Report What future for the euro? (2)

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The €750 billion rescue package rubber-stamped by the EU 27 on 9 May applies the same strategy the US used two years ago, in the autumn of 2008, to save failing banks.

Published on 11 May 2010 at 14:11

On Sunday night, European finance ministers approved a rescue plan designed to keep the Union fiscally afloat for good – to the aggregate tune of €750 billion. The package includes straightforward cash injections as well as loan guarantees. The most incredible part of it is the European Central Bank (ECB) intends to start buying sovereign debt, which is an unprecedented step. It is also worth noting that Europe in 2010 is coming round to roughly the same remedy the Americans applied in the autumn of 2008 [$700 billion to buy up toxic bank-held securities].

At any rate, the foundations have clearly been laid for deeper economic integration. Brussels and Frankfurt [ECB’s HQ] can now meddle in member states’ economic and fiscal affairs more than ever before. The measures adopted on 9 May are only ad hoc, however: starting now, we need to move on to the next step and put together a new political framework adapted to the new situation. In future, state budgets, along with tax hikes and tax cuts, will have to be rubber-stamped in Brussels. If a country wants to increase teachers’ pay or pensions, for instance, it’ll have to ask for the European Commission’s permission. Reforms, moreover, will finally be more closely coordinated.

The end of the welfare state

Any state that doesn’t abide by the rules will be denied a say in European affairs. Actually, the only countries that satisfy the euro criteria at present are Estonia, Luxembourg and Finland – so it would be a rather amusing prospect to have three dwarves running Europe. The new rules remain a matter of conjecture for the time being; we still don’t know exactly what shape the political reality will take. But it is becoming increasingly urgent to set up political mechanisms enabling European institutions to keep tabs on each member state’s situation. Without that, the monetary union is not going to last.

The debate over the rescue plan already throws certain facts into stark relief. First off, the problems haven’t been resolved, just put on ice for the time being. The debts have been replaced by other debts. The cash crisis is over, but the solvency crisis wears on. Secondly, European states simply don’t have the money to fund the promises they’ve made [to their electorate] regarding pay and pensions, subsidies and stock markets. The situation is alarming, to be sure, especially along the Mediterranean, but similar straits await the other European states, including Estonia and Finland. Growth in the European economy is approaching zero, especially in comparison to North America and Asia. Thanks to rapid growth, Asia can pay off its debts: not so Europe. In fact, the welfare state as we know it is coming to the end of the road.

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