Nov 30th 2010

Avanti Dilettanti! - Europe on the Brink of Failure

by Joschka Fischer

Joschka Fischer, Germany’s Foreign Minister and Vice Chancellor from 1998 until 2005, was a leader in the German Green Party for almost 20 years.

BERLIN - Returning to Europe lately after a six-day trip to the United States, I wondered for the first time while reading the press on the recent Irish crisis whether the euro - and thus the European Union - might possibly fail. This could happen because, in the long run, the EU won't be able to withstand its conflicts of interest and the resulting process of "renationalization" in all member states without suffering grave damage.

At the height of the Irish crisis - mainly a crisis of confidence in banks' stability and the strength and competence of Europe's political leadership - European leaders were publicly at each other's throats. While their stated aim was to save the euro, the government leaders involved did exactly the opposite, producing increased nervousness and volatility in financial markets, which in turn exacerbated Ireland's problems.

Germany made its own contribution to aggravating the crisis by launching a public debate about involving the banks in shouldering losses from 2013 on. Why this discussion had to take place now, in the middle of the Irish crisis, remains Chancellor Angela Merkel's secret. It was most likely prompted solely by domestic political considerations. Indeed, the demand for bank participation is popular in Germany - and justifiably so - unlike the Irish rescue package. But it would be more productive to implement such a policy than to announce it two years in advance.

Wherever you look, the price tag put on Europe these days is calculated in euros and cents and no longer in political and historical currency. Germany, in particular - Europe's largest country, and its strongest in economic terms - seems to have fallen victim to historical amnesia. The idea that Germany's own national interest dictates avoiding anything that isolates the country within Europe, and that the task is therefore to create a "European Germany" rather than a "German Europe," seems to have been abandoned.

To be sure, Germany's leaders still consider themselves to be pro-European and reject such criticism with indignation. But the fundamental change of strategy within Germany's European policy can no longer be overlooked. Objectively, the trend is indeed towards a "German Europe," which will never work.

The failure of the euro - and thus of the EU and its Common Market - would be the biggest pan-European disaster since 1945. That this outcome is possible - despite protestations to the contrary by all involved - reflects the willful ignorance and lack of imagination of Europe's heads of state and government. Otherwise, they would recognize that the financial crisis has long become a political crisis threatening the EU's very existence, and thus that a permanent crisis-resolution mechanism for debt-distressed members, while clearly needed, requires a permanent political crisis-resolution mechanism in order to succeed.

With the status quo it will be hard for the euro to survive. This permanent political crisis mechanism is, however, nothing less than a well-functioning economic union. The alternatives are therefore either forging ahead with real economic union and further EU integration, or regressing to a mere free-trade area and the renationalization of Europe.

The belief that stability can be achieved with technocratic rules, regulations, and sanctioning mechanisms alone in a eurozone whose economies are diverging will prove to be misguided. Genuine eurozone stability presupposes macroeconomic alignment, which in turn requires the political integration of a well-functioning economic union. Staggered alignment of economic and social policies (such as the legal retirement age), new balancing schemes (euro bonds as a transfer instrument), and an effective stability mechanism are all needed to preserve the common currency.

How can these far-reaching aims be achieved within the eurozone (together with non-eurozone EU members that want to join in)? We should probably forget about any treaty changes at the moment.

But the Schengen agreement offers an alternative, namely arrangements between individual states. The abolition of border controls was anything but a minor detail, and yet it was achieved on the basis of intergovernmental agreements. Why not economic union, too?

What the eurozone needs now isn't a repetition of Maastricht, but a kind of Schmidt/Giscard 2.0.This kind of initiative requires the support of Germany and France, because the crisis cannot be resolved without them. Given their economic and political clout, Germany and France are the respective leaders of the eurozone's northern and southern parts. Both could therefore sponsor the indispensable compromise between the eurozone's stronger and weaker countries.

France's role would be to ensure that the weaker countries don't fall victim to enduring deflation. And Germany would have to be the guarantor of stability. Both countries together, however, must inaugurate the step towards economic union, which requires that both governments actually want that.

Merkel will have to explain the inconvenient truth to Germans that the price of having the euro is inevitably a transfer and economic union, and French President Nicolas Sarkozy will have to make clear to the French the price of a real economic and stability union. The political risk for both of them will be anything but small, but the alternative - the failure of the euro - is unacceptable for both countries.

Any eurozone political leader whose primary consideration now is re-election will face certain failure by meeting this historical challenge. But European priorities have to be the primary concern in this crisis - even at the price of losing office. On the other hand, taking this historic initiative would, relative to fainthearted tactical maneuvering, substantially increase politicians' chances of re-election later.

But Europe has no shortage of politicians. What is urgently required now are genuine statesmen and stateswomen.

