As the Greek crisis worsens, so voices are being raised demanding new and more radical approaches. Forget the sticking plaster bail-outs and slice-by-slice austerity packages. The ultimate solution to the eurozone debt crisis is “political union”.
Last week Nout Wellink, the Dutch central bank governor, became the latest senior figure to float this idea, when he argued that the eurozone needs “an institutional set-up that has characteristics of a political union”. According to Mr Wellink, “a European finance ministry would be an important step in the right direction”. Jean-Claude Trichet, the head of the European Central Bank, has also backed the creation of a European finance ministry – which in turn implies a much larger central budget and more decisions on spending and taxation taken in Brussels, rather than in national capitals.
Those who argue that “political union” is the solution to the current crisis seem to believe that Europe’s problem is institutional. Unlike the US, the eurozone does not have the political institutions to back up a common currency. But if Europe was just equipped with a finance ministry or the facility to issue eurozone bonds or to tax citizens directly, everything could be fixed.
This is a profound misdiagnosis of the crisis. The real problem is political and cultural. There is not a strong enough common political identity in Europe to support the single currency. That is why German, Dutch and Finnish voters are revolting against the idea of bailing out Greece again – while Greeks riot against what they see as a new colonialism imposed from Brussels and Frankfurt.
To argue that even deeper political integration is the solution to this mess, is like recommending that a man with alcohol poisoning should treat himself with a more powerful brand of vodka.
For what it's worth, historian Niall Ferguson pointed out on CNN that Greece in the past has hardly been a satisfactory place to rely on for investments. In 1870, a horrific total bankruptcy threw the country into fiscal chaos for years. A hopeless recidivist? But the arrogant socialist elitists defy history and claim it's a brand new day and "morning in Old Europe."
It is important to understand that the origins of the current crisis lie precisely in the dream of political union in Europe. For the true believers, currency union was always just a means to that greater end. It was a way of “building Europe”. If bits of the construction were missing – such as a European finance ministry – they could be added later. Helmut Kohl, the chancellor of Germany in the early 1990s, was so convinced of the need to bind a united Germany into the European Union that he was prepared to press ahead with the euro, in the face of 80 per cent opposition from the German public.
At a seminar in London last week, Joschka Fischer, a former German foreign minister, who is one of the boldest advocates of deeper European unity, was unrepentant in defending this elitist model of politics. He insisted that most important foreign policy decisions in postwar Germany had been made in the teeth of public opposition. “It’s called leadership,” he explained.
Such leadership is all very well, if it is vindicated by events. However, if elite decisions go wrong, they create a backlash – which is exactly what is happening in Europe now. German voters were told repeatedly that the euro would be a stable currency and that they would not have to bail out southern Europe. They now feel betrayed and angry. Greek, Irish, Spanish and Portuguese voters were told repeatedly that the euro was the route to wealth on a par with that of northern Europe. They now associate the single currency with lost jobs, falling wages and slashed pensions. They too feel betrayed and angry.
So Kohl drank the Kool-Aid despite an 80% political polling opposition. The old Prussian autocratic gene lived on and cloud-cuckoo-land reformist elites knew better, as they always do. And now Angela has to suffer the spiked Kool-Aid's aftereffects.
As a result, the space for political manoeuvre is narrowing on either side of Europe’s creditor-debtor divide. The Greek government can barely muster a majority to force through its latest austerity package. The German government of Angela Merkel is losing support and is facing an increasingly Eurosceptic public. Meanwhile, radical anti-European parties are on the rise in other creditor nations, such as Finland and the Netherlands. Most European leaders still blithely assert that they will do whatever it takes to save the euro. But these leaders operate in democracies. If they take decisions that voters simply cannot accept, they will lose their jobs.
The relations between the peoples of the EU are cracking under the strain of the euro crisis. In Athens, demonstrators wave EU flags with the swastika imposed upon it. In Germany, the euro crisis has made it permissible to denounce profligate and corrupt southern Europeans. A single currency that was meant to bring Europeans together is instead driving them apart.
Insufferable arrogance and elitist autocratic habits die hard even though the effects of two World Wars and the forced imposition of democracy on some countries evidently has still not sunk in. How can the Gordian Knot be sliced if so many other places in Europe are still having problems gaining even national cohesion---let alone an international tour de force like a United Europe?
The politics of fiscal transfer are tricky, even in long-established nation states. Think of the strains between northern and southern Italy; or between Flanders and Wallonia in Belgium. But the tensions are far worse in a newly created eurozone of 17 nations with different histories, cultures and levels of economic development. Simply ignoring this – and trying to press ahead with a deeper political union – would invite an even more dangerous backlash in the future.
But if political union is not the answer to Europe’s problems, what is? There are two possible solutions. The eurozone leaders might somehow patch the current system up. Or the weaker members of the currency union – above all, Greece – could leave. That process would be chaotic and dangerous. But Greece, as it stands, is a demoralised country that has lost the sense that it controls its own government. Leaving the euro might just be the beginning of a national regeneration.
Long ago in DC, I had a long dinner with Nikos Papadopoulos, brother of the current beleaguered PM George Papadopoulos. Nikos was getting his PhD in Poli Sci from Princeton and spent the evening one-on-one telling me of how Greece and the Greek economy really worked, with a system of kickbacks and crony capitalism and local village podestas or regional czars and other special interests who had a say in just about everything. Add to that, the fact that in Greece, nobody pays their taxes and one-third of the employment is connected to government or is directly employed by the govt., and the Greeks have been walking on sunshine for the past few years, after having its own Treasury submitting falsified data, to this date with no retribution, in order to get into the EU and the Eurozone in the first place.
Michael Lewis summed up the entire Greek conundrum in a brilliant piece in Vanity Fair last October. What Nikos Papadopoulos told me almost thirty years ago still holds true today.
And Niall Ferguson may echo Gideon Rachmann's call for a Greek default and retreat to the drachma as the only sensible solution for a people simply too corrupt to be part of a true European polity.