The eurozone crisis appears to be heading towards some kind of climax. Haven’t we heard this before? Like ahead of every eurosummit of past two years? While a truly “decisive” solution appears impossible almost by definition given the nature of the European Council (vetoes/Germany), we are getting at a point where either the politicians actually change business as usual or everything falls apart. Or both.
Borrowing costs are rising across the eurozone, including “virtuous” governments like Austria and Finland, with even Germany now being forced to pay more than the UK. It is now clear Italy – if Brussels-Frankfurt-Berlin do nothing – will enter a debt spiral and default on its over €1.5 trillion of debt no matter what the new entirely-unelected government of bureaucrats in Rome does (and, no, actually crying while announcing your €30+ billion austerity cuts doesn’t help), dragging the European financial system down with it in the process.
If staring into the abyss of financial collapse has a way of focusing the mind, so does the fact that the eurozone’s (Merkel’s) dithering non-policies and repeated pseudo-solutions mean that Europe has effectively already entered a double-dip recession, with unemployment rising to 10.3%, the highest recorded since the euro’s founding, even as the U.S.’s has dropped to 8.6%. This, for a young European like myself whose generation faces over 20% unemployment, verges on criminal negligence.
We appear to be at a tipping point for EU leaders with for the first time serious talks of legal fiscal controls to be imposed from Brussels and, less certain, of decisive intervention by the European Central Bank. History, as José Manuel Barroso recently said, is “accelerating”. Economic disaster is getting palpably close and the eurozone appears to be on the verge of a major political transformation. The two are not mutually exclusive.
Still the whole remains hideously complicated. What exactly is going on? I thought I’d highlight three long articles which, though not the most recent, explain the stakes (all worth reading in full).
Economics editor of Bloomberg/Businessweek Peter Coy analyzes the eurozone’s state and searches for the roots of German policy. Basically, according to Coy, the Lady is not for turning. Merkel will not yield on eurobonds or the ECB, though current German policy is “fighting against more than a century of central banking theory and practice,” and her proposed reforms neither address the current crisis nor will take effect soon enough.
In addition, it’s not clear that Merkel has either a strategy or a clear conception of the crisis. “If Merkel were thinking strategically, she probably wouldn’t risk the European economy falling into a recession,” he says. Conclusion: “The paradox at the heart of the crisis in Europe is that Merkel’s fetish for stability has become deeply destabilizing.”
Veteran financial reporter for EUobserver Leigh Phillips has let loose in a massive 4,500-word op-ed (really an essay) mapping out how the eurozone crisis has eroded European democracy. Here too there is little to celebrate: Brussels is about to take control of national budgets from elected parliaments and, where no majority for austerity exists, governments of non-neutral Brussels-Frankfurt men of confidence are imposed (“Keynesian experts need not apply.”).
Favorite quote: “At the birth of the United States, the more egalitarian Thomas Jefferson, believed in equality of political opportunity (admittedly only to white males) and favoured ‘plain folk’ and the ‘yeoman farmer’ over the ‘cesspools of corruption’ inhabited by financiers, bankers and industrialists.” The latter presumably referring today to the unelected eurocrats-cum-Goldman Sachs alumni now running Greece, Italy and the ECB.
Finally Ezra Klein over at Wonkblog provides lots of graphs describing near every aspect of the crisis, including sovereign bond spreads, bank exposure, industrial trends and scenarios for crisis resolution/eurozone breakup. Because we’re visual animals, you know? (Incidentally, Wonkblog looks like it has the most comprehensive coverage of the crisis in general.)
All in all, pessimism still seems warranted. Berlin looks to not be ready to do what it takes to save the economy but Brussels does look set to rob us of much of our democracy. Perhaps the summit will surprise us, but as it stands, it seems we are set for more costly, compromising eurocratic halfassedness. Hélas !