Another European Summit, Another Beggars At The Feast Spectacle?
And here I'm breaking bread
With the upper crust!
Beggar at the feast!
Master of the dance!
Life is easy pickings
If you grab your chance.
Everywhere you go
Doing what is decent
But they're mostly broke!
Singing to the Lord on Sundays
Praying for the gifts He'll send.
But we're the ones who take it
We're the ones who make it in the end!
– “Beggars at the Feast,” from Les Miserables
The European Union will hold yet another do-or-die summit this week. On this occasion, “growth” is the plat du jour; the allegedly missing recipe in the “plan” to save the euro. In addition, some suggest that this time is also “different” because Greece, France, Italy and Spain may now be ready to corner Germany to relax its sacrosanct fixation with austerity. This summit truly promises to be quite a gathering of beggars at a feast, no less.
Billions to nowhere
The outcome of previous European summits leaves little room for hope that anything substantial will be achieved this time around, except perhaps for another massive central bank intervention, as was the case after last summer’s “Marshall Plan” summit, as well as after last December’s “10 days to save the euro” meeting.
In the four years since the crisis broke out, the EU cannot point to a single action, policy, or even a meaningful statement that has not been questioned later, if not completely overruled by one of its members or institutions.
There is absolutely nothing that even suggests that Europe’s leaders are even close to agreeing on something with regards to a rational plan to address the Eurozone’s systemic problems. In fact, as much as European Commission President José Manuel Durão Barroso calls for coordinated European action in the form of a banking union, fiscal integration, eurobonds et al, his words prove to mean nothing unless they are sanctioned by the institutions that truly matter in the EU: namely the European Central Bank (closely monitored by the Bundesbank) and the German Finance Ministry.
The only thing Europe has managed to accomplish this far is to extend its monetary union’s survival through a series of circular debt-piling rescue schemes. Precious time and billions of euros worth of bailouts into the crisis, we are now being warmed up to the next summit with the same solemn messages of urgency and hope of the past, only this time there is a new euphemism to root for: the “growth compact.”
Besides the adoption of “growth” as the newest European mantra, some are openly calling for Europe’s beggars to become choosers as a way to force the debt mutualization scheme that will ultimately backstop the euro project. A type of chest-beating strategy, by the way, which seems to rhyme with Spain’s recent dealings with Europe.
Essentially, those suggesting that the periphery could and should threaten Berlin into an “all-in” German bet on the euro zone have decided to ignore two fundamental problems: the prevailing institutional and political idiosyncrasies of each of the 17 member-states, as well as the lack of real statesmanship and vision from those who represent them.
The latest “beggars becoming choosers” narrative basically suggests, in the case of Spain, that Berlin must be forced into accepting the following:
-- That the Spanish government, as per Prime Minister Mariano Rajoy’s own words, will not let any bank fail, and that the (still undetermined) European financial bailout is injected directly into the country’s troubled banks. Spain’s aim here is twofold: to separate the financial sector’s troubles from the state, and to prevent a hypothetical apocalyptic and highly contagious disaster stemming from Spanish savings banks’ downfall.
-- That it must trust a political establishment that – like Greece’s – tells its citizens that bringing to justice those responsible for the current state of economic and financial affairs is not a priority, and that any parliamentary initiatives to such an end are to be systematically blocked. The epitome of moral hazard, indeed.
While some have focused on last Friday’s announcement of a €130bn European-funded growth package as proof of Germany’s loosening up to the periphery’s demands, the Spanish government’s alleged tough stance on the negotiating table was swiftly put aside by German Chancellor Angela Merkel, precisely on the grounds of moral hazard.
And yet it is also true that Germany’s own delusion to have it both ways in the EU have resulted in the schizophrenic policies of austerity and bailouts which have exacerbated the Eurozone’s demise.
Ultimately, Spain needs to focus on transforming its educational, economic and territorial model in the face of an extremely dire economic and demographic outlook.
To think that such profound matters of pressing national concern, along with the prevailing divergences within the Eurozone, can be solved by virtue of transferring sovereignty to Brussels – backed by the core’s checkbook – is both infantile and negligent. In fact, to promote “more Europe” to “save Europe” is nothing but a replay of the same mistakes which characterized the flawed European Monetary Union’s foundation.
No more European bailout feasts
Last winter, I asked Economics Nobel Laureate Dr. Vernon Smith about his views on Europe’s troubles. At the time, Smith explained, “the strong countries of Europe are being asked to foot the bill for the profligate countries and that is not a sustainable policy. The weak countries are de facto bankrupt, should face that fact, and default, if necessary, on their debt. This will force them into balancing their budgets, becoming more disciplined, and to live within their means. Investors will return if these actions are credible, as investors are remarkably forgiving, buoyed by hope that stability and growth will return.”
Dr. Smith went on to warn about the potential damage bailouts could have on Spain’s path to overcoming its economic hardships: “The open question,” he underlined, “is whether the Spanish political process can credibly put its house in order if they are being protected from default. That is an umbrella fraught with incentive leaks and hence may not even be in Spain’s interest.”
Today, Dr. Smith’s comments remain as pertinent as ever – especially when we are beginning to witness how the people’s austerity for the sake of useless bailouts revives long-buried European extremisms. It is time to stop thinking in terms of impossible rescues and “compacts”, and demand that our European leaders adopt a more responsible conduct at their upcoming summit; a change from the customary European “beggars at the feast” spectacle, no less.