There was no distinction in EU politics between friend and foe. Everything worked so nicely. But this was also the reason why nobody was greatly interested. This has definitely changed now.

By Ronald G. Asch. Published July 17, 2015 by openDemocracy

The Brussels summit of July 11 and 12 was undoubtedly one of the darkest moments in the EU’s more recent history. The new agreement between Athens and its creditors within in the Eurozone has rightly been called ‘Europe’s insane deal with Greece’.

Everybody knows that the new agreement can’t work and including the Greek prime minister Alexis Tsipras, who said as much on television. Everybody knows that this is only one more hopeless attempt to kick the can down the road. Most experts who have ever given any thought to the matter know that for Greece to survive within the Eurozone and to regain some amount of economic stability and prosperity, it needs not only a radical haircut which reduces its national debt to a sustainable level – let us say 60-70% of GDP from about 180 % now – but also permanent financial support not in the form of so called loans but as direct financial transfers.

For the next 10 to 15 years or – more likely – indefinitely, the country would probably need at least 20 billion euros per annum to survive. Would such transfers be affordable for the rest of the Eurozone? In theory the answer is yes, in particular if one reminds oneself that the EU is spending a lot of money on fanciful projects such as paying vast subsidies to farmers so that they can ruin their competitors in Africa or South America, by selling their products below the normal market price.

Then why did the Northern countries – a group which in this case includes Belgium and Slovakia – resist a solution along such lines so fiercely? The problem is that paying permanent subsidies to Greece would only be the thin end of the wedge. At least that is what is widely assumed in The Hague, Helsinki, Bratislava and Berlin and probably in Antwerp as well where the Flemish look back on their own history of fiscal transfers to a region which does not pull its weight in economic terms.

Once Greece receives permanent fiscal transfers, other European countries would demand their share as well, or so one must assume. Although Spain, Portugal and to a lesser extent, Italy have to some extent recovered from the crisis of 2009-10, unemployment remains high. Moreover these countries are still burdened by very high public (and in some cases, such as Spain, commercial and private) debt which is only sustainable if interest rates remain very low for a long time to come.

To an extent this also holds true for France which, like Italy, is punching below its weight in economic terms. France is suffering from an overblown civil service, too much centralisation and an overregulated job market. Moreover medium size companies receive very little support because industrial policy has always tried to give backing to a few big companies which could qualify as global players.

So thirty billion Euro each year from Brussels would certainly be more than welcome to sustain a system which to all intents and purposes has become unsustainable without painful reforms.

The problem is that a full fiscal union for the Eurozone – the only real solution for the future of the Euro if the currency system does not become more flexible – would involve enormous sums in terms of subsidies and transfer payments. One should not forget that even 25 five years after reunification the German government, the welfare, health care and pension agencies and the various state governments spend about 75 billion Euro each year in the new Länder (eastern Germany) in revenues which have not been generated in the East but in the more prosperous Länder of the West (if one includes pensions etc. in this bill).

All the same, the per capita income in the East remains much lower than in the West. And Eastern Germany (without Berlin) has only got about 13 million inhabitants – hardly more than Greece. The mind boggles when one considers the amount of money which would be needed to give more stability to the Eurozone via permanent fiscal transfers once the present convenient expedient – financing governments in need of support via the printing press of the ECB – has been abandoned.

The two nations which would in all likelihood be the principal net contributors in future, the Germans and the Dutch would be forced not only to raise much higher taxes, thereby eliminating in the long run large sections of their middle classes, but they would also need to dismantle their costly welfare states in radical and unheard of ways. The necessary ‘reforms’ would make the present Chancellor of the Exchequer in Whitehall, Osborne, look like an old fashioned socialist.

So the attitude of the northern countries in negotiation with Greece becomes understandable. However, under French and Italian pressure they finally surrendered and could no longer refuse further financial support for Greece, thus keeping the country in the Eurozone’s sick bay for the foreseeable future. But what they could do was to make life for the Greek government and most Greeks themselves as unpleasant and miserable as possible.

Greece is to serve as a deterrent for other European countries which might be tempted to ask for further help from the bailout fund or for radical debt relief without being able or willing to implement further structural reforms. Greece has of course seen a considerable reduction of public spending since 2010, there has been much cost cutting, but nevertheless obsolete legislation, closed markets for goods without real competition, deficient administrative structures, rampant tax evasion and clientelism still present enormous obstacles to economic growth and sounder public finances and it is unlikely that this will change any time soon.

