Monday, June 04, 2012

Tipping Point in Europe - June 17th

On 17th June the electors of Greece will decide the fate of the Eurozone. They will be asked to elect a government. One choice they could make is to elect a government which is committed to rejecting the fiscal bail-out arrangements made by two previous Greek governments aimed at securing the place of Greece in the Eurozone. A different choice they could make is to elect a Government which supports the arrangements in place and will secure Greek’s place in the Eurozone through pursuing the shock doctrine imposed on Greece by the Germans. More likely, they will make a third choice and confusion will result.

Confusion would fit well with Europe right now. Because of poor leadership, short-term decisions and a lack of cohesion, Europe has spent three years stumbling through its economic crisis. Since 2010, when the crisis began, 17 of the EU’s 27 leaders have been ejected by democratic elections and confidence in the EU is falling, not rising. The failure of decisive and visionary leadership and the failure to tackle the real challenge – unemployment, not deficits – means that Europe’s electorate do not support the technocrats in their pursuit of the “confidence fairy” and austerity. Europe is calling for change.

But the current crop of nit-wits running Europe fail to heed a simple message. They have misread the signs, do not understand the problem and are pursuing the exact opposite strategy to that required. In short, the vote is for either making things better (rejecting the current EU strategy) or making it worse (accepting the EU strategy).

Don’t take my word for it. Mario Draghi, President of the European Central Bank, says that either the EU pursues complete fiscal integration or it accepts the end of the European project, starting with the collapse of the Euro.

The Economist also thinks that we are at a tipping point for the EU. They suggest: (a) Eurobonds for the debts of nations and banks above 60% of GDP; (b) closer fiscal union for budget matters; and (c) addressing the disparities in the balance of trade through stimulus.

Paul Krugman, the Nobel Prize winning columnist for the New York Times, thinks that the Eurozone (indeed the EU) should invest more funds in public projects that massively reduce unemployment so that this would stimulate demand – he says the problem (except for Greece) is not profligate Government spending, but lack of demand. Rather than worrying about Government debt, we should address the real challenge: massive unemployment and the economic depression.

Only ideologues and Austerists support the austerity agenda for Europe as a whole. While Greece is a special case (complicated, definitely profligate), it is a serious mistake to turn every challenge in the EU into a Greek tragedy. Spain and Italy have different challenges from Greece – no one size solution fits all. What is needed is imagination and leadership.

And this is what the electors in Greece will be looking for. They will be disappointed. So we can expect confusion to reign for the rest of June.

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