Tuesday, May 24, 2011

José Ignacio Torreblanca on the crisis of the EU (Part 1 of 2)

This helpful article by , Cinco razones por las que Europa se resquebraja, appeared in the 15.05.2011 edition of El País; it also appears in English as Five reasons why Europe is cracking. "Europe" in this context refers to the European Union (EU). As the title indicates, he gives five basic reasons, each of which he discusses in more detail.

  1. A project without fuel
  2. Crisis of values and political shortsightedness
  3. The end of solidarity
  4. Absent from the world
  5. The rebellion of the elites
The fundamental processes of the capitalist economic system, the neoliberal policies that currently prevail in the developed world, and parliamentary democracies bring a lot of similarities in social and political processes within the United States and European democracies.

But differences that are relatively small in the Grand View can be perplexing from a less lofty outlook. We don't really have anything in the United States like the EU. And so the politics of that international institution can seem particularly strange from the American perspective.

It's important to remember that "Europe" - the EU, or the "European project" - was built primarily as a political institution. Germany and France were the leading countries in pushing for European unity. And it's purpose was to provide an integration of Europe that would prevent war and promote democracy and prosperity. Germany wanted to be part of a united Europe so that the rest of Europe wouldn't be afraid of Germany. France and other European countries wanted to be in a union with Germany because they were afraid of a possible future German revanchism.

This is the major reservation I have about Paul Krugman's otherwise very informative comments on the EU: he doesn't seem to appreciate the fundamentally political nature of the EU.

The European project was broadly supported by the conservatives, the social democrats and the (European-style) liberals. The Greens have been particularly enthusiastic for Europe, because of its fundamental peace purpose and its potential to promote democracy. The EU's attractiveness to countries in central and eastern Europe and even Turkey over the last two decades seems to validate much of the Greens' confidence.

Without summarizing rehearsing the whole history of the EU, two of the most concrete and popular manifestations of the EU visible to ordinary citizens have been what's abbreviated as "Shengen" - the open borders among EU members that meet the standards of the Treaty of Shengen - and the common currency, the euro, for those countries that chose to join the "currency union," which means the countries within the EU that adopted the euro.

In recent years, for a variety of reasons, the political nature of the EU has tended to recede in public discussions in Europe and economic ones have tended to predominate. Now, with the ongoing economic crisis, a currency problem has kicked off a political crisis.

Portugal, Ireland, Greece and Spain - unflatteringly described by their less sympathetic fellow Europeans as the PIGS countries - are all under attack by the bond markets, which means high interest rates on their national debt. Of the four, only Greece really borrowed recklessly, to the point that they are unlikely to be able to pay off all their debt. Ireland, not long ago regarded as a model of neoliberal success, made the bad decisions to save their banks by borrowing public money to cover the banks' private debts and thereby took on too heavy a debt load. Portugal and Spain and more-or-less under attack because the bond markets decided to speculate against them.

All four are in a situation similar to Argenina in their 2001 economic crisis. Argentina had pegged their peso to the US dollar. As Krugman describes it well, that meant that Argentina was borrowing on its national credit rating without having control of the exchange value of their currency. Basically all euro countries are in the same position. And that gives bond speculators an opening to speculate against the debt of individual countries. A country like Britain has its own currency which can float on international exchanges and its debt is denominated in its own currency.

That weakness of the euro can only be corrected by what is commonly described as a unified EU budget and salary policy. A bit more specifically, they need to get to a point where individual countries can borrow money through EU bonds backed by the credit worthiness of the EU as a whole.

In Part 2, I'll refer to more of Ignacio Torreblanca's discussion.

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