In the run-up to the June 28-29 European summit, Greek economist Yanis Varoufakis has remarked on the headstrong short-termism of EU governments’ efforts to save the single currency. He has railed against the borderline Messianic expectation of a miracle solution, which has highlighted the mental laziness of economists, and the extraordinary absence of political leadership in Europe.
On the eve of yet another “crucial” summit that will inevitably be followed by even more summits, we look forward to one of two outcomes: either not much will be decided, or alternatively, we will have news of the fatal train wreck of the euro. Unaware that the hands of the clock can be pushed back, some commentators have announced that the countdown to the end of the euro will not last more than three months. But they forget that for years we have lived with a currency whose declared life expectancy has always been set at three months.
In his analysis of this situation, Yanis Varoufakis draws two historical parallels each of them equally disturbing. The first is with the situation that prevailed in 1929 when President Herbert Hoover attempted to cure the US economy with same remedy that is being prescribed today: radical cuts to public spending and wage reductions, which undermined purchasing power. This was the policy pursued while the American economy imploded, and the one that led to mass poverty, popular anger, and the end of democracy in Europe.
The second parallel drawn by Varoufakis with the war in Vietnam in the 1960s and 1970s is equally chilling. Even when the top brass in the Pentagon were certain the US would be defeated, they continued to relentlessly pound Vietnam with bombs because they could not agree on a plan to put an end to what was obviously a catastrophic conflict. If they had acknowledged their mistake and adopted another course of action, the lives of thousands of Americans and hundreds of thousands of Vietnamese could have been saved along with a huge amount of money.
Failing to react
These are the types of defeats that historian Marc Bloch described as “strange” in 1940: defeats where political and military decision makers, who lack leadership and perspective, fail to react to the collapse of society and the ruling class away from the front. Those who are now at the helm in Europe are characterised by the same lack of initiative identified by Bloch: there may be a world of difference between a banking and sovereign debt crisis and a full-blown war, but many of the reflexes in play are identical. In the meantime, the poor Average Joe is going crazy, because he has no clue as to what is going on.
For months, we have been treated to a succession of summits that have brought together two, four, 17, and 27 leaders — all of them billed as decisive. For months, we have been presented with the spectacle of politicians announcing unshakeable resolutions.
When German Chancellor Angela Merkel and her Minister of Finance Wolfgang Schäuble enter the European Council chamber, they take their seats and recite: “It is not possible. Before we discuss solidarity, everyone will have to put their houses in order.” Of course, there is always someone from the southern periphery of Europe, who, instead of negotiating seriously, imploringly pipes up: “Make an effort. We are going under!”
They sit down at the table and, like broken records, they repeat and repeat themselves: just like the generals who continued to pound Vietnam with bombs in the hope that the war would come to a halt, they are hoping that markets can be calmed by simple exhaustion.
At last, something appears to be moving in Europe. Thanks to pressure from the Greens and the social democrats, the liberal conservative government in Germany has suddenly admitted that something must be done about growth: empty words with all credibility of a pledge from warring generals to restore peace. On the occasion of the big four summit in Rome, which brought together Angela Merkel, François Hollande, Mario Monti and Mariano Rajoy, a decision was taken to mobilise 130 billion euros — a significant sum. However, progress remains sporadic; at the same time a proposal for an increase to the common European budget was rejected.
The leaders also finally came to the conclusion that they would ignore British and Swedish objections to approve a tax on financial transactions, which will give the eurozone some breathing space.
As governments tell us, there have been some steps forward but the essential measure has not been approved: we still cannot issue eurobonds and Berlin remains hesitant about the plan — put forward in November by the German Council of Economic Experts — for a European Redemption Pact that would collectivise sovereign debt in excess of 60% of GDP. People have begun to say that we need “a federal breakthrough,” but just like “growth” and “peace”, these words can be quickly be deprived of their meaning — leaving only the German dogma of keeping your house in order and the increased control over national budgets that has recently been granted to the Commission in Brussels.
However, budgetary supervision which enables technocrats to scold and punish, but does not provide resources to establish budgetary policy, or any democratic checks and balances, is a very strange power.
The fact is that measures in themselves will not be sufficient, because the problem we are facing is not technical but political. We have gotten into the habit of blaming the markets, and arguing that the fate of Europe should not depend on their shortsighted view of economic reality. But have we really listened to the message from the markets? They are unpredictable, but their distrust for our remedies to the crisis is motivated by the lack of a convincing answer to certain questions: “Do you really intend to save the euro?” or “Are you really going to go ahead with this political union, this goal you bang on about but make no effort to achieve?"
A pack of dogs
If the markets are behaving like an overexcited pack of dogs, it is because they have caught the scent of uncertainty emanating from a Germany that does not want to take control and a Europe which appears to be embarked on a path to global insignificance. They will only be calmed by a roadmap with clearly defined milestones: a schedule for the introduction of a European tax authority, a credible European budget, a powerful European parliament, a central bank along the lines of the US Federal Reserve, and a unified foreign policy.
The markets are right to bark. There is no external pressure for a federation like the impetus provided by the Americans in the post-war period. Obama is quite happy with a Europe which contents itself with piecemeal measures that do not form part of an overall plan for unity.
Politicians that are willing to push for a federal breakthrough are thin on the ground. François Hollande is prepared to accept Berlin’s proposal for a political union, but only if it is accompanied by measures in support of solidarity. Angela Merkel has not ruled out more solidarity, but insists that political union should come first.
Clearly one of them is bluffing. They are like the two characters in Rebel Without a Cause, racing towards the abyss in two stolen cars. The first one to jump clear will be taunted as a coward, so they drive on regardless. It is a game of chicken that could result in tragic consequences, because it reproduces the old struggle between national powers which destroyed the continent in the past. Let’s not forget that the European Union was created to put an end to this type of death race.
A project to please François Hollande
A “cheater pact.” That’s how Germany’s Der Spiegel sees the Growth Pact that the European Council means to adopt. For the Hamburg weekly the agreement, which should release EUR 130 billion, is a present for French President François Hollande:
Those backing the pact – the socialist François Hollande in the lead – laud it as a necessary corrective to the austerity policies in Europe. Under this project, the main outlines of which were drawn up last Friday [June 22] in Rome by Mario Monti, Angela Merkel and François Hollande [along with Mariano Rajoy], the member states pledge to invest in “innovative sectors” and to ease up access to credit for entrepreneurs.
The leaders of the four largest eurozone economies, though, know very well that these promises, made to reassure voters and the markets, are something of a masquerade. According to an internal analysis of the Member States, the pact will contain nothing new. It will be adopted only as a face-saving measure for Hollande, who during his election campaign demanded measures to boost growth.