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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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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