The project of European integration is often likened to riding a bicycle; only by moving forward will you be able to keep from falling off. It might appear that this mantra was written precisely for crises like the one presently plaguing the eurozone. German Chancellor Angela Merkel finds herself at centre-stage again this week as she attempts to muster the votes necessary in the German parliament to ratify the expansion of the European Financial Stability Facility (EFSF) agreed by European heads of state in July. The agreement has been heavily criticized by the German public and is seen to place a greater burden on the German people in order to bailout the profligate nations of southern Europe. While the measure is expected to pass, recent polls show nearly 75% of the population are against increasing German contributions to aid struggling European economies. Recognizing the importance of the German vote, Greek Prime Minister George Papandreou travelled to Berlin yesterday in an attempt to reassure sceptics that his government will continue to make the sacrifices demanded it, including very unpopular austerity measures and large tax increases, in order to secure further financial assistance. Speaking to representatives from the Federation of German Industries, Mr. Papandreou promised that Greeks “will soon fight our way back to growth and prosperity after this period of pain.”
There are two primary narratives at play in the current drama. Firstly, the tendency for the more prosperous nations in the north of the eurozone, like Germany and the Netherlands, to cast this crisis as one precipitated by fiscal irresponsibility has severely limited the scope of solutions that are politically acceptable. Secondly, and not unrelated, the language of Euro-scepticism, the lack of political will to pursue policies beneficial to the Union as a whole at the expense of national sovereignty, has greatly inhibited the eurozone’s ability to respond credibly to the debt crisis, potentially making the policies currently being considered moot. It is becoming ever more clear that Europe has reached the tipping point, and they are dangerously close to falling off of the bicycle. The European political elite needs to accept the reality of the situation. By essentially removing the possibility of debt mutualisation and severely limiting the powers of the European Central Bank (ECB) to ameliorate the crisis through lending or bank recapitalisation in favor of its bias toward price stability, European policymakers have rejected the prospect of strengthening the community and are, therefore, endangering its future. Equally, bolstered by moralism, Europe’s insistence on austerity as an adequate policy remedy at this stage of the crisis is incredibly misguided. Simon Tilford, chief economist at the Centre for European Reform, best described the folly as such: “Eurozone policy-makers queue up to argue that fiscal austerity, even if pursued by all member-states simultaneously, will not be contractionary, let alone risk destroying the euro … There are, of course, examples of fiscal austerity preceding economic growth, but they all include currency devaluation and/or big cuts in interest rates. Neither option is open to eurozone economies.”
Europe needs to recover the resolve to “continue the process of creating an ever closer union.” No doubt, any movement toward creating a true fiscal union would be an immense and politically unpopular undertaking. However, Economic and Monetary Union (EMU) is a centerpiece of European unity, particularly regarding the indispensible Franco-German partnership, and to let those institutions slide into failure would be a monumental diplomatic tragedy.