No democracy without political union

Moderates have to recognise that the European Union is built in a way that has allowed France and Germany to put Greece into difficulty in order to protect their own interests, argues Italian economist Luigi Zingales in Il Sole 24 Ore. Failing to do so leaves the truth to radicals like Syriza, because “in its claims against Europe, Syriza is right. Europe has mistreated Greece and it did so because Germany and France have protected their interests at Greece’s expense.”

Zingales is no supporter of Syriza, though, and argues Greece was living beyond its means ahead of the bailout deals arranged by the EU, the European Central Bank and the International Monetary Fund (IMF). But when it came time to tackle its soaring deficits, Greece had a more difficult time with the EU than it would have had with the IMF alone —

The IMF would have imposed an austerity plan, it would have imposed a 30 per cent haircut to creditors, and it would have lent money to facilitate the adjustment. What is the difference between this and the plan Europe decided on? In Europe’s plan there were loans and also austerity; what was missing was a 30 per cent cut to debts, which would have brought the debt-GDP ratio to 100 per cent. To be fair, there was a haircut, but it was two years late and only hit the few remaining private creditors, because the majority of creditors had been saved by selling to the European Central Bank or by obtaining repayment of loans at maturity though IMF financing. Restructuring IMF loans is much more difficult than restructuring private credit. So the delay made the situation much worse.

Citing a number of bankers who hold the same view, Zingales argues this plan was the result of France and Germany working to protect the interests of their own banks. This did not happen because German Chancellor Angela Merkel is “evil”, for example, but because “she is a shrewd politician who is very good at furthering the interests of her own nation at the expense of the others.”

For Zingales, the lack of political union to match the monetary union of the EU means “economic decisions cannot be made in a democratic way” and that larger and stronger countries to hold an unfair and undemocratic amount of influence —

It’s high time for even moderates to denounce this problem. If we allow the radical left to have a monopoly on the truth, it shouldn’t be a surprise when they win elections, at least in southern Europe. It’s our fault that we have endorsed a profound injustice with silence, or even worse, with agreement.