Who will pull Europe back from the brink?

March 15, 2020 / By mobanmarket

Who will pull Europe back from the brink?

Mario Monti is an example of admirable national leadership, but leadership has not been a feature of the EU’s response to the crisis.

While lacking any privileged insider information, I nonetheless hope that Mario Monti carries off this newspaper’s European Leadership Award, to be announced today (May 31). He may be an improvised, unelected prime minister, but his reforms are giving Italy a badly needed push in the direction of economic growth and financial stability. And, above all, we should be grateful for the fact that he is not Silvio Berlusconi.

Still, while clearly an effective national leader, at the European level he is part of a collective in the European Council whose temporising is beginning to rot the foundations of the Union. Europe is on the brink of recession, capital flight is enfeebling the vulnerable Spanish and Italian economies, while the European Central Bank (ECB) is highlighting “a marked deterioration in financial integration”.

Many issues will come to a head with the results of the second election in Greece. Victory for the anti-austerity left will leave Angela Merkel, Germany’s chancellor, and her European colleagues with a stark choice: agree to negotiate a major relaxation in the terms of the international bail-out with whatever government emerges in Athens, or deal with the unknown but dangerous consequences of forcing Greece out of the eurozone.

Policy is drifting and problems addressed with all the urgency of treating a broken fingernail. Herman Van Rompuy should have known better than to invite the European Council to an informal dinner at the height of a crisis like this one. Media hype was inevitable, leading to expectations that a European growth plan would be signed between the soup and cheese. For some, the evening was an exercise in political grandstanding (France’s François Hollande), for others (the UK’s David Cameron) an opportunity for obnoxious posturing. By the early hours of last Friday morning, the Council’s political authority was no better than that of a Brussels commune.

The differences on public display between Merkel and Hollande should not yet have us saying the last rites for the Franco-German alliance. Hollande needs to win this month’s parliamentary elections before he can wear France’s presidential crown in comfort. His challenge to Merkel over Eurobonds was a necessary demonstration of an independence apparently forfeited by his predecessor, Nicolas Sarkozy. The reality facing him is that France’s debt, deficit and declining competitiveness is no basis for exercising power and influence in the EU without accommodating Germany.

The reality facing the European Council and a world anxious to put Europe back on a path towards political and economic vitality is that the Union is drifting towards institutional rigor mortis and economic disaster.

There is a contrasting parallel with 1989-91: then, the irresistible political drive to monetary union shut out of the debate a great deal of expert opinion doubting its feasibility and durability. Now, there is a wide and deep expert consensus on what needs to be done to save the euro to which the European Council’s response has been dilatory and partial.

Too much of the responsibility resides in Berlin. Merkel is now isolated and increasingly demonised. She is opposing a stronger firewall for the bail-out economies, which may soon include Spain. She seems to be unaware that not even the ECB can keep the banking system on indefinite life support without steps towards a banking union. And she cannot muster any real public enthusiasm for the various ideas for stimulating economic growth currently circulating.

Merkel will not be blocking discussion on any of these remedies, some of which may well be adopted in one form or other at the summit on 28-29 June. But she must already be thinking about how to win next year’s federal elections in Germany. Will she still be chancellor afterwards if she commits more German treasure to bolstering the eurozone? Will she, or can she, persuade her fellow Germans to give the Union the additional political authority over national economic decision-making that she says is needed to ensure a stable and durable future for the eurozone?

The near-certainty that the crisis is worsening may concentrate minds. The institutional balance in the Union has gone through several treaty-induced mutations over the past 50 years, but it was never intended to put the responsibility for sustaining European integration largely on the shoulders of one member state. For a long time, we have been wrestling with an economic and financial crisis spawned by a governance crisis.

With the consent of its president, José Manuel Barroso, the European Commission has been effectively neutered by the Lisbon treaty, which gave us a president of the European Council whose task is to ensure that the Council dominates crisis management. Only the ECB is setting a proper example of independence, through initiatives that are keeping some member states solvent and saving the eurozone’s banking system from collapse.

Beginning at least a year ago, the Commission should have played its classic role as the Union’s policy alchemist and organised proposals for a European economic government that would ensure the euro’s long-term survival. Instead, it was bought off, and armed with a bigger whip to crack over national budgets and fiscal deficits during the appallingly named European semester. Barroso’s institution may have more power than before. But it has never had less authority.

John Wyles is an independent consultant based in Brussels.

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