WORLD VIEW:'THIS IS a time for Europe to come together to ensure that the achievements of the last 20 years are not lost because of an economic crisis that is rapidly turning into a human crisis." So said Robert Zoellick, president of the World Bank, last week in a criticism of the EU's failure to deal adequately with the mounting effects of the crisis on central and eastern Europe, writes PAUL GIILESPIE
His remarks have struck a chord, as many of these states were suddenly exposed to an avalanche of financial debt, collapsing exports and faltering governments. This is the 20th anniversary of the 1989 revolutions, after all. Will it also be the year in which disillusionment with the westernising path they have taken since then outweighs the many interdependencies it brought?
Zoellick’s remarks have stung, especially among the EU social democrats. Speaking in Dublin at a Labour Party forum on economic policy last weekend, Poul Nyrup Rasmussen, leader of the Party of European Socialists in the European Parliament, said Zoellick should not have been the first to speak of the need for European solidarity. Ireland, too, needs help within the euro zone, he said, since it is unfair to expect it to manage these issues alone. He supported the idea of Eurobonds, which could combine the capital needs of 9-10 countries, making them less liable to credit default swap interest rates.
In a letter responding to the criticisms, Joaquín Almunia, Spanish EU commissioner for economic and monetary affairs, spelled out EU aid plans for the region and says help for banks in western Europe should also help their units in poorer countries. Almunia told the Financial Timesthe EU is slower to respond than the US because it is not a federal state, but the co-ordination of national stimulus packages can be very much improved.
This is the question facing the EU economic system in the most difficult challenge it has ever faced. The system’s architecture of relatively strong regulation combined with light fiscal capacity, of a pan-European single market and currency combined with largely domestic politics, makes it difficult to develop the solidarity called for by those exposed to the crisis.
In Dublin, German industry commissioner Günther Verheugen explained why this is so difficult. Responding to calls from some TDs and Senators for stronger EU action, he said “the EU doesn’t have a single economic policy. It isn’t in the EU treaties. It isn’t a competence of the EU. It is a competence of the EU member states and the Lisbon Treaty doesn’t change that.” He said you cannot demand a more centralised system and oppose that treaty, which helps make it more effective in some areas, even if not in the key economic ones.
Jean-Claude Trichet, president of the European Central Bank, answered with an emphatic No when asked at the Institute for International and European Affairs whether the Stability and Growth Pact conditions about national fiscal deficits should be relaxed during the crisis to facilitate states in sudden deficit. That would undermine confidence in an exit strategy from the cyclical downturn. There is already provision for exceptional help. He is impressed by Ireland’s achievements and potential but recognises the hard choices required for recovery. Ireland’s openness, flexibility and store of knowledge will see it through, he is convinced.
These are important debates about the opportunities and limits of EU integration. They could do a lot to inform us more on the subject ahead of another Lisbon referendum. Europeanisation of domestic policymaking is made more visible in these circumstances. This is the way global trends are mediated in our system of government. But because of the continuing national rootedness and bounding of democratic politics this is often obscured by everyday politics and media. It helps to link the economic and Lisbon debates so as to draw out these connections. The costs and consequences of marginalising Ireland within the EU are now more transparent.
Rasmussen detected a definite German shift towards greater EU involvement in the crisis, from a point where they strongly resisted bailing out profligate central or southern states with German taxpayers’ money. They want to save the system they benefited from over these 20 years.
That was seen in Angela Merkel’s statement that Germany is willing to consider helping out Ireland and other euro zone members in financial difficulty on condition they make clear the true state of their banks’ finances at tomorrow’s meeting in Brussels. “We have shown solidarity and that will remain,” she said. German officials add another condition – that Ireland’s low corporation tax model could become part of any such negotiations – a good reason to take those hard decisions.
Rasmussen, an economist and former Danish prime minister, supports much stronger financial regulation at EU level and believes this is now required for economic recovery. Financial markets should be made servants of the real economy on the less risky long-term basis that was only recently relaxed in the US.
He reminded his audience that the permissive deregulation which created the explosion of hedge funds, deleveraging, credit default swaps, contracts for difference and other such products had by last year created a worldwide industry of $50-60 trillion, 1½ times
more than the world’s gross domestic product. We now know that is not worth the risk. Another way must be found to revive economic growth, preferably a smart green way, though that is easier said than done. As Almunia says, recovery will be slower because it will not any longer be finance-led.