Protecting the euro
AT LAST there is a smack of firm government from the European Council on protecting the euro. “We affirm that it is imperative to break the vicious circle between banks and sovereigns”, announced the euro group after a late night meeting at the summit. It is a qualitative and necessary shift of policy of which Ireland is explicitly mentioned as a beneficiary.
Developed in the midst of financial turmoil and reflecting a new political alignment between France, Italy and Spain this change is linked to a “specific and time-bound roadmap for the creation of a genuine economic and monetary union”, another welcome step in extending the euro’s defences.
The refusal up to now to separate bank and sovereign debt has weighed heavily on Ireland and the other euro zone members requiring financial aid programmes. The policy dogma zealously pursued by the European Central Bank and the creditor states led by Germany insisted that sovereigns must assume responsibility, supposedly to prevent contagious moral hazard. They have been forced to review and now change their approach by the combination of market pressure and the devastating cost if the euro were to fail. Angela Merkel has agreed to this step in return for the creation of a single banking supervisory mechanism and strict conditionality.
The commitment to put this measure in place urgently is directly linked to further steps towards creating a more effective euro and promoting new growth and employment initiatives. More integrated financial, budgetary and economic policy frameworks are to be explored. Creating such frameworks opens up an agenda on the further mutualisation of debt through eurobonds, as well as potentially extensive further pooling of state sovereignty.
The summit’s acknowledgement that this process must involve renewed democratic legitimacy and accountability is also welcome. Political elites must be able to bring citizens along with them if the measures proposed to save the euro are to work. Without democratic consent this cannot happen. This must involve more public deliberation on the proposed new policy frameworks and an active exploration of better means to give them democratic credentials. The gap between policy-making and normal political choices in the European Union exposed by the financial, debt and euro zone crises can be narrowed by bringing EU issues more actively into domestic politics and exploring new democratic routes such as direct election of the European Commission president alongside the European Parliament elections in 2014.
Ireland’s experience as a referendum state is a good start with such political innovation and is all the more necessary given the onerous negotiating task facing the Government. Its commitment to multilateral action as a full member of the euro zone has been justified in this policy shift. Its bargaining hand will now be strengthened by identifying its priorities and preferred outcomes much more clearly and actively. A more attentive and informed public deserves nothing less.