OPINION: EU debtor nations should unite and adopt a collective bargaining position on bailouts
LAST WEEK the world watched the inevitable conclusion of the continuing political crisis in the EU that has accompanied the economic crisis. The lack of political vision and inability to act ahead of the markets shown by Europe’s leaders has finally caught up. There is no more road to kick the can down.
The resulting chaos has already claimed two heads of government and triggered serious discussion of ejecting members of the euro zone. Italy threatens to be simply too big a problem for Europe to solve, but even addressing the issues must wait for elections and new governments. But the cliche that in every crisis there is an opportunity is a cliche because it is true. If Europe can weather the next few weeks of chaos, it has an opportunity to finally seriously address its problems.
It has become popular to blame France and Germany for the policy failures of the EU. Undoubtedly radical measures such as significant haircuts and debt federalisation have been blocked by Nicolas Sarkozy and Angela Merkel’s reluctance to take unpopular decisions with their own elections looming.
But the negotiating tactics of the euro periphery, the unfortunately named PIIGS (Portugal, Ireland, Italy, Greece and Spain) have let them get away with it. The PIIGS have a strong set of common interests in the resolution of this crisis, but instead of increasing their leverage by negotiating as a bloc, they have allowed themselves to be isolated, neutralised and saddled with oppressive austerity programmes that are disastrous for their citizens.
In short, whether due to an inability to escape the punishing cycle of domestic crisis management or simple diplomatic incompetence, the PIIGS have inadvertently contributed to the prolongation of Europe’s misery.
So how can the PIIGS influence events when they are in such poor economic shape and saddled with debt?
As many writers and economists have pointed out before, it is our weakness that is our strength. Unilateral default by a state is often called the “nuclear option”. An Irish or Greek default would deal a big blow to the euro zone, but an ultimately survivable one.
A co-ordinated unilateral default by all the PIIGS, however, would collapse the currency area instantaneously.
To extend the nuclear metaphor further we’d go from North Korea to superpower.
Only by forcing the issue in this manner can the PIIGS gain sufficient leverage to be effective negotiators. Their individual positions are so weak that they cannot bargain, they can only beg.
This is why the terms of the “bailouts” have been so hugely punishing, and accompanied by a collapse in support not just for governments, but even for entire systems and open civil disorder.
Alternatively a collective bargaining position allows the peripheral governments to take, and more importantly to be seen to take, an active and positive role in the governance of the euro zone.
There is no doubt that unpopular policies will have to be introduced. If citizens of the PIIGS can see that they are part of packages genuinely shaped by their own governments and taking account of their national interests they’ll be far more inclined to accept them. Early elections in Italy and Greece could also be a good thing in this regard, giving the people an opportunity to have some input into their future and vent their frustration.
This is also about restoring popular trust with and engagement with the European project among ordinary people. This is not just an abstract point. Major institutional changes in the EU will need to be made in the near future.
Angela Merkel herself wants changes to the treaty. That requires referendums at a time when they are highly unlikely to be able to be passed.
An Ipsos-MRBI poll recently for The Irish Timesshowed that any referendum on the EU here would start with 47 per cent of voters in the No camp versus just over a quarter in the Yes camp, a near insurmountable lead
This is not a diplomatic strategy that will necessarily be easy to build and to lead. We have to wait for short-term domestic crises to abate before we can do something about their cause.
But we must accept that it is up to us to find effective means of negotiating with Europe. The centre is not going to divvy up the necessary sacrifices out of “solidarity” if it doesn’t have to. And the crisis is currently hitting the periphery harder than the core.
The alternative is the continued delays in accepting inevitable outcomes, and inadequately imaginative or aggressive policy proposals that have consistently left the EU two steps behind the markets.
This week has made clear that such a policy is no longer tenable.
Daragh McDowell recently completed his doctorate in international relations at the University of Oxford