institutions, such as the EU Commission. This suggestion ignores the fact that it was the commission that allowed Greece to falsify its accounts for about a decade.

How are we to believe that the commission will succeed in hard times when it failed under less taxing circumstances?

But what of the principle of European solidarity? The sums of money are mind-boggling. Germany is a rich country, but clearly not everyone in Germany is rich. Yet every single German taxpayer has just been forced to accept a financial liability in the value of an average family car. Slovakia, which joined the common currency only in January last year, is rather poor, despite its remarkable macro-economic results over the past 10 years or so. In Slovakia, the average income is less than half and the average pension only about a quarter of what it is in Greece. Yet because of this solidarity package, Slovak taxpayers are to subsidise Greek pensions and public sector salaries.

As we speak, Slovakia is going through an election campaign that squarely focuses on Europe, but not in a positive way.

The dissatisfaction of the Greek electorate, which was forced to accept massive cuts in salaries and entitlements, is understandable, but it defies any ideal of fairness for them to be subsidised by those who have been even less fortunate.
Despite its ambitious scale, it is not clear whether the rescue package will work.

Economists are trying to gauge its effectiveness by looking at the declining value of the euro. More revealing still will be the rapid decline in popular support for the EU. A recent survey by the Frankfurter Allgemeine Zeitung suggests a worrying trend. While as recently as last November almost two-thirds of Germans believed EU membership was, on the whole, beneficial for their country, by last month only 20 per cent of Germans believed membership in the EU brought more advantages than disadvantages.

People opposing the EU and its policies are no longer just extremist fringes on the Right or Left. Again, Slovakia is instructive here: parties that have been consistently pro-EU are fundamentally opposed to these bailout policies and are in conflict with parties in government that - until recently - would have been seen as lacking a firm commitment to Europe.

The Lisbon Treaty, adopted by the EU with great fanfare last November, contains provisions that entail ambitious social agendas. The EU Charter of Fundamental Rights states boldly that "everyone has the right to engage in work". The Lisbon Agenda adopted by the EU in 2000 promised to turn Europe into "the most competitive and dynamic knowledge-based economy in the world capable of sustainable economic growth with more and better jobs and greater social cohesion", by this year.

Can anyone seriously tell Greek workers and retirees that, thanks to the EU, they are living in the "best of all possible worlds"?

What does the right to work mean practically, or symbolically, in countries such as Spain today that have almost 20 per cent unemployment? If the 2008 crisis was hailed as the crisis of global capitalism, the impending crisis of sovereign debt will come down in history as the crisis of the European social model.





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