Road to hell beckons as EU's dangerous drift continues


WORLD VIEW:THE CONSENSUS, it appeared, was that we are “on the road to hell”. Most left open the possibility that Europe’s drift may yet be interrupted by radical action, but about its current direction and momentum there was little disagreement.

Nor was there much dissent with the conclusion drawn recently by Alan Dukes in a paper for the Institute of International and European Affairs, which argues the case for a co-ordinated euro zone-wide debt default to bring “problem” country debt down to sustainable levels.

The debate on Thursday at the institute on the politics of the euro crisis brought perspectives from key states: British Labour peer Lord Liddle reflected on the seemingly inexorable Tory slide towards an EU referendum; Prof Loukas Tsoukalis of the University of Athens spoke on the “deadly trap of austerity and recession” in which Greece finds itself; and the LSE’s Olaf Cramme talked about the pressures on Germany’s policymakers.

Tsoukalis warns that although Greece is having “pretty remarkable success” in diligently taking its EU-prescribed medicine – it has cut its budget deficit by a massive 6 per cent in two years and effected an internal devaluation of some 15 per cent in the same time – the patient may well be dying in the process.

GDP has fallen 20 per cent in two years and will decline by a further 4-6 per cent next year. Unless the overall strategy changes, he argues, “Greece will be leading the way to hell, followed closely by other countries in the periphery”, Ireland, quite possibly, included.

Most European economists agree, he says, that the euro-wide solution is clear – a banking union, a fiscal union that provides some means of transferring wealth between creditor and debtor states, and closer political union. How to get there is another matter. The devil will be in the detail and it is clear that “the political appetite is lacking.”

The political leadership to overcome a crisis that is as much political as economic – a “crisis of interdependence”, in Prof Brigid Laffan’s words – will have to come from Germany.

And, for Cramme, that challenge has been made more difficult by two “cardinal errors” by Chancellor Angela Merkel that delayed action and have shaped the nature of the debate in Germany and the union: her insistence as the crisis broke that the problem was one for the “problem” states, not Europe collectively, and her willingness to allow a dangerous, xenophobic narrative to take hold about the alleged profligacy of the “problem” states.

As for the future, Cramme argues that, presented with the three potential ways of dealing with the debt crisis – inflation, through the ECB effectively printing money; debt mutualisation through some form of eurobonds; or a significant default on unsustainable debt – only the latter has any chance of winning German public support.

Liddle also reflected on the extent to which politicians in member states are prisoners of national narratives. In the UK David Cameron is trapped by a dilemma less to do with his perception of the rights and wrongs of the EU than with the internal dynamic of the debate in his own party.

His prevarication over a referendum is a function also of the reality that he knows that his promised renegotiation of British membership is unlikely to produce more than a marginal repatriation of powers, which will have to be dressed up by him as a radical breakthrough if backing in a referendum is to be achieved.

That is, however, still possible, Liddle argues. YouGov polling suggests a referendum in favour of continued EU membership can be won if both Tory and Labour leaderships get behind it.

The price being paid for the euro zone crisis is not only economic, but has to be seen too in its significant effect on the EU’s global influence, specifically its failure to develop its collective foreign policy and diplomacy, Stefan Lehne told the institute earlier in the week.

The academic and former senior Austrian diplomat noted that the “distraction” of the crisis meant heads of government, who traditionally devoted much of their summits to world affairs, have had only one substantive such discussion in the last couple of years – on Libya in March 2011 – a loss of focus reflected in a loss of international coherence and a tendency for foreign policy to be renationalised to member states, inevitably then tending to promote big state interests.

He sees a number of contributing political features to the slide, notably a loss of internal solidarity and ambition on the EU’s part that is mirrored by a loss of its international prestige directly attributable to perceptions of weakness engendered by the crisis; and a cash squeeze on the underdeveloped External Action Service, which remains smaller than the Dutch foreign service.

Lehne argues that a failure to resolve the crisis will accelerate the centrifugal tendencies in the union’s foreign policy, while a renewed drive to integrate economically to prop up the euro will certainly be reflected in an increased political willingness among member states to restore and develop the union’s collective foreign policy action.

As François Mitterrand used to say, the solution is always “more Europe”.

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