The attitude Schäuble and his northern colleagues showed during the negotiations can be called cruel and heartless despite the fact that Tsipras’ kamikaze approach in dealing with the country’s creditors was bound to destroy all trust in his government right from the beginning. Many observers see Schäuble as a mean moneylender who relentlessly demands his pound of flesh.

However, one should not forget that what is at stake here are not a few billions here and there. What is at stake is in many ways the economic future and prosperity of all countries concerned, their very survival. This holds true for both the creditors in the North and the weaker countries in the South.

But can the Eurozone go on like that? That seems unlikely not least because profound conflicts of interest between France and Germany – which always existed below the surface – have emerged since 2010 and in particular during the present negotiations.

These threaten to destroy the very structure of the EU. Of course, the alliance between France and Germany in Europa was always a mere marriage of convenience: tensions always existed. France needed a strong economic partner and Germany a country less powerful and dominant than the mighty US which would prevent the Federal Republic – never a country popular with most of its European neighbours – from becoming isolated again, as Germany had been before the first World War, with well known consequences.

But these days one cannot resist the gathering impression that French and German interests within the Eurozone are totally incompatible, as France wants a fiscal union with very few and extremely flexible rules and, ideally, a huge fiscal input either from the ECB or from the German treasury, whereas this is exactly what the German government is determied to prevent, although it is in fact being dragged kicking and screaming into the very system of financial transfers which it wants to avoid

So what is the solution to this problem, if there is a solution, and from a historical point of view one has to say, that problems of such a magnitude are often beyond solution. A final crash and collapse becomes as a rule inevitable at some stage and one can only hope that one is dead or in Switzerland when this happens.

But let us for moment assume that matters are not quite so desperate. The cosmopolitan idealists – those who reject the very idea of the nation state and believe that the existing ones can just be wished out of existence – argue of course that the solution of the present crisis is more than ever the creation of a unified European state which would in the end largely be responsible for welfare benefits, for financing health care and pensions and would ultimately replace the present nation states in all these areas.

The problems this approach encounters regarding the staggering sums in financial transfers required under such a system have already been outlined.

But apart from the fact that one may perhaps overestimate the eagerness of tax payers, welfare recipients and pensioners in northern countries to commit suicide, such an approach also underestimates the amount of structural and constitutional change the EU would have to undergo to assume the sort of authority a national government enjoys.

The problem is that until recently the European institutions – and this includes the EU parliament – have strongly favoured a consensus approach to politics. There are in reality conflicts of course all the time, both between various national governments and between Left and Right, but these are carefully concealed. Government in the EU has as a rule been de-politicised.

Decisions are justified as being evidently good for Europe as a whole not as the outcome of a deliberate choice of a set of policies on ideological grounds and even less as the result of the victory of one group of nations over another group (the recent summit was an exception to this rule of course in some ways, although there were at the end only losers. no winners, with the possible exception of the French president).

This seeming consensus or façade of consensus has mostly created a sufficient amount of acquiescence among European citizens whatever new legislation the European Commission, supported and driven on by the EU parliament and seconded by the Council of ministers, decided to impose on these citizens.

However, when politics is depoliticized in this way, people do not get involved. They may accept the laws they have to obey willy-nilly, but they do not feel that they have had a part in making them – by voting in elections for a particular party for example.

This is one of the reasons that Brussels seems so remote to even those Europeans who are generally in favour of further European integration. This is a point which a Spanish professor of communication studies, Francisco Seoane Pérez, has recently made in a brilliant book.[1]

There was until a short time ago no distinction in EU politics between friend and foe. Therefore everything worked so nicely. However, this was also the reason why nobody was greatly interested in what went on in Brussels. This has definitely changed now.

But this change also shows what the dangers are in creating a European ministry of finance and some kind of common European government laying down rules for economic and social policy, an approach much favoured in a somewhat selective way by France but also with less reservations by the Green party and parts of the SPD, the Labour party in Germany.

Let us assume we really had a common policy on welfare and employment in Europe, a policy designed by a true European government, a prime minister and a cabinet dominated either by the supporters of neo-liberalism or of traditional Keynesian economics and of the idea that a strong state should act as an entrepreneur itself.

