On the idea of “economic government” in Europe, at least.
While the EU is focused on labour market and fiscal integration – mostly through an open border and a common currency, the idea of full monetary union is next to impossible without closer political integration. The Greek fiasco is a pretty telling test of Europe’s real commitment to the EU project, because it’s not just about having protocol-obsessed summits, but requires someone to open their purse strings rather generously with little political gains – if not massive political losses.
Those outside of the immediate currency zone don’t want a Greek bailout (emphasis mine).
Since 2004, the promise made to the ex-communist newcomers was that they would replace the Club Med countries as principal beneficiaries of EU funds aimed at economic convergence within the union. Such countries, some of which, like Poland, have done better than most in this crisis, are likely to take it rather badly if future convergence flows are diverted away from them, and back to countries that have wasted so much EU cash like Greece, in what will look like a reward for failure. Add to that that newcomers outside the euro zone, like Hungary or Latvia have had to endure horrible austerity programmes in the last two years under IMF supervision, while countries inside the euro zone are to be spared IMF programmes. In this round-up of EU press reactions, you will note that Czech and Hungarian newspapers are strikingly unsympathetic to the idea of an easy bail-out for Greece.
And those at the core of the EU, namely France and Germany, can’t seem to agree on just exactly what “economic co-ordination” means.
On February 11th [Angela Merkel] said that “economic government” meant economic co-ordination among the 27 leaders of the EU. Nicolas Sarkozy, standing next to her, means something quite different by economic government: he has made no secret of wanting to increase the power of the heads of state and government from the 16 euro zone countries, turning them into an inner core Europe (that just so happens to look rather like Europe before the big bang enlargement).
When German bigwigs talk about economic co-ordination within the euro zone, they mean countries like Greece being forced to stick to the rules and to sort out their deficits. The French have traditionally used the words “European economic government” to mean something like: politicians being allowed to bully the European Central Bank about exhange rate policies, and to flout deficit rules if their countries are large, broadly hexagonal in shape, and are known for fine wine and cheeses.
Should a bail-out happen, it can really only happen based on an appeal to Germany’s self-interest – most likely the protection of the euro and the credibility of the EU economic union. But it remains to be seen whether the Greek problem is in fact large enough to be contagious, and whether its miniscule sliver of GDP in relations to the greater EU will make it politically palatable for Merkel to sell an expensive rescue plan when Germany itself is still struggling. Read more...