Saturday, May 29, 2010

The euro and the EU

Jürgen Habermas, the philosopher who is the most prominent contemporary figure of the Frankfurt School of "critical theory" and a well-known writer on current and historical issues, has a great description of the current situation that the economic crisis has created for the European Union: "Wir brauchen Europa!" Die Zeit 20.Mai.2010. Available free online in Spanish as En el euro se decide el destino de la UE El País 23.05.2010.

Habermas writes:

The reality that the taxpayers of the euro zone will henceforth be responsible for the budget risks for which each member state is liable, represents a change of paradigm. With it, a long repressed problem comes into consciousness. The financial crisis that has widened into a crisis of states, reminds one of the congenital defect of an incomplete political union, that is stuck halfway. In an economic area of continental dimensions and a huge population, a common market developed with a partially common currency, without a capability being constructed at the European level by which the economic policymakers of the member state could be effectively coordinated.
He puts it well in a brief paragraph. But there's nothing exotic about his observation. It's generally recognized among EU governments that a more centrally-corrdinated economic policy is needed. Along with that comes the need to revise the political arrangements of the EU and to address the much-discussed but much-neglected "democratic deficit" of the Union.

American economists and politicians have always been at least somewhat contemptuous of the basic concept of the European Union in general and the common currency in particular. But European elites and (to a lesser extent) the European public is committed to the "European project", i.e., the further development of the EU.

The economic crisis has brought a number of problems to decision points. It seems to me right now that a collapse of the euro zone is unlikely in the immediate future, immediate in this case being this year. The EU leaders are keenly aware that the euro is under attack by speculators (primarily large banks and hedge funds). And they have rallied themselves to defend the euro. As has always been the case, France and Germany have been the leadership core of the EU. At the moment, France's Nicolas Sarkozy is looking better in that regard than Germany's Angela Merkel, though both have come under justified criticism for reacting later than they had every reason to know they should.

A intensification of the political union may involve some kind of more formal recognition of a group of core EU states and the rest of the EU member states.

But the ability of the EU to function as a political and economic union with Great Britain as a member is looking more doubtful than ever. Not only in foreign policy issues like the Iraq War but on economic policies like regulation of speculators, Britain is just too completely tied to US priorities. Britain has joined the US in opposing the tighter regulations on financial markets that other EU states like France and Germany support. And the new Conservative-Liberal government in London isn't even less supportive of Britain adopting the euro than the recent Labour governments were.

It's hard for me to see at this point how the EU can survive as a meaningful political and economic union with Britain as a member.

But Habermas also observes, "Der Stabilitätspakt, den Frankreich und Deutschland 2005 selbst außer Kraft setzen mussten, ist zm Fetisch geworden." (The stability pact that France and Germany themselves had to set aside in 2005 has become a fetish.") He refers here to the EU's Stability and Growth Pact that locks in the inflation-fighting, anti-deficit policies that central bankers love but can be very inappropriate economic policy at times like, for instance, now.

That general orientation to the "fetish" of budget-balancing is more likely to wreck the euro and the European Union with it than anything else. London is adopting a similar program of slashing government outlays during a mass-unemployment recession that the EU generally is adopting. In line with the demands of the bond vigilantes, for whom no part of their immediate policy priorities is doing what is right for the ´people of Greece or any other country, the EU has insisted on a brutal program of budget cuts for Greece. Angela Merkel even insisted on bringing the IMF into the picture to discipline Greece. Spain and Italy are forced to take a similar approach. And Merkel's government is insisting on cuts in public outlays in Germany even though their bonds are not under pressure at the moment.

The worst sign of all is that Merkel and Sarkozy have adopted the goal of strenthening the restrictive fiscal policies of the Stability Pact, which was already a bad idea to begin with. Locking the EU into a more restrictive fiscal policy could well turn the Stability Pact into a suicide pact for the EU.

It's not encouraging to see in the following number of Die Zeit (27.05.2010) a joint pro-EU statement from former French President Valéry Giscard d'Estaing and former German Chancellor Helmut Schmidt, in which they argue that the most important thing for the EU right now is to strengthen the Stability Pact's restrictions on fiscal policy.

See also Greece and the single currency: Europe's existential crisis The Guardian editorial 05/06/2010:

Let us be clear: the eurozone is not on the verge of breaking up any time soon. Yet the last few weeks may come to appear like a full-dress rehearsal for the final crack-up. There were the remarkable scenes yesterday in Greece, as protesters erupted in fury against the prime minister George Papandreou's plans to slash and burn the public sector. Three people were reportedly killed in a fire in Athens and riot police firing teargas at demonstrators. And all this comes before the latest, biggest round of government spending cuts and tax rises are brought in. Meanwhile, richer countries have dragged their feet over a bailout.
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