The Euro: "A Monument to Collective Folly"
"The European Union faces a huge crisis of confidence," said Jose Manuel Barroso, the President of the European Commission, the EU's unelected government, when he addressed the European Parliament in Strasbourg last week during his so-called "State of the Union." Rather than blaming the unaccountable, unelected EU bureaucracy which he is leading in Brussels, Barroso pointed an accusing finger at "national egoism" as the cause of the EU's problems. "Let's be completely clear – the problems we have in Europe today do not come because of the European institutions. The problems that we have in Europe today come because of narrow national interests," Barroso said.
This is not entirely correct. The problems have been caused by countries such as Greece. Though these countries joined the eurozone – the group of EU member states that use the euro as their common currency – they consistently failed to keep their annual budget deficits below the agreed minimum of 3% of GDP. Greece flat-out lied about the extent of its deficit. Barroso's EU institutions, which had to monitor the figures, did not notice that Athens was fudging the rules. Today, Greece is not only on the brink of bankruptcy; it risks dragging the whole eurozone down with it.
British Foreign Secretary, William Hague, said that the creation of the euro "will be written about for centuries as a kind of historical monument to collective folly." The folly is, however, still in progress. EU Commission President Barroso, who happens to be a former Prime Minister of Portugal, one of the insolvent "garlic belt" countries, told the European Parliament last week that more EU and less national sovereignty is the only possible remedy to the current crisis. He proposed abolishing national vetoes and blamed the "constraint of unanimity" for the present problems.
Barroso also called for the pooling of debt at the eurozone level. "Once the euro area is fully equipped with the instruments necessary to ensure both integration and discipline," he said, "the issuance of joint debt will be seen as a natural and advantageous step for all." The unelected boss of the EU bureaucracy ended his speech with a boost of euro-jingoism by urging national governments across the EU to show more pride in Europe: "I want to see and hear that pride in being European."
Secretary Hague, however, is opposed to expanding the powers of Brussels. "The EU does have too much power," he said. "I haven't changed that view since being in government; in fact if anything, being in government has reinforced that view. There should be powers that are returned to this country." The Germans, obviously, do not like the prospect of abolishing their national veto, either. They do not want a majority of Southern countries to force them to pay for debts they did not incur.
The Greek crisis began in October 2009, when Greece's new Socialist government realized that the country could no longer pay its debts on its own. Athens subsequently begged the other EU countries for help, admitting that it had been misleading them for years, when Athens had also been lying about the real figures. The real 2009 Greek deficit, the Greeks confessed, was as high as 15.4% rather than the 3.7% Brussels had been led to believe.
In April 2010, the eurozone countries and the IMF decided to bail out Greece with loans totaling €110 billion. Meanwhile, however, it has become clear that Greece needs another bailout of €215 billion, while Portugal and Ireland also had to be bailed out, and Italy and Spain are heading toward the danger zone.
On July 21, 2011, to avoid disaster, the 17 eurozone countries decided to expand the powers of their bailout fund, the EFSF (European Financial Stability Facility), which currently has a capital of €440 billion at its disposal. This money can only be used to help countries in imminent danger of financial collapse. The new powers allow the EFSF also to help banks that run into problems when countries are no longer paying their debts, as well as to assist countries to prevent them from getting into financial difficulties.
The expansion of the EFSF's powers needs to be approved unanimously by all 17 eurozone member states. Last week the parliaments of Germany, Austria, Slovenia, Estonia and Cyprus approved the expanded role for the bailout fund. The Netherlands, Malta and Slovakia are the only countries still lacking. Although their electorates oppose having to bail out other countries, their governments and politicians realize they have no choice.
Secretary Hague sardonically described their dilemma in an interview with the (London) Spectator as being caught in "a burning building with no exits." Hague's message is stark: those inside are all going to die, unless they manage to extinguish the fire. While Britain counts itself lucky that it never was so foolish as to exchange the pound for the euro, countries such as Germany and the Netherlands, which swapped their strong currencies for the euro, seem to have no other choice but to pay for countries in Southern Europe, which some people are now derisively referring to as "the garlic belt." Haig made it clear that the "Germans will have to accept that they are going to subsidize those countries for a long time to come, really for the rest of their lifetimes."
As Greece will run out of money by the end of this month, the eurozone countries need to agree soon on lending Athens new sums. The expansion of the EFSF powers has not been approved in all member states yet, but a debate has already begun over the need to raise the capital of the bailout fund. It is generally assumed that the capital must be quadrupled to €2 trillion to bail out Italy and Spain as well. Leading German politicians have indicated that they are not prepared to accept that. German Finance Minister Wolfgang Schäuble rejected the proposal of "throwing – literally – even more money at the problem: "You simply cannot fight fire with fire," he said, taking Haig's metaphor of the eurozone as a house on fire a step further; but Schäuble did not suggest that the Germans hack an exit in the wall.
The time may soon come that even the currently unthinkable – a break-up of the euro – will become a possible scenario. As Berthold Kohler, political editor of the Frankfurter Allgemeine Zeitung, warned last week in a front page editorial: The estrangement of the German people from the EU's European project will not decrease if what the Germans consider to be right is continually violated.
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