Greece’s exit from the Euro now appears inevitable. Democracy has broken out and the austerity regime imposed as a shock doctrine by Germany with the support of Sarkozy’s France is unraveling. Eleven governments have fallen in Europe and more are likely to follow. It looks reasonably certain that the fiskalunion compact will be rejected by Ireland and several other countries (France, Holland, Spain, Italy) are showing significant signs of back-tracking on what was one a “done deal”.
When Greece returns to its own currency and begins to manage its own economy, it will be a shocking mess. Devaluation will occur overnight and the value of deposits will fall by 70-80%, the government will initially have trouble financing debt so will simply write off all of its loans as a total default, incurring the wrath of all. Then Greece will begin to sort itself out. Like Iceland and Argentina, they will come to manage their economy with intelligence and foresight. If they don’t, Greece will simply collapse as a nation. Staying in the Euro will incapacitate Greece for over a decade and inhibit their ability to reform and grow. Greece will likely become a hot-bed of revolt and rebellion against the EU in general and Germany in particular. Conflict could turn nasty, ending the near total peace of Europe since the second world war. Either way, the near term future for Greece is not pretty.
A Greek exit from the Euro will have ripple effects, most probably with Spain and Portugal next. Breaking up the Eurozone will help and will create some of the conditions needed for economic recovery. Trying to marry austerity as the core agenda with limited growth – the French plan – is unlikely to make much difference. It looks like we are seeing the end of the beginning for this crisis and the beginning of the end game for the current phase of the European project.
Next there will be a need to rethink what the project is about. Boris Johnson, heir apparent to the leadership of the British Conservative Party, favours a straight “in or out” referendum on Europe and this is being echoed by others elsewhere in the EU27. But “in or out” of what? No one wants to see the end of easy travel across borders or the ready access to EU markets. What the “yes or no” is about is the hegemony of Brussels as a bureaucracy and the desire to stop or curtail the political integration project. Both of these issues – the encroachment of Brussels in every aspect of national life and the move to more and more political integration, which is what the fiskalunion fully represents – attack the idea of sovereignty. This is the core issue.
We could express this core issue in terms of two questions: “What is the role of a nation state in a European Union?” Linked to this is the other critical question “what is the role of democracy in the nation state and in the European Union?”
It is clear that democracy is not favoured by the bureaucracy. When treaties have been rejected they have either been implemented anyway or rejecting nations have been made to keep voting until the treaty is accepted. When Greece suggested that it would ask the people what they thought of the austerity proposals in 2011 the EU machine went into overdrive to ensure that democracy wasn’t allowed to happen. So the answer to the second question is clear. The EU appears to oppose democracy.
In terms of the first question, we are about to find out. The new President of France meets with the German Chancellor to find out what France is allowed to say, think and do. The President arrives with a growth agenda and a recognition that this needs to be linked to strong fiscal discipline. He will use Paul Krugman’s observation that it was export led growth that has created the conditions which Germany enjoys, not austerity. He simply wishes to pursue the same strategy. Let’s see what the Chancellor says. Both are pragmatists and both are seasoned political operators, so we need to read between the lines as well as look at the lines themselves.
What is at stake is the whole conception of the European Project. I strongly recommend the recently published book The Decline and Fall of Europe by Francesco M. Bongiovanni (2012, Palgrave Macmillan), which looks in depth at the challenges the EU27 now face and provides a thorough analysis. Its worth the read (and the price of $30).