How did we get here?
It is hard to put the blame for this situation on one factor alone. The origins of this are complicated and go long back in time. The Euro was created with a fundamental flaw and everybody knew this was the case. A monetary union cannot survive for long without a fiscal union and strong political coordination (preferably a full fledged political union). But, at the introduction of the currency the hope was that these will come at a later stage, once the public understands the benefits of a common currency and is willing to give up even more sovereignty so it can enjoy these benefits. In the meantime, it was up to the politicians to ensure stability. But power corrupts and it was impossible for many politicians not to take advantage of the opportunity to borrow at low cost and give the public more than it deserved so they could be voted in power again and again. When leaders become entertainers any plan for progress is rapidly put aside.
Without progress and growth, there are no benefits for a common currency. How would Italy export more in the eurozone when it actually produces less than it used to do when it was using the lira? Differences between the North and the South were not supposed to happen. Politicians were expected to coordinate their policies until a fiscal union would become possible but a top-down change cannot happen if the top does not actually start to change.
But whatever happened before the first wave of the economic crisis could have been easily solved. A European plan of reforms would have helped the EU come out of the crisis stronger, not weaker. The crisis was, in a way, a golden opportunity for the EU to impose itself as a world leader but it became a missed opportunity (by a very long shot). It was an opportunity that transformed itself into a curse as the response to the problems was uncoordinated, chaotic, without any clear vision for the future and it ended up sinking the EU's prestige.
The lack of a coherent European response can be blamed on Germany. Chancellor Merkel's refusal to guarantee bank stability at an EU level opened the way for the market to attack weaker states. She failed to see how connected the financial system was and when this became obvious she preferred to play down the risk of contagion. When the mistake became clear, it was already too late. The moves needed to fix the situation were so politically toxic that none of the politicians even dared to mention them. Eurobonds and full fiscal union were dismissed as soon as they proposed and every compromise reached was so insignificant that it actually scared investors even more and aggravated the crisis. Contradicting statements only made matters worse. There was nobody in charge and the 'giant with many heads' seemed to be committing suicide by banging its own heads together. As a pro-European I have to say that the whole performance was grotesque and shameful. It became clear that there was no coherent vision about what to do, there was no complete and realistic programme put forward and, as the rest of the world was looking at the developments with horror, the EU leaders continued to fight each other.
|Confidence betrayed in the Euro family|
While all these were happening, the European Dream had died. The Union started looking less like a happy, rich and educated family and more like a fight-ridden, vicious familly on the brink of a divorce. The EU lost its credibility both outside and inside of its borders. Philosophical promises of peace and wealth are now so emptied of their meaning that they tend to be contra productive when they are used.
Where do we go from here?
There are no easy solutions to end this crisis. Realistically speaking, we have gone past the point where the worst outcome would be to have a small country defaulting and leaving the EU. The chances for a full disintegration followed by social instability and economic depression are no longer zero. As France prepares to have its rating downgraded, the EU is running out of time to prevent the crisis from becoming its end.
As I see it, there are only two ways in which this could end. The positive (if you could claim that any outcome might still be positive) solution would be reached only if the Nordic countries accept some sort of sharing the debt as the Southern states push further with reform. It is not enough for the Northern block to share the burden or for the Southerners to implement strict austerity, both have to happen if there is to be a long term solution that could lead to further crises being avoided. For this to happen we need strong politicians that can convince the public of the necessity of these changes. A clear vision for how the EU will look like in the future and how it plans to get there needs to be put forward. Crucially, this must be a vision that all its members adhere to, those who do not accept it should be free to leave the Union (and yes, this is a direct reference to the UK). I don't see anything wrong in German fiscal discipline becoming the norm across the continent, it is a price that all of us should be willing to pay if we actually want a future that could deliver growth. If that means that we have to make sacrifices today, then so be it. These sacrifices should, however, be fair. The is no point in punishing the Greeks or any other people and make them go through humiliating poverty, graduate steps and moderate changes will be more easily accepted. The money to solve all the problems are already there, the investors have them, the EU only needs to convince them that it is credible as an investing opportunity.