Common currency is killing Europe

Common currency is killing Europe

24 May 2011

stefan-auer-thumb Dr Stefan Auer

First published in The Australian on 24 May, 2011.

One year on, having made commitments, guarantees and pledges in the realm of a trillion dollars, the EU is no closer to resolving the problems of the eurozone.

Following a secret meeting two weeks ago, the EU's finance ministers vehemently denied that they might have discussed the possibility of Greece leaving the eurozone.

They were either lying or - worse - are living in denial.

What was true at the beginning of the crisis is becoming blindingly obvious one year on: the only way to rescue the European project is to accept that the eurozone in its current form cannot survive. It is clear that Greece does not simply have a liquidity problem, but deeper structural problems that will not be solved through spending more taxpayers' money that no nation in Europe has.
The bailout of Greece was presented as being necessary in order to prevent contagion to other countries.

A year on, we have two more countries, Ireland and Portugal, dependent on other nations' taxpayers. The unfolding revolution in Spain is a foretaste of challenges to come.

What is ominous for the EU is less the intractable economic situation than its political repercussions. The failure of mainstream parties to contemplate alternatives to policies that are not working means that the dissatisfied electorates in EU member states will have no other option but to support radical alternatives.

Germany's economy might be growing, but its confidence in carrying the rest of Europe is not. Last week, German Chancellor Angela Merkel berated the nations of southern Europe, suggesting they should work more, take fewer holidays and give up on their early retirement.

In fact, it turned out that she was factually incorrect: Germans have more holiday entitlements than Greeks. But this is beside the point.

Merkel's suggestion must sound hollow to millions of unemployed young people in Greece, Ireland, Portugal and Spain. Almost every second person in Spain under 25 is without a job.

Even official EU statistics show that the eurozone is a two-speed economy. Thanks to a relatively low euro for Germany, its economy is growing - driven by exports.
Thanks to a stubbornly high euro for Greece, Ireland, Spain and Portugal, their economies lag behind, registering declining or sluggish growth. Australia has its own problems with a two-speed economy, but they pale into insignificance when compared with Europe.

The major complication is that the discrepancies in wealth and life opportunities in Europe are not just divided territorially; they separate nations: if you are Finnish, German or Dutch you are doing OK right now. If you are Greek, Portuguese or Spanish your prospects are bleak.

The policies the EU and its key national leaders have pursued are failing, leading to more division rather than unity. Their aim, as Merkel postulated last year, was to ascertain the primacy of politics over markets.

As Friedrich Hayek understood better than anyone, one can defy the logic of free market only at the expense of liberty. And the liberty and self-government of whole nations is what is now in question.

A revolution is about to sweep Europe - or so the desperate young people in Spain and Greece might wish - but what its aims would look like is far from clear. European people no longer feel represented by their elites. And who would blame them?

What difference will it make whoever Portuguese end up voting for next month, when their fate is being decided in Brussels, Berlin, Paris and Frankfurt rather than their national capital. Is Ireland more likely to regain control over its own destiny, led since March by Fiana Gael rather than Fiana Fail? And what of Greeks asked to accept painful reforms of their expensive welfare state with no prospects for any genuine improvement in their indebtedness and economic growth?

The party of "true Finns" might have a point, opposing all bailouts. Alas, these sentiments are not heeded. Are European elites waiting for the "true Germans" to speak out? We've had a foretaste of it and it wasn't pretty; the German Chancellor advising southern Europeans to work more and enjoy themselves less.

This is what you get in a continent-wide redistribution system that resembles a massive welfare state that nobody wants (and no one can afford to finance).
Mainstream politicians should do better than this. To rescue European integration they need to sacrifice the eurozone.

Stefan Auer is a senior lecturer in history and politics at La Trobe University




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