The European Union was never about Democracy and therefore it comes as divine justice that the ball which represents the Eurozone crisis was kicked off by a currency sculpted graphically around the Greek letter epsilon and rolls back, precisely, to Greece. The Euro project was and is a spectacular own goal. Around eighty years ago, the genius Albert Einstein said you cannot subjugate a nation forcibly. He was right. In the case of the European Union, and more specifically that of the 17 Eurozone member states, the mistake was repeated 17-fold. And a mistake it was, because it was not implemented democratically, it was imposed in a holier-than-thou, top-down and arrogant approach whereby a few thousand senseless Eurocrats mindlessly stitched together a laboratory experiment and implemented it wholly and completely against the collective will of Europe’s citizens, who wanted nothing less than a general trading agreement but certainly also nothing more than that.
And the epitome of this folly is that the world’s financial experts are answering the three-word question “What will happen?” with four: “I do not know”. So, in their wisdom, these faceless morons imposed a laboratory financial and economic system, in ten years, on the collective economic and social history of a continent with 500 million people, based upon developmental vectors spanning back some five thousand years, then in their enlightenment unbalanced these economies by financing countries not to produce or to destroy their agriculture, industry and fishing sectors, poisoning the job-breeding terrain downstream and now that the whole fiasco blows up in their faces, they do not know the solution, neither does the system provide one?
The urge to write a string of expletives is huge, the need to write something more productive is more pressing. The bottom line resides in the fundamentals of the system. In the Socialist economies, resources belonged to the State, including human assets, and as such did not need to be “paid for” in a monetary sense. The idea was that the resources of nations would be exploited and provided by the State for the people, as indeed it was translated into, in terms of free housing, subsidised or free utilities, free or subsidised public transportation, basic necessities, free universal education and healthcare, guaranteed job and indexed pensions. However, the EU is not based upon these fundamentals, it is based upon the most vicious stresses involved in a market-based economy where the field is slanted very much in favour of corporate giants, where state interventionism needs to occur to balance the books every now and then and where the cards are fixed against the small businessman.
Add to that an absence of far-seeing economic and financial management, add to that a climate of corporate greed, insert this into a globalised economy and we have the nightmare scenario which is looming before our very eyes. These mis-managers have (mis)managed to get their countries’ economies caught in the inevitable downward spiral of those cocooned in endemic debt (borrowing from one credit card to pay the interest on the other), have therefore been spending more than they earn, have allowed the credit rating of their countries to be ruled by ratings agencies (instead of permitting a bilateral contract between debtor and creditor) and now, have begun to seek emergency loans – which have a sting in the tail. As time goes on, creditor confidence in the debtors goes into free-fall and repayment interest coupons skyrocket. This situation is not sustainable.
When a country is indebted, it has to take money out of its economy to make credit payments, meaning its economy contracts. Jobs are lost, which engender further job losses and bankruptcies down the line as consumer confidence and then spending decrease, tax revenues fall, the need for state subsidies (unemployment benefit, early retirement pensions, healthcare needs) rises and the way out is higher taxation (not a good idea on populations pushed to breaking point) or further loans, compounding the problem further. Throw in to this horrific scenario the fact that the financial institutions had been investing heavily in toxic products (high-interest schemes based upon high rates of risk, which work when the economy is spiralling upwards but collapse when it starts to spiral back downwards), throw in the insurance and reinsurance policies taken about on these products, throw in the contagion that a globalised economy entails and we begin to see that our beloved leaders have been literally gambling our futures away, throwing money they did not have into an under-regulated growing vortex, a financial hole so deep that nobody today understands the measure of the monster we are facing.