In this government, some smaller nations would in all likelihood not be represented at all, as ministers would be chosen primarily because of their party affiliation not, on the basis that commissioners are being appointed now, with regard to their nationality, and others would be represented only by politicians who in their own countries would belong to the opposition or might even be total outsiders at home in the same way in which Tories are total outsiders in Scotland these days.

Would such a government, supported perhaps by a narrow majority of MPs in the EU parliament (representing possibly only a distinct group of countries), really be seen as sufficiently legitimate throughout Europe to distribute entitlements and benefits, but also to take them away at will? This seems very unlikely.

National revolts against such a government would be almost inevitable in the same way in which the Union between England and Scotland was damaged, perhaps beyond repair, by Mrs Thatcher’s neo-liberal policies that never enjoyed any real support in Scotland.

A European government taking real political decisions without disguising them as merely administrative acts and implementing self evident technocratic rules would damage the coherence of the EU. In fact this is exactly what is happening now with the so called austerity policies which Brussels half heartedly and very reluctantly tries to implement.

Political and economic cultures in Europe are very different from country to country, even more different than in Scotland and England or Flanders and southern Belgium. The moment the façade of consensus politics is dismantled everything will fall apart. But that same consensus politics, because it does not name the real political issues, and does not put its cards on the table, can never persuade citizens to really identify with the EU, and will never make Brussels a real focus of loyalty.

Such identification, as Francisco Pérez has rightly emphasized, demands the kind of politics where there are real opponents and real ideological choices. But this is exactly what the EU cannot contemplate, as Tsipras – who clearly favoured such a more ideological and antagonistic approach – has sufficiently demonstrated in his downfall.

So what is the alternative? The Euro must somehow become more flexible. It must become more like the European Monetary System which we had in the 1980s and 1990s, only this time the central role would be played by the ECB, not the Bundesbank, and the ECB would need to act, as it does now, as a lender of last resort in times of crisis.

Why not let a country leave the Euro virtually (not for five years as Schäuble has proposed) but on a weekend for 12 hours (or in fact five minutes) only to re-enter the system again immediately but at a different exchange rate. This could restore competitiveness without creating too much hardship.

Yes, investors holding bonds issued by this country would lose money, but as long as such devaluations are not more than let us say 10 % at a time (there would have to be an iron rule ensuring that), and not more than 20 % per annum, the losses would be manageable. After all, American or Chinese investors who have bought European bonds have also lost money over the last six months or so, because the exchange rate of the Euro has changed. Was there any turmoil in the bond markets? No there wasn’t.

Whatever the solution is, more integration for the Eurozone is a dead end. It will only make matters worse and create even more conflicts. Politicians must learn to concede defeat. They must be prepared to admit that they or rather their benighted predecessors in the 1990s have made a terrible mistake in creating the Euro in its present form.

The Euro was not one step too far but a thousand steps, a truly frivolous experiment, designed by people who were either totally illiterate in economic matters (like the wonderfully obtuse German minister of finance Theo Waigel of blessed memory) or were inspired by a utopian and dogmatic vision which seemed to give them the right to ignore reality. The European monetary system must become much more flexible again. It is time to go back to square one and design a new system. It’s time for a complete reset.

But it is ultimately France that holds the key to overcoming the present problems, as the recent Brussels summit has shown once more. No German government will ever risk a head=on conflict with France – which by the way played a central role in creating the Euro in the first place – and as long as French governments believe that their country will benefit from the system as it stands, Europe will continue to devise ever more preposterous fudged compromises which only make matters worse.

Until recently many believed that the only sensible policy in this situation was muddling through to ensure at least the orderly management of decline, the best Europe could hope for anyway. At present the only thing we can expect in the most optimistic scenario is that chaos and national animosities – which are now an inherent and inevitable part of all debates in Brussels – will not result in immediate total disaster.

But then politicians often have a great talent for making matters worse than they are anyhow, and no politicians are better at this than those who believe that they can replace rational economic thought by a blind enthusiasm for an ever closer European integration.

And there are still far too many such politicians around, who subscribe to some kind of romantic idealism. Others on the other hand only pretend to be pro-European, and just hope that some kind of selective further integration will serve the interests of their own country or their own personal purposes as advocates of various vested interests (as for example the German export industry).

But even they should remember the old sentence: If you are in a hole stop digging. In the long run there can be no winners at all in the Euro-game the European politicians play. It is self destructive.

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[1] F. Seoane Pérez, Political Communication in Europe: The Cultural and Structural Limits oft he European Public Sphere (Basingstoke, 2013)