Always dissatisfied: for a long time the lack of European leadership was deplored, and now that Angela Merkel (with sidekick Sarkozy) has finally risen to the occasion, recognizing that the EU was on the brink of collapse and asking for a EU Treaty reform permitting something like Eurobonds, most likely to be called Euro Stability Bonds (remember the infamous role of the Stability Pact, later renamed Stability and Growth Pact), of course based on the principles of stability, discipline and sanctions, we complain again. She even advocates an “Economic Government”, long opposed by her. So, with all this new leadership and governance, why are we still dissatisfied?
It is the content, stupid! All that Merkel sees as necessary to stabilize the Eurozone, is more and faster budget consolidation, debt reduction, expenditure reductions and a stronger enforcement mechanism, in essence, taking sovereignty away from the sinners. And yes, all this in order to appease the financial markets, the not so new rulers of the universe, who have not only driven Greece into default (of course, the Greek politicians did their bit), but are playing havoc with Italy, Spain, Portugal, Ireland and Cyprus, but increasingly also with France, Austria, Belgium – and even “holier-than-thou” Germany herself.
If it were not so tragic, it would be a farce. First the banks pile unimaginable risk on their balance sheets, expecting to be bailed out in case of emergency. Then the US government lets Lehmann Brothers default- and suddenly the interbank markets freeze shut, creating a massive credit crunch-cum recession. As a result, the Western governments stimulate their economies with large funds, bail their banks out, by nationalizing them and by using their Central Banks, and in this way incur extremely high debt levels (in addition to already previously high ones). They borrow from the financial markets, which gladly give them this money. Then, suddenly, financial markets realize belatedly that some of these governments have high debts, so they “price in” this risk, charging higher and higher interest rates – which in turn drives up debt levels (if interest rates are higher than GDP growth rates, cet. par. debt ratios increase), which in turn is met once more by increasing interest rates, and so on and so forth. Financial markets know that they have politicians by their throat: they demand from them to initiate drastic consolidation programs (not by taking the previous money away from the banks, not by consolidating them, not by forcing them to close their pernicious derivates and speculative trading), but by reducing social expenditures, government salaries and privatizations (to whose benefit?- 3 Eurocent question). “Markets must be appeased” is the rallying cry of the new and old masters, to the detriment of economic development, of the populations, of democracy.
Will the financial markets be satisfied? When? The present strategy and the Economic Government ideas of Ms Merkel are extremely dangerous: They still are based on the fact that “markets” must be appeased, that successful economic policy consists of cutting unit labor costs and taxes on business – all for the sake of “competitiveness”. This strategy will result in a “lost decade”, in deep recession with social unrest. Today, many of the unemployed youths of Greece, Spain or Italy say that they might have to emigrate, because there are no jobs in their countries: but where do they want to emigrate? Just like Germany’s exhortation to the other Eurozone countries to become more German (“Europa spricht jetzt Deutsch! – W. Kauder) is impossible, since not every country can be a net exporter (somebody must buy the stuff), so not the whole world can emigrate, except to a new planet.
The financial markets may be quiet for a while, since two former investment bankers for Goldman Sachs (Monti, Papademos) run two of the problem countries. But if they carry out only market-friendly consolidation policies, they will harvest storm.
Leadership isimportant, good leadership is essential. Europe needs growth plus consolidation, it needs jobs for its young and old populations, it needs to eliminate the pernicious tax havens, it needs new investments in material and immaterial infrastructure – and it needs a rejuvenation of its slackened climate change policies, and, and, and. Only with such a comprehensive future-oriented program, which at the same time curtails the all-encompassing power of the financial markets and gives the decisive vote back to its populations will the populations support the painful exit from the crisis. A disillusioned, disenfranchised population will fall prey to populist simplifiers and be prone to disruptive acts of violence. Desperate people have little to lose. Whether David Cameron’s request of Ms. Merkel’s support to grant the UK an opt-out from the EU Working Time Directive is the right way to gain citizens’ support, I leave to the politicians.
Thus, a comprehensive economic policy program worthy of a re-writing of the Treaty will need to be accompanied by a democracy package. The leaders should listen seriously to the demands of the “Occupy” demonstrators.