Autumn in Europe

This is a blogpost I wrote but did not post a year ago.......  as riots take hold of Madrid and Athens, there has been depressingly little progress on sorting out Europe.  Consolidating democracy in southern Europe was one of the EU's great prizes - failure to act on the euro crisis is now threatening it.

"European autumn

The hot news earlier in the year was the Arab spring.  Now the dominant story is faltering leadership in Europe.  Do the two phenomena have more in common than it looks at first sight?

 In the first part of the year, the world was taken aback as the people of the Middle East rose up against oppressive regimes.  The tide turned against autocracy.

The other big political story of the year has been of western leadership failing to measure up to the challenges of the eurozone crisis; while the extent of gridlock in the US was exposed by the debt ceiling wrangling. 

Huge issues are in play in Europe.  But one issue that is being exposed is the extent to which the euro, as an elite political project, has few popular roots in the countries that are now being asked to write the cheques to “save” the struggling southern economies.    There are some interesting lessons to learn.

Economists would always say that a 17 member euro would struggle to meet the tests of an optimal currency area.  The case for a Benelux + Germany with possible additions of some Scandinavians (who opted to stay out), possibly Switzerland and maybe France could be strong.  Adding in Spain, Portugal and Italy was a stretch.  Ireland was always a risk without the UK inside.  Greece a bridge too far. 

To make it work, it would have to be underpinned, as people are now pointing out, by a massive deepening of European governance arrangements – not just a central bank, but a European Finance Minister, extensive transfers and an ability to set fiscal policy at European not national level.  But the leaders who created the euro knew that, while people might be up for the benefits of a single currency, they were not up for that degree of surrender of national sovereignty.  And so that was a conversation that leader after leader refused to have with their people before the single currency was created.   

The single currency also needed stronger central institutions to enforce the rules – most notably on the German-inspired Stability Pact.  The fact that France and Germany went unpunished for breaching the rules sent an important message on the balance of power between individual states and the centre.  At the same time, the decision to go for 2^nd division players as the president and high representative respectively again reinforced the determination to maintain that this was a Europe of nations.

Which was fine – in a benign economic climate.  But now we are seeing Europe struggle to cope with the extraordinary political demands on it. There is no politically legitimate leadership from the centre – apart from in the ECB.   At the same time, the leaders of the strong northern states, are hamstrung by the knowledge of the limited political appetite to make sacrifices for the euro.  People allowed their leaders to engage in their grand projet on the basis of a bit more economic growth and a bit less hassle when travelling – on the basis of their assurances that this was a no risk enterprise.  Now we see a huge fissure opening up between what leaders think might need to be done to “save” the euro (or more accurately the banks that leant to Greece on the assumption it was Germany) and the price voters are willing to pay.

The European autumn reflects the gap between leaders and people.  Exactly what was exposed by the Arab spring".