It is becoming clear that the real crisis in Europe is one
of leadership and imagination.
Last week at an informal summit meeting (complete with a
formal photograph), the European leadership came up with a new “rescue plan” - "project
bonds" to be launched for a trial period this summer. Some €230m (£183m)
has been earmarked from the existing EU budget to help the state-backed
European Investment Bank provide infrastructure loans. This initiative will
apparently attract €4.6bn in private investment, so helping the Eurozone grow
its way out of trouble. It shows how much in denial the European leadership
really is. Growth is stagnant in Europe, even in Germany. As Liam Halligan says
in todays Sunday Telegraph, this “solution” is akin to “tackling an inferno
with a water pistol”.
The underlying problem is that most of the banks of the
European Union (with some notable exceptions) are insolvent. Spain’s Bankia just asked for €19 billion (this
on top of support already received) and many banks through the region are now
so interdependent on Government bond payments that they are effectively
bankrupt. Regions of the EU are bust. Catalonia, Spain’s wealthiest region,
announced this week that it is bust and needs the central Government to pay its
bills.
None of these issues were discussed last week at the
informal summit. Nor was the pending exit of Greece from the Eurozone – now a
certainty. Nor were the recessionary forces now shrouding Europe on the table –
German indicators, for example, show a sharp drop in GDP growth in the last
quarter. It is as if the leadership of Europe is walking in a trance towards
Eurogedden.
All look to Angela Merkel. She is said to be “dusting off”
the plan made for the integration of Eastern Germany some several years ago,
which forced a degree of austerity onto the German people so as to permit
integration. She is a one trick poney, and that trick isn’t a solution.
The real solution is painful. It requires European nations
to become competitive and productive. In real terms, this means lowering the
standard of living in Spain, Portugal, Greece, Italy, Britain and France and
raising the bar for the receipt of social services. It means increasing the
number of hours worked, delaying retirement and changing working practices. It
means returning to a focus on cost reductions in public and private sectors and
to a relentless focus on innovation. It also means abandoning lofty and
expensive ideals about climate change mitigation based on state subsidy –
something which is making matters worse rather than better in that it is significantly
increasing the volatility of energy prices and raising energy costs to a point
in which industry cannot compete. One estimate is that this package of measures
means a lowering of the standard of living in these countries by one third.
And this is why we have no leadership. What leader in a
democracy based on four year terms is going to advocate these policies? None.
Yet the alternative – drift, denial and despair – is inevitable. Prepare for
Eurogedden. The clock is ticking.
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