Copyright: Project Syndicate/Institute of Human Sciences, 2010.
www.project-syndicate.org

 


This article is brought to you by Project Syndicate that is a not for profit organization.

Project Syndicate brings original, engaging, and thought-provoking commentaries by esteemed leaders and thinkers from around the world to readers everywhere. By offering incisive perspectives on our changing world from those who are shaping its economics, politics, science, and culture, Project Syndicate has created an unrivalled venue for informed public debate. Please see: www.project-syndicate.org.

Should you want to support Project Syndicate you can do it by using the PayPal icon below. Your donation is paid to Project Syndicate in full after PayPal has deducted its transaction fee. Facts & Arts neither receives information about your donation nor a commission.

 

 

Browse articles by author

More Current Affairs

Mar 18th 2024
EXTRACT: "....the UK’s current economic woes – falling exports, slowing growth, low productivity, high taxes, and strained public finances – underscore the urgency of confronting Brexit’s catastrophic consequences."
Mar 18th 2024
EXTRACTS: Most significant of all, Russia’s Black Sea fleet has suffered significant losses over the past two years. As a result of these Ukrainian successes, the Kremlin decided to relocate the Black Sea fleet from Sevastopol to Novorossiysk on the Russian mainland. Compare that with the situation prior to the annexation of Crimea in 2014 when Russia had a secure lease on the naval base of Sevastopol until 2042." --- "Ukrainian efforts have clearly demonstrated, however, that the Kremlin’s, and Putin’s personal, commitment may not be enough to secure Russia’s hold forever. Kyiv’s western partners would do well to remember that among the spreading gloom over the trajectory of the war."
Mar 8th 2024
EXTRACT: "As the saying goes, 'It’s the economy, stupid.' Trump’s proposed economic-policy agenda is now the greatest threat to economies and markets around the world."
Mar 8th 2024
EXTRACT: "Russia, of course, brought all these problems on itself. It most certainly is not winning the war, either militarily or on the economic front. Ukraine is recovering from the initial shock, and if robust foreign assistance continues, it will have an upper hand in the war of attrition."
Mar 8th 2024
EXTRACT: "...... with good timing and good luck, enabled Trump to defeat [in 2016] political icon Hillary Clinton in a race that appeared tailor-made for her. But contrary to what Trump might claim, his victory was extremely narrow. In fact, he lost the popular vote by 2.8 million votes – a larger margin than any other US president in history. Since then, Trump has proved toxic at the ballot box. " -----"The old wisdom that 'demographics is destiny' – coined by the French philosopher Auguste Comte – may well be more relevant to the outcome than it has been to any previous presidential election. "----- "Between the 2016 and 2024 elections, some 20 million older voters will have died, and about 32 million younger Americans will have reached voting age. Many young voters disdain both parties, and Republicans are actively recruiting (mostly white men) on college campuses. But the issues that are dearest to Gen Z’s heart – such as reproductive rights, democracy, and the environment – will keep most of them voting Democratic."
Mar 8th 2024
EXTRACTS: "How can America’s fundamentalist Christians be so enthusiastic about so thoroughly un-Christian a politician?" ---- "If you see and think outside the hermeneutic code of Christian fundamentalism, you might be forgiven for viewing Trump as a ruthless, wholly self-interested man intent on maximizing power, wealth, and carnal pleasure. What your spiritual blindness prevents you from seeing is how the Holy Spirit uses him – channeling the 'secret power of lawlessness,' as the Book of 2 Thessalonians describes it – to restrain the advent of ultimate evil, or to produce something immeasurably greater: the eschaton (end of history), when the messiah comes again."
Mar 1st 2024
EXTRACT: "The lesson is that laws and regulatory structures are critical to state activities that produce local-level benefits. If citizens are to push for reforms and interventions that increase efficiency, promote inclusion, and enable entrepreneurship, innovation, and long-term growth, they need to recognize this. The kind of effective civil society Nilekani envisions thus requires civic engagement, empowerment, and education, including an understanding of the rights and responsibilities implied by citizenship."
Feb 9th 2024
EXTRACT: "Despite the widespread belief that the global economy is headed for a soft landing, recent trends offer little cause for optimism."
Feb 9th 2024
EXTRACT: " Consider, for example, the ongoing revolution in robotics and automation, which will soon lead to the development of robots with human-like features that can learn and multitask the way we do. Or consider what AI will do for biotech, medicine, and ultimately human health and lifespans. No less intriguing are the developments in quantum computing, which will eventually merge with AI to produce advanced cryptography and cybersecurity applications."
Feb 9th 2024
EXTRACTS: "The implication is clear. If Hamas is toppled, and there is no legitimate Palestinian political authority capable of filling the vacuum it leaves behind, Israel will probably find itself in a new kind of hell." ----- "As long as the PLO fails to co-opt Hamas into the political process, it will be impossible to establish a legitimate Palestinian government in post-conflict Gaza, let alone achieve the dream of Palestinian statehood. This is bad news for both Israelis and Palestinians. But it serves Netanyahu and his coalition of extremists just fine."
