A fresh agenda for the euro
EUROPEAN UNION summits occur much more often since the euro zone crisis developed, as its leaders struggle to manage rapidly moving events, including those on financial markets. At times it appears the leaders have lost control or are only capable of reacting defensively to them. Wednesday evening’s gathering registered, in contrast, the emergence of a fresh political agenda for growth and employment alongside the recent dominant emphasis on budget discipline and supply side structural reforms.
Although this was an informal meeting without detailed conclusions it sets a welcome and challenging perspective for dealing with the crisis in the medium term. This new perspective directly reflects major developments in European politics. The election of Francois Hollande as French president is the key to this, expressing a revival of centre left policies also seen in Germany recently, in addition to the marked anti-incumbency trend seen in Greece, Spain, Italy – and last year in Ireland. While it is too simple to say this isolates German chancellor Angela Merkel as a defender of budgetary discipline, since she has her allies among fellow creditor states like the Netherlands, Finland, Sweden and Austria against demands by debtors, there is a definite shift of focus. It goes beyond crisis management based on budget discipline and structural reform to embrace plans for stimulating economic activity by more effective use of the European Investment Bank, better use of surplus structural funds and special bonds to finance investment projects.
Beyond that short-term agenda, likely to be agreed at the formal European Council in five weeks, looms new elements like direct involvement of the European Central Bank in refinancing failing Spanish banks and a financial transaction tax to recoup public money from that sector and calm its excesses. And beyond that again the question of eurobonds to mutualise sovereign debt issuance has now been put firmly on to the political agenda where it seemed taboo before. Because of the severity of the euro zone crisis these measures cannot be artificially separated into stages, no matter how necessary that seems. Greece’s political turmoil is again driving market speculation about whether it will survive as a member, while Spain’s banking difficulties reinforce the pressure. It is essential that radical measures to stabilise the currency are taken if its credibility is to be sustained.
Ensuring the euro’s survival can also go a long way to creating more favourable conditions for economic growth and employment creation. That must also involve a deep renewal of the system’s democratic accountability as a deeper political union. Ireland has a direct material and political interest in the success of this venture. Its rapidly emerging character creates a strong argument to approve the fiscal treaty because this would maximise the opportunity to benefit from and argue (whether in favour or against) these new initiatives as they come on stream.