Tackling the euro crisis by reducing people power is a dangerous path.
Democracy is two wolves and a lamb voting on what to have for lunch. Liberty is a well-armed lamb contesting the vote.
— Benjamin Franklin
JUST before the G20 meeting in Cannes in November, Greece’s then prime minister, George Papandreou, abruptly announced a referendum on the economic bailout for Greece. The bailout was linked to austerity measures much hated by the Greeks, whose anger had erupted in months of street protests. Papandreou wanted the bailout but also wanted to settle the unrest by winning a mandate to pursue the bitter medicine.
The idea that the Greek people be allowed to vote on their future in this way appalled the rest of the European Union. Papandreou was summoned to Cannes and carpeted. France and Germany ordered him to ditch the idea. This modern-day representative of the nation that gave the West its first taste of democracy did just that. The lamb was disarmed.
European democracy has had more knocks in the months since then. Greece and Italy have had “technocratic” leaders foisted upon them, approved by MPs as a transitional measure but not elected by voters. In both nations, the new leaders are economists.
Now, in another wrenching away of power from the people, German Chancellor Angela Merkel and French President Nicolas Sarkozy have won in-principle agreement from governments of 26 EU nations that they will submit their budgets for scrutiny by central authorities and accept fines and other penalties if they break rules aimed at keeping economies stable. There has also been talk of taking the right of veto away from smaller EU countries so that they cannot stymie the plans of the majority, as when a parliamentary vote in Slovakia in October almost derailed the plan to expand the European bailout fund.
Europe is like an unhappy marriage in which the partners no longer get on but cannot bear to break up because the property settlement would cripple them. It is true that there is plenty of reason to be alarmed on the money front. If governments default on their debts, if banks fall like dominoes, depression looms. If the euro collapses, it will mean chaos and hardship for nations, households and businesses.
But the urgency over money has induced tunnel vision and distorted the dynamics of power. Greater unity over spending and taxes might be good for the currency but the long-term price of this “cure” might be social and political unrest. Resentful voters in individual nations may feel disenfranchised if they think their interests are being over-ridden by distant powers.
Already, there is widespread resentment of the size, wealth and power of “banksters” and their role in the crisis. Governments are blamed for not having reined in the excesses of banks and speculators — “wherever there was a reckless borrower, there was a reckless lender”, says one Irish economist — and for allowing them to have grown too big to fail.
A study published in New Scientist in October suggests there is some justification for this view. Researchers at the Swiss Federal Institute of Technology in Zurich used mathematical models to examine ownership links between more than 43,000 transnational companies. They concluded that just 147 tightly knit companies, mostly financial institutions, control 40 per cent of the world’s revenue.
In Greece and Ireland, taxpayers resent having to suffer austerity so banks can be kept afloat. Greeks fulminate about the Greek “bailout” actually being loans to pay the interest on crippling debts to German banks. In Ireland taxpayers are angry that the government, partly because of pressure from the EU to avoid another “Lehman moment”, guaranteed failing Irish banks in order to help protect Europe’s banks. This doubled the size of Ireland’s national debt.
Now comes the dirty linen, never aired in politicians’ public utterances about European unity. What is good for the economic powerhouses of France and Germany is sometimes bad for smaller, poorer countries such as Greece and Ireland.
Greece needs a bigger write-down on its debt, which is unsustainable and is expected to rise to an eye-popping 186 per cent of GDP next year. But Germany is determined that bond holders should not suffer any further, because this would be bad for the euro — and Germany’s own banks.
Tiny, recession-struck Ireland, with its 4 million people, has been trying to ring-fence its low corporate tax rate of 12.5 per cent because it has attracted big companies such as Google and Facebook to set up shop there. But Sarkozy last week signalled that “tax harmonisation” across the zone was on the agenda, sending tremors through Irish officials.
If the EU is a family, it is becoming clear Merkel and Sarkozy are Mama and Papa, and the children are expected to fall obediently into line, even when it might hurt to do so.
But part of the reason for the crisis is that one size does not fit all. The European Central Bank kept interest rates low right across the euro zone because of fears of inflation for Germany and France. This gave the peripheral countries the cheap credit that has since ballooned into disastrous debt.
Whatever happens with the currency, Europeans seem headed for a long, dark tunnel of economic hardship. People who lose jobs and see their benefits slashed are more likely to feel aggrieved and voiceless. Reducing democratic accountability when times are tough is a high-risk game.
First published in The Age.