Euron eurown now
Why is the European Union summit — a periodic gathering of the heads of state and/or government of all the member states – underway yesterday and today, different from all other European Union summits? Certainly not because there is a crisis rumbling on. There have been many crises during the 50+ years since the European project got underway, some greater, some smaller. There have even been some in which the French and Germans have been on opposing sides, but even these have been navigated without lasting damage.
The current crisis, and hence the summit taking place in its shadow, is in a different league. Technically, it is about how the EU will come to the aid of a member state which is undergoing a severe economic crisis. However, anyone who thinks that the matter of finding a few tens of billions of euros with which to bolster Greece is a big deal for the EU, is missing the point by a mile. The argument is not about the money, much less about which mechanism to use and what terms might be needed in making loans, or providing guarantees. These are not the stuff of existential angst, nor even cause for the euro to slump against every major currency, from the American dollar to the Swiss franc – as it has this week.
Rather, what is at issue is whether to provide help at all. As recently as last week, it had been widely assumed that the EU was going to support Greece; not necessarily in the form of hard cash, but at least by creating a financial mechanism that would allow Greece to borrow the (large amount of) money it needs quite urgently, at rates of interest similar to those that other, healthier, EU member states would pay. This mechanism would also transmit a clear political message, namely that the EU stood behind Greece and that no individual state would be left to solve its own problems. ‘One for all and all for one’ was one of the newspaper-generated slogans that expressed this basic idea.
However, over the last 7-10 days, this assumption has been tested, found wanting and trashed. At first, commentators made a sub-assumption that the tough stance being taken towards Greece by Germany as a whole, and by Chancellor Angela Merkel in particular, was just a ploy. She and French President Nicholas Sarkozy were playing a ‘good cop/ bad cop’ routine, to make sure the Greeks understood that there would be no more monkey business (hitherto the norm in Greek dealings with the EU). Then they tried the ‘she’s playing to the German domestic audience’ line, which is ultimately a variation on the same theme. Only this week did it become unavoidably clear that there was no game, no ploy and no bluff. The Germans were not prepared to go ahead with an EU-designed, led and executed support-and-rescue operation.
The Greek Prime Minister (Papandreou, as usual – this one’s the grandson) ‘threatened’ his EU partners that if they didn’t deliver the support needed, Greece would ask the International Monetary Fund to help out. That is what a ‘normal’ country in severe economic trouble would do – call in the IMF and resign itself to taking the nasty medicine that that organization prescribes for these situations. Germany effectively stole the Greeks’ thunder by saying “please go ahead and do that”. In essence, the Germans, supported by the Dutch, Finns and a few other minor EU states, and strongly opposed by the French, the EU commission in Brussels and the European Central Bank in Frankfurt, told the Greeks “you’re on your own now”.
This is beyond dramatic, it is epochal. The question – to which no-one yet has an answer – is whether it signals the end of the European Monetary Union (the euro project) and of the entire thrust toward greater European integration, or whether it is merely the end of EMU as we know it. Are the Germans aiming to reverse what many of them see as a historic blunder in the late 1990s, of allowing the ‘Club Med’ to countries to join EMU, by retreating to a more limited union of core countries genuinely committed to the Maastricht goals of economic and financial management? Or do they think that making an example of Greece will be sufficient to get everyone else into line? This week’s downgrading of Portugal, even as the Greece crisis played out, is a reminder that Greece may be the worst offender, but it’s far from being the only one. And if southern and eastern Europe are to be shoved into long and bitter recessions, who is going to buy German exports, the source of German economic prowess? The Asian markets are indeed growing, but Europe is Germany’s backyard – which is why it wanted the EU and EMU in the first place.
There are no easy answers for anyone in the European mess – and certainly no reason to expect it to be resolved any time soon.