Eurozone voters have been blackmailed and betrayed. No wonder they're angry
|
Version 0 of 1. The European Union was often unpopular even before the financial crisis. But the long slump and eurozone policymakers' blunders have created a political firestorm. Support for the EU has plunged to all-time lows. Most Europeans now associate it with austerity, recession and German domination, with constraints on what they can do, rather than on how we can achieve more together. Anti-EU parties, often xenophobic and comprising reactionary extremists, are set to do well in next week's European elections. Europe urgently needs to change course. But while critics such as Nigel Farage and Marine Le Pen are generally wrong, and their solutions worse, it is foolish to deny that terrible mistakes have been made in recent years, especially in the eurozone. As I know first hand, having worked directly with the European Commission president, José Manuel Barroso, EU institutions are often dysfunctional, unduly dominated by Germany, and not democratic enough. To start to put things right – and thus win back support for the EU – one needs to be unflinchingly honest about what has gone wrong. The crisis has shredded trust in mainstream politicians' competence and motives. They failed to prevent the crisis and have proved incapable of resolving it. They bailed out banks and their creditors while slashing spending on poor schoolchildren. They inflict suffering on others, while remaining largely unscathed themselves. No wonder voters are angry. In Britain they can at least throw the rascals out. But in the eurozone, flawed and unjust policies have been imposed by policymakers in Berlin, Brussels and Frankfurt who are unaccountable to local voters. When Greece's debts became unbearable in 2010 they should have been written down, with the French, German and other banks that had recklessly lent to the Greek government taking losses. But to bail out those banks, eurozone governments instead compounded the problem, lending their taxpayers' money to Greece. The bad lending of private banks thus became obligations between governments. To try to recover their loans, eurozone policymakers then imposed brutal austerity, causing a longer and deeper slump than that which Germany suffered in the 1930s. Blackmailed by the threat of being forced out of the euro, local taxpayers in Ireland, Portugal and Spain were also bullied into paying for foreign banks' mistakes. In late 2010, the Irish government tried to backtrack on its foolish guarantee of all Irish bank debt, largely owed to German, British and French banks. But Germany, the European commission and, above all, the European Central Bank strong-armed Ireland into continuing to repay foreign banks with taxpayers' money. The bill for bailing out the foreign creditors that financed Ireland's bust banks is €64bn – €14,000 for every person there. Abusing the desire of the Greeks, the Irish and others to be part of Europe – and their fear of being forced out of the euro – to impose iniquitous conditions on them is the very opposite of the solidarity on which the European project is meant to be based. Thus, a crisis that could have united Europe in a collective effort to curb the banks that got us into this mess has instead divided it, pitting creditor countries – primarily Germany – against debtor ones, with EU institutions becoming instruments for creditors to impose their will on debtors. Policymakers also wrongly concluded from Greece that Europe as a whole faced an immediate fiscal crisis – and while failing to tackle the banking and private debt problems they lurched into collective austerity, depressing demand so much that they worsened public finances. When their further mistakes sparked panic, they demanded ever more austerity. A study by a European commission official using its own economic model concludes that this collective, excessive austerity caused a cumulative loss of nearly 10% of eurozone GDP – and nobody has been held to account. That the ECB – finally – halted the panic, austerity has been eased off and economies have stabilised hardly excuses the earlier mistakes, while unemployment remains extremely high. The enduring legacy of bailing out the banks that lent to Greece is a rigid system of centralised fiscal controls. Because Angela Merkel agreed to breach the legal stipulation that eurozone governments cannot bail out their peers, German taxpayers suddenly feared they were liable for everyone else's debts. So she demanded much greater control over other countries' budgets – and the commission was delighted to oblige. This EU straitjacket is economically dangerous, because countries that share a currency need greater fiscal flexibility, not less. And it is politically poisonous, because when voters throw out their government, EU fiscal enforcer Olli Rehn pops up on television to insist the new one stick to the previous one's failed policies. Denying voters democratic choices about tax and spending alienates people from the EU. And if voting for mainstream politicians doesn't lead to change, it is no surprise that people turn to the extremes. Instead of a eurozone shaped by Germany's narrow interests as a creditor, we need one that works for all its citizens. Zombie banks need to be restructured; excessive debts written down. More investment is needed, along with reforms to boost productivity (and thus wages). Elected governments need much greater discretion over their budgets, constrained by markets' willingness to lend and, ultimately, by the possibility of default. A fairer, freer and richer eurozone is in Germany's enlightened self-interest too. The EU as a whole also needs to be more open, accountable and democratic. Europeans need a much greater say over the very political decisions that the EU takes – and the right to change course. To save the EU, we need to fix it. |