Thursday, December 02, 2010

Joschka Fischer on the future of the euro and the EU

With all the bad signs for the future of economic policy in the US and Europe and the very negative turn in politics that will come with the Republicans have a majority in the House, this was a piece of bad news that still really impressed me with how bad it is.

Joschka Fischer, the former Foreign Minister of Germany (1998-2005) and former head of the Green Party there, has been one of the leading pro-Europe politicians in Germany. That means, he has pushed to strength the European Union as, first of all, an institution to secure democracy and peace. As he explains in Avanti Dilettanti! Project Syndicate 11/30/2010, he now thinks it likely that the euro will not survive the current economic crisis:

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. [my emphasis in bold]
This would be a major setback, a seriously big deal, for democracy and peace in Europe. The incentive of becoming part of the European Union has been a major spur for the countries of central and eastern Europe, the Balkans and Turkey during the last two decades to establish stable democratic institutions and secure legal systems.

Fischer is no soothsayer. But he knows the politics of Germany and the EU extremely well. And, ironically, the only way he sees likely to preserve the euro and the forward development of the EU is for the political leaders in Germany and France to take actions that would likely cost them their positions in the next elections:

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. ...

[German Chancellor Angela] 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.
What Germany and France are facing in this situation is the dilemma that John Kenneth Galbraith discussed in the US context in The Culture of Contentment (1992): more affluent voters and the politicians who represent them tend to have a heavy preference for avoiding solutions to well-known but longer-term problems that involved potentially inconvenient short-term measures. To preserve the euro and the EU, the taxpayers of France and Germany would have to contribute even more than they are already doing to promoting employment and avoiding deflation in countries that are the hardest-hit, like Greece and Ireland, Spain and Portugal.

The pressures working against the survival of the euro and therefore of the EU are partially described by Paul Krugman in The Spanish Prisoner New York Times 11/28/2010 and Eating the Irish New York Times 11/25/2010.

The potential costs to democracy of this current depression in both the US and Europe are serious. And will be made more serious by the Herbert Hoover economic ideas currently ascendant in both.

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