Jan 28th 2024
EXTRACTS: "According to estimates by the United Nations, China’s working-age population peaked in 2015 and will decline by nearly 220 million by 2049. Basic economics tells us that maintaining steady GDP growth with fewer workers requires extracting more value-added from each one, meaning that productivity growth is vital. But with China now drawing more support from low-productivity state-owned enterprises, and with the higher-productivity private sector remaining under intense regulatory pressure, the prospects for an acceleration of productivity growth appear dim."
Jan 28th 2024
EXTRACT: "When Chamberlain negotiated the notorious Munich agreement with Hitler in September 1938, The Times did not oppose the transfer of the Sudetenland to Germany without Czech consent. Instead, Britain’s most prestigious establishment broadsheet declared that: “The volume of applause for Mr Chamberlain, which continues to grow throughout the globe, registers a popular judgement that neither politicians nor historians are likely to reverse.” "
Jan 4th 2024
EXTRACTS: "Another Trump presidency, however, represents the greatest threat to global stability, because the fate of liberal democracy would be entrusted to a leader who attacks its fundamental principles." ------"While European countries have relied too heavily on US security guarantees, America has been the greatest beneficiary of the post-war political and economic order. By persuading much of the world to embrace the principles of liberal democracy (at least rhetorically), the US expanded its global influence and established itself as the world’s “shining city on a hill.” Given China and Russia’s growing assertiveness, it is not an exaggeration to say that the rules-based international order might not survive a second Trump term."
Dec 28th 2023
EXTRACT: "For the most vulnerable countries, we must create conditions that enable them to finance their climate-change mitigation" ........ "The results are already there: in two years, following the initiative we took in Paris in the spring of 2021, we have released over $100 billion in special drawing rights (SDRs, the International Monetary Fund’s reserve asset) for vulnerable countries.By activating this “dormant asset,” we are extending 20-year loans at near-zero interest rates to finance climate action and pandemic preparedness in the poorest countries. We have begun to change debt rules to suspend payments for such countries, should a climate shock occur. And we have changed the mandate of multilateral development banks, such as the World Bank, so that they take more risks and mobilize more private money."
Dec 27th 2023
EXTRACT: "....if AI causes truly catastrophic increases in inequality – say, if the top 1% were to receive all pretax income – there might be limits to what tax reforms could accomplish. Consider a country where the top 1% earns 20% of pretax income – roughly the current world average. If, owing to AI, this group eventually received all pretax income, it would need to be taxed at a rate of 80%, with the revenue redistributed as tax credits to the 99%, just to achieve today’s pretax income distribution; funding the government and achieving today’s post-tax income distribution would require an even higher rate. Given that such high rates could discourage work, we would likely have to settle for partial inequality insurance, analogous to having a deductible on a conventional insurance policy to reduce moral hazard."
Dec 21st 2023
EXTRACT: "Shocks are here to stay, and our task is not to predict the next one – although someone always does – but to sharpen our focus on resilience. Staying the course of politically mandated policies while minimizing the inevitable dislocations is easier said than done. But that is no excuse to fall for the myth of being victimized by the unprecedented."
Dec 21st 2023
EXTRACTS: "A new world is indeed emerging. It will be characterized not only by more interdependencies, but also by more insecurity, danger, and war. Stability in international relations will become a foreign concept from a bygone age – one that we did not fully appreciate until it was gone."
Dec 14th 2023
EXTRACT: "Yet one must never forget that Putin is first and foremost an intelligence officer whose dominant trait is suspicion."
Dec 2nd 2023
EXTRACTS: "In a recent commentary for the Financial Times, Martin Wolf trots out the specter of a 'public-debt disaster,' that recurrent staple of bond-market chatter. The essence of his argument is that since debt-to-GDP ratios are high, and eminent authorities are alarmed, 'fiscal crises' in the form of debt defaults or inflation “loom. And that means something must be done.' ----- "If, as Wolf fears, 'real interest rates might be permanently higher than they used to be,' the culprit is monetary policy, and the real risk is not rich-country public-debt defaults or inflation. It is recession, bankruptcies, and unemployment, along with inflation." ---- "Wolf surely knows that the proper remedy is for rich-country central banks to bring interest rates back down. Yet he doesn’t want to say it. He seems to be caught up, possibly against his better judgment, in bond vigilantes’ evergreen campaign against the remnants of the welfare state."
Nov 27th 2023
EXTRACT: "The first Russia, comprising those living in Russia’s two biggest cities, Moscow and Saint Petersburg, can pretend there is no war at all." ---- "Then there is the other Russia, the one you find in small towns and villages scattered across the country’s massive territory. Here, the Ukraine war is a source of patriotic pride,"