Setting a new course for Europe

Photo: Press picture

12. Mai 2012
Rebecca Harms
One would think that the European Union is used to crises and thus somewhat equipped to handle them. The last time emotions ran high in Europe, the issue was Polish plumbers who could potentially compete with western European manual labourers, an unwanted development; it was also about enlarging or more deeply integrating the EU and the fatigue de l'Europe, or a weariness with too much Europe. This occurred in the spring of 2005, shortly after the large-scale eastward expansion of the EU, which went largely undigested in the West, when France and the Netherlands put the European Constitution to a referendum which later became – with a great deal of effort – the Treaty of Lisbon. The extreme European euphoria seemed to have vanished, the German-French engine sputtered and progress pretty much came to a standstill. And the deeper crisis was already discernible behind the wrangling over the Lisbon Treaty.

The new feeling of mistrust

Since the euro crisis came to light, the idea of Europe has had to contend with more and more opposition. With it came the collapse of several national economies on the periphery of the EU. Three years ago, the Latvian credit bubble burst driving large parts of the Latvian population into poverty, a development that went largely unnoticed by the public in western Europe. Hungary is still struggling today with the economic and political consequences of the many private debts in foreign currencies. The European institutions were affected when the newly elected Greek government under Georgios Papandreou ordered a recalculation of the budget deficit in the fall of 2009. This showed that the Greek statistics agency had reported inaccurate data to Eurostat, the European statistics office in Luxembourg, for many years.

The other disastrous events that followed are more or less known. The feeling of mistrust between Greek citizens and their government seeped into European politics. Major investors and rating agencies started to scrutinise the member states of the EU more closely. Not only had they kept silent about the mismanaged Greek economy, they had also accelerated and exploited it. They turned their attention to the speculation bubbles in Ireland and Spain and the struggling national economies of Portugal and Italian where naïve lending practices had led to excessive debt in the private sector. The governments had to jump in and bail out the banks using their taxpayers’ money. Since then, the trust people from different European countries place in honesty, tax discipline and the concept of democracy is measured as the difference between the risk premiums of their government bonds to those of German bonds. The new border inside Europe seems to run here between the North with its budgetary discipline and the indebted South and not, as once feared, along the former border between East and West.

A never-ending political cycle

But will opposition hinder European unity? Since the beginning of the crisis, European politics have actually been going around in a circle. We appear to be stuck in a never-ending cycle even though everyone knows that the EU can only successfully survive with the euro if we have a common economic and currency policy. Because the political courage to do so is lacking, the measures that have been adopted since the beginning of the Greece crisis only provide short-term relief but do not get at the root of the crisis. Too little, too late, too one-sided! This is how the criticism of Europe’s approach to solving the crisis is often formulated, and justifiably so.

The European governments drag their feet for various reasons until implementing the most recent proposal only promises short-term improvement. A European crisis summit passes the measure. Shortly thereafter, one or more rating agencies once again downgrade the credit rating of one or more of the countries in debt. In the most extreme case, the commentators are already agreed at the end of the summit that the resolutions will not achieve the desired effect. The market responds accordingly and the whole cycle starts again from the beginning. There are many examples: Angela Merkel’s delay tactics for the first Greek bailout during the election in North Rhine Westphalia, the Greek debt haircut, the facilities and powers of the EFSF and lastly the fiscal pact and the current increase in the amount guaranteed by the ESM where the final word has not yet been spoken.

Three important insights

To escape the never-ending cycle, those responsible first have to admit that the measures to date have been inadequate and in some cases, completely wrong. The repeated intervention by the European Central Bank to lower the risk premiums in some countries clearly shows that we are still deeply entrenched in the crisis. A lot of money was spent to purchase bonds on the secondary market or European banks injected with enough to keep them stable for the moment. The time the ECB bought for European politics by doing this was wasted solely by the fiscal pact.

The next insight has to be that this fiscal pact and the one-sided austerity programme of the governments alone will not help us out of the crisis. They don’t help ordinary citizens whose lives have been turned upside down to get the proverbial markets back in shape. But even the markets don’t benefit from the austerity programmes. The less governments spend in the indebted countries, the weaker domestic demand becomes, the fewer investments are made, the fewer number of people find work, the more the state spends on social programmes and the lower tax revenues are. This means that it is less likely that the indebted countries can pay back their debts and the government bonds of these countries become increasingly risky.

Whether or not there will be a second compassionate debt haircut as was the case with Greece is improbable. At the same time, investments in the private sector are becoming riskier. Not even the governments are helped by squeezing the very last drops out of the weakest social groups of their countries to be able to pay back their debts over the short-term. The political unrest is hard to ignore in Europe and it is becoming increasingly unnerving. From Finland where support for the right-wing populist party quadrupled in the last parliamentary elections to France where sympathies for the Front National are taking on unprecedented dimensions and Greece where the established parties have become a shadow of their former selves.

It is practically a fluke that the rise of the Pirate Party in Germany is not attributable to an anti-Europe platform but to no platform at all. This is evidenced by the fact that one month ago, the European Commission presented a proposal to work together to combat recession and unemployment. For a long time, the European Union didn’t just symbolise the prospect of freedom and democracy but also the promise of a better life. This promise finally has to be taken seriously by everyone. Which is why I support the new French president, François Hollande, in his push to correct the mistakes of the one-sided austerity programme. We, the Greens, must force the European Commission and the Council toward to think long-term in the discussions about growth. A lot of lip service is being paid to the ideas of the Green New Deal in Brussels. But when decisions are made, most of them follow the old logic of growth.

The democratic deficiency of the fiscal pact will also hopefully be addressed as a result of the change in power in France. But even though European crisis policies are currently going around in circles, this still also has to do with the experiences with the referendums in the Netherlands and France. The European governments are trying to tease what they can out of the existing treaties without having to put them to a popular vote again. Because they would have to do this the minute they ceded more power to the EU. But instead of opening up an honest debate that focusses on how the scope of the treaties would have to be expanded, they are finagling their way through one EU treaty after another. They fail to see, however, that the core of the crisis is a problem of trust between the citizens in Europe and between the citizens and their governments. Gaining the trust of the citizens of the EU will play a decisive role in the further development of the European Union.


Rebecca Harms is the leader of the Green Party in the European Parliament.


Europe’s common future. Ways out of the crisis

The EU not only finds itself in a debt crisis, it is also faces both a crisis of confidence and of democracy. Now is the time for a broadly based public debate on alternative proposals for the future of Europe. We would like to contribute to the debate with this dossier.