The Eurozone’s new clothes

By: Thomas Klau

It is a fantastic success that reforming the European Union and its instruments of government has been a process moulded by the spirit of compromise rather than the patterns of revolution or war. We are paying for this great prize of peace with the comparatively small price of fudge and obfuscation, as the current efforts to reform the eurozone’s economic governance show once again. The very term is in fact a misleadingly bland misnomer. Superficially, the reform is about ensuring the dispensation of good economic policy. Fundamentally, it is about the sensible allocation of sovereignty in a core area of our democracies. This highly political task should be a matter of vital concern for all politicians and engaged citizens. It should be left neither to economists nor technocrats, who tend to engage with the constraints of electorally-driven politics the way a prude approaches sexual intercourse.


The current European effort to rescue the eurozone ignores three basic truths. First, governments continue to elude the fact that the sovereign debt crisis results from the crisis of the European banking industry and that a rapid solution to the latter is a condition for a good solution to the former. Second, what European leaders are currently contemplating is a set of ludicrously overlapping processes and agreements lacking coherence, transparency, and therefore workability. Third, the system continues to be based on the assumption that the coordination of 17 national policies backed up by rules and sanctions can deliver, when this assumption is patently false.  


The first of these three denials of reality has been the object of much informed criticism, not least on this website. The other two have escaped sufficient public scrutiny. Yet a failure of common sense is obvious in both. A Stability Pact made even more complex, a European semester, a competitiveness pact, a Europe 2020 process, reinforced multiannual planning, a European crisis management mechanism, a role for the European Commission, a role for Eurozone heads of government and finance ministers, a role for the European Parliament, a role for national parliaments, a pinch of Herman van Rompuy, a sprinkling of Jean-Claude Juncker, a whiff of Olli Rehn - the system that is emerging threatens be so layered with targets, rules, sanctions and processes and so confusing as to the allocation of powers and responsibilities as to escape the understanding of any voter or even parliamentarian not making its study a full-time occupation. Complexity carried to such excess is undemocratic. In a democracy, it also amounts to a guarantee that the system will not deliver.


Failure in terms of generating a satisfactory policy-mix is all the more inevitable as the reform effort continues to be predicated on the phenomenally naïve assumption that is feasible to coordinate the macroeconomic, budgetary, social and fiscal policies of 17 and more states with different and diverging constitutional practices, political cycles, policy traditions and political cultures. A dispassionate examination of the EU’s experience with coordination leads to a simple observation. It is possible to coordinate policy amongst many member states for a limited period of time as a result of an exceptional effort driven by an emergency. It is also possible to coordinate on a specific issue such as, for instance, the relationship with Iran.


It is quite simply impossible to coordinate a large number of complex, often conflicting policies over a wide range of topics for an indefinite period of time between states and governments powerful enough to ignore or break and reframe joint agreements when backed into a political corner – yet this is exactly the hopeless undertaking eurozone leaders once again propose to embark on. To grasp the extent of the absurdity, let us imagine that the states forming the USA would drastically shrink their federal budget, abolish the Treasury, dis-empower Congress and the cabinet, and devise a system to generate sufficient harmony between their macro-economic and budgetary policies through a set of jointly agreed rules and guidelines backed by sanctions. Even with a shared language and the existence of a nationwide debate, we would know the endeavour to be doomed from the start.


So why does Europe cling to its suspension of disbelief? The answer is that it cannot bear to face up to reality. If coordination, rules and sanctions, processes and agreements and mechanisms cannot deliver a sound set of policies for the Eurozone over a prolonged period of time,  then the choice must ultimately be between discarding the euro or taking the plunge into a federal structure complete with Eurobonds,  a common set of core policies,  a bigger and more flexible EU budget, and so on. This is definitely not the kind of argument today’s wobbly cast of political leaders are prepared to put to the public. So they will drape their emperor of economic governance in new clothes and give press conferences marvelling at their beauty. We the public can re-read Andersen’s tale and know better. 


Thomas Klau is a senior policy fellow with the European Council on Foreign Relations. Together with François Godement and Jose Ignacio Torreblanca, he has co-authored “Beyond Maastricht: a new deal for the eurozone”

21:56 Écrit par Jean-Paul Soyer | Lien permanent | Commentaires (0) |  Facebook

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