Wednesday, 4 July 2012

Eurozone politics should not be a game of football

It was a tense summit last week, but it had a clear result: 1-0 to Hollande. Or was that Merkel? Maybe Monti?

After last week's summit the German papers have turned to rage - how could Merkel give in to Hollande on banking union?! - to pride - aha! of course Merkel tricked Hollande into a banking union with supervision from the ECB! This is the most depressing part of European summitry: the debates are so childish and miss the point entirely.

The deal made last week (PDF) is the same as the deal that stands this week. The same deals are known, there have been no further explanations. But the point-scoring narrative rumbles on for days afterwards, instead of actually asking if the proposed system will work, or if something else needs to be done.

The Eurozone leaders are slowly, ever so slowly, inching their way towards closer economic and political union in order to deal with the crisis. Clearly the weight of the financial sector of the Eurozone cannot be contained in the periphery, which does not have the fiscal firepower to essentially deal with the European banking crisis. Loans provided on the basis of austerity conditions funnelled through state coffers to the banking system - and funded for by taxpayers through national austerity programmes - will not work, never mind the horrific social costs. A banking union is one necessary part of economic union, in order to divorce the European banking system from a patchwork of sovereigns too individually small to prevent its collapse. This will be the easy part; the second part is much, much harder.

Closer economic and political union in the Eurozone is needed to ensure that there is enough solidarity and support between Member States so that states can recover from economic and state finance crises without threatening the Eurozone system, and also ensuring both the responsibility of the Member States and securing the social cohesion of national societies (and therefore the Eurozone as whole politically). This requires a delicate balance between the democratic rights of the Member States to determine their own economic and social policies, and on the democratic rights of the Member States not to be punished for the democratic decisions of other Member States and their fall out.

Merkel and the German government are coming from the point of view that discipline and austerity are necessary, otherwise solidarity will be taken advantage of, with the problem being that the sort of austerity and discipline being demanded is asking the impossible. As brilliantly explored over on the Social Europe Journal, Greece has undertaken more "adjustments" in a year than Germany did during its entire programme of reforms in economically good times. The focus on the Fiscal Stability Treaty is also a narrow-minded approach which overlooks the actual course of the crisis in many countries: countries like Ireland and Spain had surpluses, while Germany and France broke the rules, and this has not translated into a deeper crisis in France and Germany than in Spain in Ireland. Holding ever more rigidly to the rules will not solve anything.

On the other hand, there cannot be a blank cheque of solidarity, it needs to be built through a system where there is true give-and-take. Everyone will make concessions, and Member States will have to undertake to keep government debt in general low as well as federalising certain policy areas, in return for fiscal support and stimulus in times of trouble.

France, and other countries, have trouble with the European F-word, but there needs to be more democratic accountability at the European level, and the system needs to be reliable, transparent and agreed upon for it to gain public trust. Hollande seems to be moving towards thinking of the political side of the union, though it could also force an answer to the West Lothian question in the European Parliament.

The step-by-step approach of Merkel is a failure. We cannot continue with a drip-drip trickle of treaties, summits and agreements that edge us towards a solution without ever getting us there - a method corrosive to public trust. It's time to be clear about the options and to discuss how far we are willing to go in the Eurozone. In the end the public needs to be brought along in all Member States, so we all need to confront the concessions we need to make.

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