The road to “new European reunification” runs through Greece
BRUSSELS -- EU Commissioner for Economic and Monetary Affairs Olli Rehn rightly stressed in late May, “There is a certain aid fatigue in all of northern Europe [and] a certain reform fatigue in southern Europe.” Nearly a month later, nothing has changed. Yet both the United States and China have upped the ante by signaling that an uncontrolled debt spiral and string of defaults in Europe could be disastrous for their own economies. So what should the EU do? And, importantly, what will be the lasting legacies of any measures it takes? Reinvigorating Europe by asking bondholders to support aid and reform initiatives seems to be an appropriate and reasonable idea. But to avoid triggering a credit event, then, calls for astute political maneuvering that overcomes the past months of standstill negotiations. Details of an additional aid package to Greece financed through both official and private sources, which could reach €120 billion, will be determined by early July. Until then, the EU is conditioning any further aid to the full support of new austerity measures by all Greek political parties. Yet the possibility of default still exists, and the financial sector has already asked for better incentives to participate in the “informal and voluntary roll-overs of existing Greek debt at maturity for a substantial reduction of the required year-by-year funding within the programme.” Monday’s timid compromise by the Eurogroup finance ministers might not be visibly sufficient, but there is more than meets Polyphemus’ eye. The “Greek problem” raises a broader and deeper concern. While perception keeps driving decisions, the fear of a financial and economic chain reaction has accelerated the EU’s integration by pushing institutions and member states to quickly decide on issues of governance, accountability, and leadership; essentially to agree on the politics of European economic policy. Through this process, all involved are framing the limits of their powers and responsibilities. This week, European leaders will set the new terms of Europe’s economic union. In a year’s time, they have been asked to agree on strategic decisions they have postponed for decades. Beyond the Greek sovereign debt crisis lies the more profound issue of European political integration; Europe needs a “new reunification,” this time of the North and South. Yet with the economic and social struggles ahead, and in the face of a slow recovery, Europe also needs strong political leadership to look beyond special interests. Only tough political choices today will make the sound policies of tomorrow. It is unlikely that all questions will be answered by the end of this week: on mechanisms to help “failing” member states, on the control of public finances, on setting standards, on respecting subsidiarity, on the role of the IMF, or on the balance between private and public ownership of the European economy. But despite the disagreements, the grievances, and the final compromise, the EU will come out stronger. By sticking to its mission statements (safeguard the value of the euro, promote the general interest of the EU, oversee the correct implementation of the Treaties), EU institutions are pushing member states to be creative, responsible, and audacious. The European Central bank (ECB) itself has been described as using the “central bank equivalent of nuclear deterrence”; its president, Jean-Claude Trichet, even suggested the creation of a European Ministry of Finance. It is not just about the economics. Today’s struggles have a lot to do with regulating economic policy and affirming institutional power. In this sense, the “invisible Brussels” might not easily restore public trust in the EU, but profound changes are underway. Hasn’t the ECB already emerged as a central actor to any economic decision? Hasn’t the Eurogroup become the true hub of European economics? Hasn’t the European Parliament used the opportunity of reforming economic governance to promote further Commission oversight of national economies? Whatever one calls it, the EU is in a period of adjustment or transition or adaptation to a new paradigm -- there will be a new equilibrium calling for new policies. Europe will be stronger because it will be different. A greater question then dominates: Who should lead Europe’s economic policy? The current power struggle between the Commission, the ECB, member states, and to some extent private investors, is more than just about responsibility -- it is about leadership and agreeing on a new idea of the European economy. Rarely have policymakers come closer to Belgian economist Robert Triffin’s analogical belief that “the economy is far too serious a thing to be left to the economists.” And if Europe is in a period of transition between economic models, enough time must be given to the necessary political and structural adjustments -- time that upcoming elections in Germany, France, and Spain unfortunately might not allow. Europe was built through the combination of vision, courage, and adaptation to unexpected circumstances. The European debt crisis and its repercussions might be this generation’s tragedy, but it might also be its opportunity to deepen the EU’s integration. It could be its New Deal, its Marshall Plan, its Reunification. European leaders owe their people a political stance -- the time has come for a new Declaration, not just another Statement. EU “founding father” Jean Monnet believed that “we only have the choice between changes we are forced to make and those we wanted and were able to achieve.” This week, paradoxically, Europe will be forced to make the changes it always wanted but never dared to achieve. Guillaume Xavier-Bender is a Program Associate with the Economic Policy Program of the German Marshall Fund in Brussels. Photo by Christina Kekka
The views expressed in GMF publications and commentary are the views of the author alone.