Can Europe change?

For those who have watched the Greek people humiliated by the troika’s ever more strident calls for austerity, it is easy to despair about ever seeing any real political change in a Merkozy-dominated Eurozone. But things may soon improve.

Consider the following points. First, Europeans are beginning to wake up to the reality of ‘austerity’ and are questioning the neo-liberal view that belt-tightening is the solution. Yes, even the German centre-left has its doubts about the troika’s prescriptions for saving the euro.

Secondly, not only is François Hollande likely to win the French presidency this year but the programme of the PS is far more radical than one could have anticipated a year ago.

Thirdly, judging by the results of state-level (Länder) elections in 2011, there is a real possibility that the German Christian Democrats and Free Democrat coalition (CDU/CSU/FDP) might lose the German general election in 2013 to a red-green (SPD/Die Grünen) coalition. Ms Merkel’s popularity is on the wane, and the Free Democrat Party (FDP) is self-destructing. Moreover, it is an open secret that policy co-ordination negotiations are taking place between the French and German centre-left parties.

Of course it is far too early to say; the above scenarios are far from certain and — many would argue — unlikely to produce the profound changes Europe needs. But at least there’s a glimmer of hope on the horizon.

In the first major speech of the campaign at Le Bourget at the end of January, François Hollande issued a highly detailed 60-point programme of reform. While sticking to his commitment to reduce the budget deficit, his main economic reforms include renegotiation of Merkel’s austerity pact for the Eurozone and the introduction of Eurobonds, tax reform and harmonisation in France starting with a tougher FTT and higher taxes on high incomes and wealth. Furthermore, he proposes the separation of investment and retail banking, the banning of all offshore banking, the creation of 150,000 new jobs in areas of high unemployment and an end to further privatisation of state-owned enterprise. In sum, Hollande wants the super-rich to pay.

What points are critical for the Eurozone (EZ)? The most obvious are the renegotiation of the Merkozy ‘austerity’ pact and the introduction of Eurobonds. The latter, which would end speculation against the euro bonds issued by individual member states, constitutes a radical departure from current financial arrangements and has widespread support from leading European politicians including Belgium’s Guy Verhofstadt, Italy’s Mario Monti and the Commission’s President José Manuel Barroso as well as from the German SPD and the Greens.

What of the austerity pact; ie, the new ‘economic governance’ arrangements advanced by Merkel under which each member state would sign up for a ‘balanced budget’ (debt brake) law. Although originally agreed under the CDU-SPD grand coalition government in 2009, according to Der Spiegel many are now having serious second thoughts.

For one thing, as things stand, failure to comply with the debt brake law would not be legally actionable since it has not been (and will not be) adopted by the 27 member states. For another, several leading EZ member states are against it — Italy’s Mario Monti thinks it would hamper growth — while Luxembourg’s Foreign Minister has openly disparaged it as a “waste of time and energy”. Crucially, the SPD-Green coalition in North Rhine-Westphalia (NRW) is furious at a 2011 German Constitutional Court decision which, based on the debt-brake law, annulled NRW’s supplementary budget.  The long centre-left and centre-right neo-liberal consensus in Germany may finally be unravelling.

But what of Greece? Sadly, its fate now appears to be sealed, and it is unlikely it will long survive (or wish to survive) within the euro. The changes outlined above will come too late for Greece, and perhaps also for other small nations on the periphery. But the hatred inspired by Merkel’s neo-liberal policies towards the Club-Med countries will be long remembered — the longer Greece is left to blow in the wind by the troika, the stronger will anti-German feeling become.

At the end of the day, political change in Germany must happen if Europe is to survive, much less thrive. Ordinary Germans don’t like being hated by the rest of Europe. Moreover, a growing number of ordinary Germans are coming to realise that German economic success rests on an unsustainable export-led growth model financed by flat wages. The great unknown is whether this lesson will be understood by the more ‘progressive’ elements of Germany’s political class.

  • Writeangle

    The EU elite thinks that if it can control everything from the centre then a wealthy future is guaranteed as it can be made a legal requirement for the EU to be rich. The implication is that it is the uncontrolled private sector that is the cause of all the EU problems. The elite cannot understand their part in this. They created a eurozone which was fatally flawed and they ignored the build up of EZ debt.

    This is similar in style to the USSR which believed in central control. However what wrecked the USSR was innovation in the rest of the world which is not possible with central control. Entrepreneurs are the creators of new wealth and diametrically opposite in thinking to bureaucrats.

    i suspect exactly the same will happen to the EU. The EU tries to isolate itself from competition from the rest of the world which inherently means its protected businesses are inefficient with high prices and less innovative. In the end the cost and performance differential between EU and rest of the world products will become too large to protect EU businesses. A decade or two ago this worked because the rest of the world was far behind the EU.

    China is competitive with the EU now will grow at close to 10% pa for the next decade. This will increasingly place many EU products and companies in danger. Already China has put EU green technology companies under drastic pressure (wind turbines and solar arrays). The USSR way of dealing with this was to ban imports which lead to smuggling on a massive scale. In the end the USSR collapsed from competition by the rest of the world which saw off its inefficient and inferior products. You may laugh at this idea but China is investing billions in new technologies and products that all the world wants. In comparison the EU is fast asleep. The EU has to compete with the rest of the world for minerals oil etc and will be increasingly priced out by an ever- richer China. The rest of the world is not going to go away and the EU's head in the sand approach is no answer.. There can be no escape from the pressure from globalisation. There is no wall the EU can build that will be high enough.

  • Marcel

    Its always the same from mr Irvin, the people of Germany (and the Netherlands) should pay more for interest on their bonds, just so others who have been irresponsible can pay less. We here in Netherlands are working for the next election to vote for a government that will veto Eurobonds (as we don't want to co-guarantee other countries debt). Yes we are up against the undemocratic elites and the propaganda press, but we gotta try nonetheless. Our grandparents in the resistance succeeded against a centralized behemoth, and so can we.

    Centralization of power isn't good at all. Its wat eventually killed the Soviet Union, the same disease is killing the equally undemocratic Eurosoviet Union (hope and pray that won't take 74 years to disappear).

    Why does mr Irvin seemingly support the destruction of democracy as in his advocacy of more powers to the undemocratic Eurosoviet Union? How is it democratic that an unelected undemocratic Politburo premier like Barroso can claim the right to overrule our national elected government? Answer: it is NOT democratic at all, and it was never meant to be.

    I do not care that people like Barroso, Monti and Verhofstadt (all three on the record with their opposition to national democracy and support for EU Soviet oligarchy) want Eurobonds. We the peoples of the Netherlands do NOT want them. We do NOT want to pay for other countries profligacy, and do not want to guarantee other countries debts. We want out of the wealth destroying Euro, and now we need politicians that will make this happen.

    It is time to let the too big to fail banks fail, time to jail the criminal bankers who stole our money, and to have trials for politicians who betrayed our democracy to the EU Soviet.