Charting the Disastrous Choices Ahead
Markets are reeling because Europe’s leaders have only offered up half-measures to resolve the crisis. Not until Brussels, Paris, and Berlin realize the fundamental flaw in their current approach — a lack of real political and economic integration across the eurozone — will there be an end in sight.
The EU has tried repeatedly, and failed repeatedly, to calm the markets. That is not for a lack of solutions at hand. Consider three: make the European Central Bank (ECB) a lender of last resort, spread exposure by pooling eurozone debt via eurobonds, or massively increase the European Financial Stability Facility (EFSF) and start bailing out weak economies in earnest.
Any of those solutions would reinstate confidence and lead to stability, but each is easier said than done. The first and arguably best solution — in which the ECB simply buys debt without limits from Italy or any other member state in trouble — is legally questionable under the EU treaty; what’s more, Berlin rejects the idea, citing the bank’s limited mandate, and says it could spark inflation. The creation of eurobonds is a political nonstarter for northern European states distrustful of their profligate, crisis-prone counterparts in the south. And eurozone leaders have already tried — unsuccessfully — to create a bigger EFSF on the cheap by asking the BRIC countries to buy in.
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Agreement on a fiscal pact that brings deeper economic integration by making budget discipline legally binding and enforceable by European authorities is a welcome move, so long as the European Central Bank takes the next move: to become a lender of last resort. But even it were to do so, and in so doing solve the debt crisis, there are two other major issues confronting the EU.
First, hiding behind the debt crisis is a growth crisis. The fiscal pact, which mandates radical deficit reductions for all member-states and across-the-board cuts for the Southern European, does nothing to solve this second crisis.
Second, technocratic surveillance of national budgets based on automatic mechanisms agreed intergovernmentally by member-state governments, without public or parliamentary debate at EU or national levels, is a recipe for disaster. Not only does it close off the possibility of new ideas to bubble up through debate, it disenfranchises EU citizens.
While mainstream leaders may not see a problem with this—since they are the ones agreeing to the pact—the extremes on the right and the left will have a heyday with this. Let us just hope that the debt crisis resolves itself quickly, and that growth picks up again soon. If not, scenarios reminiscent of the 1930s come to mind.
Europe’s Leaders Pursue New Pact, Deal Would Bring Closer Fiscal Ties (Wall Street Journal 11/28/11)
The resignations of Papandreou in Greece and Berlusconi in Italy, replaced by technocratic governments, have raised questions about the democracy of technocracy. These questions only gain in intensity when we add the EU Commission’s increasing powers of surveillance of member states’ national budgets, let alone those of the Troika (IMF, European Central Bank, and EU Commission) when it comes to eurozone member states that have had recourse to loan bailouts (Greece) or to the European Financial Stability Facility (EFSF). The answers to such questions are mixed. Berlusconi’s replacement with a technocratic government—precipitated primarily by global market pressures—may actually be a sign of democracy at work. Papandreou’s replacement—precipitated by the pressures of the eurozone powers and Papandreou’s own ill-advised gamble on ‘direct democracy’—depends upon how things play themselves out. As for the technocratic governance of the EU, this is where the democracy deficit may be greatest.
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Berlusconi: End of an Empire (video link)
(Bloomberg) — Vito Tanzi, former director of fiscal affairs at the International Monetary Fund, Maurizio Viroli, a professor at Princeton University, Ruth Santini, associate fellow at the Brookings Institution and Vivien Schmidt, professor of international relations at Boston University, talk with Bloomberg’s Sara Eisen about former Prime Minister Silvio Berlusconi, his impact on Italy’s economy and political environment, and the outlook for the European debt crisis. Bloomberg’s David Tweed also speaks. (Source: Bloomberg)
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Finally, Italy has a chance to get out of the impasse, and the morass, that it has been in under Berlusconi. Elected in 2008 with the large majority needed to produce the major structural reforms needed for an economy in decline, Berlusconi did nothing—which was a replay of his previous term in office. If President Napolitano were to get Berlusconi’s resignation and put in his place a ‘technical government’ to oversee the economy while new elections are prepared, chances are that Italy will be able to pull itself out of the mess it is in, by calming the markets as it finally begins to reform.
Berlusconi Loses Governing Majority (Wall Street Journal 11/9/11)
Greeks on a Teetering Greece
[Listen to program on WBUR]
We bring in the Greeks to talk about what’s ahead as their country teeters.
It’s all about the Greeks in Europe this week, and really around the world. The Greeks’ debt. The Greeks’ crisis. The Greeks’ stunner of a sudden conversation about voting on whether or not to accept their own bail-out from Europe and the pain that would come with it.
The “hemlock ballot,” wags called it – and it’s off, apparently, already. Greece got in way over its head on debt and spending. Now it’s in a world of hurt and struggling over how to respond. In the Euro-zone, or out. In the streets, or off.
This hour On Point: we talk with Greeks about their close encounter with Greek tragedy, and ours.
Yanis Varoufakis, Professor of Economics, University of Athens, and author of The Global Minotaur: The true causes and nature of the current economic crisis.
Naya Kotsira, she is a civil servant who handles hiring and firing at Greece’s ministries.
John Psaropoulos, Greece correspondent for National Public Radio.
Vivien Ann Schmidt, Professor of European Integration at Boston University, where she is also Director of the Center for International Relations and Director of the Center for the Study of Europe
© Copyright 2011 WBUR