Let us take a look at Greece. The first bail-out package worth around 210 billion Euro in 2010 vaporised (yet Greece is still liable for its repayment). None of the subsequent measures – the creation of the European Stabilisation Mechanism (500 million Euro), European Central Bank loans, special loans offered by the Merkozy space (Germany’s Angela Merkel and France’s Nicolas Sarkozy appear as Europe’s all powerful dynamic duo) and the IMF – appear to have made any difference, simply because Greece’s repayment coupon on what it already owed has risen exponentially and as to how the country is supposed to pay off hundreds of billions of Euro in increased debt, forget it. When Greece’s Prime Minister decided to be democratic, for a change, and ask the people of Greece what they wanted to do in a referendum, he was howled down by the Merkozy space and the horrified leaders of the world community. December, 2011: Democracy, ladies and gentlemen, does not exist. Greece is the tip of the iceberg. Portugal, Italy, Spain and Ireland are not far behind, Germany and France, the Merkozy space, are not immune. What to do? Since our illuminated leaders “do not know” and since our illustrious economists refuse to do what they are supposed to do, namely come up with some ideas, then let us set the ball rolling here.
For a start, contrary to a lot of nonsense espoused in the media, the mechanism for leaving the Eurozone is perfectly clear, set out in Article 50 of the Treaty of Lisbon. All a country has to do is declare its intention to leave to the European Council, which in turn will issue the terms of exit agreed upon by a majority decision of the members (Heads of Government). Where Maastricht (1992) and Lisbon (2007) are not clear is as to whether a state could leave the Eurozone but remain within the European Union. Where there is a will, there is a way. This “nuclear option” of leaving the Euro would incur short-term consequences, since a “new Drachma” (or Peseta/Escudo/Punt/Lira) would devalue, prices would rise and current agreements such as mortgages would enter a legal abyss of re-denomination procedures into the new currency. It would also afford the “victim” the luxury of taking control of its own fiscal, financial, monetary and economic policies which it signed away when it joined the Euro bandwagon, providing leverage gained by printing more money and devaluing the currency.
It would also provide the means to use this new-found autonomy to build an internal economy, recovering the lost agricultural, industrial and fishing sectors, paying farmers to produce instead of burying their crops and providing the basis for the economy to be more competitive, create more jobs and raise more revenue through taxation. If everyone kept a level head and implemented goodwill measures, then the re-denomination process, pegging the new currency over a period of time during an induction phase with special parameters, need not be too costly. Another measure is the Eurobond, in which the seventeen Eurozone member states would guarantee each others’ debts (bonds) and which would allow all members to borrow money on the same basis with the same interest rates. While Germany might oppose this, feeling “used” as less efficient economies jumped on her vastly superior credibility = credit rating, it is also true that the measures the Merkozy space implemented roughshod on the rest of Europe over the last two decades created the problem in the first place. You cannot expect Portugal, for instance, to dance to the same tune as Germany if you do not give Portuguese workers German (dancers’) salaries.
And why should they? Germany’s fears that her own borrowing costs would rise as a result (as her credit rating was diluted among the other Eurozone members) could be to a certain extent assuaged by an idea from the Breugel Think Tank, namely to reach a compromise whereby the Eurobond would cover debts equal to 60 per cent of a country’s GDP per annum, meaning that debts in addition to this would have to be subordinated to EU law, meaning in turn that the relatively easy-to-cover 60% would take pride of place. This would dissuade countries from indebting themselves further (above this threshold) and would also dissuade creditors from lending into what could be a high-risk toxic area. Without the Eurobond, the only other option is either the collapse of the “Eurozone” idea (in which an intelligent approach would allow the members to go their own separate ways and in which the financial system would agree to “freeze” certain measures, using goodwill over greed) or else a revolutionary idea practised on the other side of the Atlantic, namely for the European Central Bank to simply print more Euros. For that, we go back to the precept that for a single currency to be effective, you need a single state. Since that is not going to happen, since the ratings agencies are not going to disappear overnight, since the Eurozone countries in trouble are merely postponing the inevitable, because they are liable for their existing debts at increased rates and will suffer the effects of the IMF cure which kills the host before the disease, then the writing is on the wall.My prognosis is that the Eurobond will be the short-term measure which enables the ship to weather this storm, however you can only patch up holes for so long before the fabric tears. Given that those countries already heavily in debt face dire consequences in the immediate future because their economies were destabilised by Eurospace and then Eurozone membership, either there is a revolution in Euro affairs or else the entire project goes down the sewer. Next time, do not implement policies too fast and too far without asking people what they want. It is called, in a word, Democracy, and Democratic is something which the Merkozy space is not and never has been.
By Timothy Bancroft-Hinchey