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Posts tagged ‘Euro’

Europe: more than fraying at the edges

The EU is teetering on the brink of Grexit as the two sides continue to play a momentous game of chicken.

On Sunday, Greeks will be voting in their referendum on whether or not to accept the conditions the EU and IMF have put on giving the country another bailout – and the polls are so finely balanced it’s too close to call.

Germany’s Chancellor Merkel has said no one should tell the Greeks how to vote, but then went on to make clear a “no” means Greece leaving the Euro, so no pressure there then.

Greece’s anti-austerity government on the other hand is pushing for that “no” arguing it will strengthen their negotiating hand. Prime Minister Tsipras seems to be banking on fear of the unpredictable effects of Grexit to force the rest of the Eurozone back to the table.

There has been much talk of Europe fraying at the edges if Greece is forced out of the Euro with some even suggesting Athens will be end up leaving the EU altogether.

But that risks understating the depth of the crisis facing the Union.

What is happening with Greece is a symptom of something that’s eating away at the EU’s very foundations and the glue that binds the 28 nations together is in danger of dissolving.

You have to go back and ask yourself why Europeans created their unique organisation in the first place.

Before 1945, the people of the continent had spent centuries killing each other in the name of king, then country and – in some cases – both and that’s not to mention the wars of religion.

After the devastation and slaughter of World War Two, European leaders – especially in France and Germany – finally woke up to the fact that there must be a better of doing things and started building what has now become the European Union by creating a common market for coal and steel which quickly became the European Economic Community.

In so doing they were appealing to enlightened economic self-interest, but behind the project there was a more altruistic impulse too – to end the threat of war between Europeans by appealing to a sense of solidarity. The idea that what Europeans have in common is much more important than what divides them.

And like Araldite, the glue holding the EU together needs two elements to make a strong bond – that combination of enlightened self-interest and solidarity.

It’s this that has brought many benefits like the ability to live and work anywhere in the EU, something I took advantage of in the early 80s when I left recession-hit Britain to work in Italy – how things have changed, as you see when ordering your cappuccino or latte in a London coffee bar.

But the Europe-wide economic crisis of recent years has chipped away at the sense of solidarity underpinning the EU.

The Greek debt saga has both exposed and fuelled this.

Basically, the German government is unwilling to ask its taxpayers to write off the loans they’ve made to Greece to keep it afloat while it tries to find a way to pay its debts, a form of solidarity that’s called fiscal transfer in economist-speak.

And you can understand why Germans wouldn’t want to do this. After all, Greece has been living beyond its means for years and when borrowing became easier after it joined the Euro because of lower interest rates, Athens continued splurging.

On the other hand, German and other banks were happy to lend to Greece knowing it had a dodgy credit history. This is a country that’s struggled to remain solvent ever since independence in 1832.

It’s also important to point out that the Greek bailout in 2010 was also a bail out for those banks as EU governments, the European Central Bank and the International Monetary Fund basically took on the Greek debt.

But this is a complex argument the German government for one is unwilling to make to its people, so they haven’t and instead blamed it all on profligate Greeks. So it’s not just the usual suspects of the nationalist and populist right like UKIP and Front National who are responsible.

Yet EU solidarity is not just being undermined by the Greek debt crisis

The influx of thousands of migrants crossing the Mediterranean from North Africa is also playing its part.

They are making for the nearest EU countries, mainly Italy and – by unfortunate coincidence – Greece, and they are struggling to cope with the numbers. The European Commission came up with a plan for all 28 countries to relieve the burden on Rome and Athens. After acrimonious talks, where calls for solidarity and responsibility were bandied about, most countries agreed to take a share of asylum-seekers, but some, including Britain, Denmark and Hungary, refused to play ball.

According to some in the room, Italy’s Prime Minister Renzi didn’t mince his words exclaiming at one point: “If this is your idea of Europe, you can keep it. Either there is solidarity, or you don’t waste our time”.

Which kind of sums it up.

If Europeans don’t rediscover the balance between self-interest and solidarity soon, the EU faces an existential threat at its core, which will make external challenges like a resurgent Russia and spill over from chaos in the Arab world look like local difficulties.

 

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