Greece and the single currency: Europe’s existential crisis

The European Union has been plunged into a discussion concerning the central problem of its future development
The Guardian, Thursday 6 May 2010

“Quite simply, Europe’s future is at stake,” said Angela Merkel yesterday. High-pitched rhetoric from a chancellor desperately trying to coax her fellow Germans into throwing billions at Greece? Certainly, but no less true for all that. Because the last few weeks have thrown up two things that should shake up all who might wish the eurozone well. First, it has provided a glimpse of how the single-currency club might fall apart over the next few years. Second, it has posed serious questions about what the single-currency club is for – questions which also cast a sidelight on our own election. In short, this is an existential crisis for an economic and monetary zone that takes in 16 countries and over 400 million people, and which has never before faced a threat so serious.

Let us be clear: the eurozone is not on the verge of breaking up any time soon. Yet the last few weeks may come to appear like a full-dress rehearsal for the final crack-up. There were the remarkable scenes yesterday in Greece, as protesters erupted in fury against the prime minister George Papandreou’s plans to slash and burn the public sector. Three people were reportedly killed in a fire in Athens and riot police firing teargas at demonstrators. And all this comes before the latest, biggest round of government spending cuts and tax rises are brought in. Meanwhile, richer countries have dragged their feet over a bailout.

One can see why. Greece is clearly the runt of the eurozone litter, with a tax system so patchy and apparently so discretionary that it more closely resembles a tip box. For Ms Merkel, facing a tough election this Sunday in her own backyard, there is every reason not to rush forward with a lifeline to a foreign country. But her reticence has cost dear. What was only last Christmas a financial bushfire in Greek financial markets has grown and spread, and is now licking at the borders of Spain and Portugal.

Treated early, this problem could have had a cheap and quick fix – a slug of euros from Germany and others in return for a commitment from Athens to bring down its borrowing within a realistic timeframe. Instead of which, the eurozone has had to share in a £95bn (€110bn) rescue along with the IMF. For his part, Mr Papandreou has had to sign up to a fantastical list of cuts in a bid to reduce borrowing from 13.4% of national income to 3% within four years. Since the Greek prime minister is now pretty much barred from borrowing from the private sector he has very little option but to agree to these demands; but they will be impossible to pull off and the very attempt is likely to sink Greece into a dire economic slump. As bailouts go, this has been a top-to-bottom, alpha-to-omega fiasco. And the very process – the bungling, the infighting, the blockages – gives one a foretaste for how the single currency club might come apart.

It also raises the question of what the eurozone is for. The single-currency project was animated by an idea – shared by European rightwingers and lefties alike – that a huge economic bloc could provide some protection from the volatile forces of free-market capitalism. Very little of that idea has been put into practice. The banking crisis showed that up, with the lack of a common financial regulator across all 16 eurozone members. But the meltdown in Greece has made the problem starker.

As the great philosopher and euro-enthusiast, Jürgen Habermas, put it in an interview this weekend: “At one of its weakest moments, the European Union has been plunged into a discussion concerning the central problem of its future development.” This is not a problem solely for the eurozone. In Britain too, all parties have operated on the basis that they could not tame markets, only sweep up after them. Two years after the collapse of Lehman Brothers that dogma looks well past its sell-by date – yet all politicians have struggled to find a decent replacement.


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