In April 2013, it became clear that Slovenia was nearing the cliff of fiscal collapse and was working to avoid becoming the fifth Eurozone nation to need a bailout. Initial analysis and statements from EU financial leaders suggest that Slovenia is not suffering from the same severity of troubles as Cyprus, the last troubled Eurozone nation to make headlines. However, the handling of the Cyprus crisis is still very fresh on everyone’s mind—seemingly manageable financial problems escalate when the national government responds too slowly or hesitantly, and EU authorities step in to impose unpopular and possibly counterproductive measures. There are questions over the future of the Euro, talk about Germany’s leadership through the crisis, calls for reform of the banking system, and protests against austerity measures and intervention by the “Troika.”
It is not the first time we have heard this story, and time will only tell if it will be the last.
The response to the financial crises in both the U.S. and the EU have been repeatedly described as “technocratic,” driven by “ostensibly scientific techniques [that] would manage risks and predict rare events.” The European Union, united by a common currency but divided by fiscal policies decided on a country-by-country basis has struggled to find an economic—let alone political—solution for its structural weaknesses. In the process it has, in the words of Frankfurt professor Jürgen Habermas, resorted to constructing a “technocracy without democratic roots,” trapping the European Union between fiscal accountability and democratic legitimacy, unsure of what form it truly wants to take. In a speech in late April at the Catholic University of Leuven in Belgium, he called for a revival of Europe’s otherwise doomed constitutional efforts, as current policy has become torn between, on one hand, “the economic policies required to preserve the euro and, on the other, the political steps to closer integration.”
Clearly, the European Union is in the early stages of a new transformation, and one in which member states must decide what the future of a united Europe will be. A fiscal union, with the ECB as a lender of last resort, seems to be the preference of EU authorities, pushed by German Chancellor Angela Merkel; however, this option leaves the voices of the people out of the equation, and has contributed to a rise of nationalist and anti-EU sentiment. A fiscal union will require further political integration to be successful.
The challenge of the Euro crisis has been described as Germany’s most challenging political test since reintegration after the collapse of the Soviet Union. If the Euro fails, Germany will be blamed; if it makes it through the crisis successfully, Germany will be credited. But Angela Merkel is becoming a lonely advocate of austerity—the French Socialist party has accused Merkel of “selfish intransigence” for insisting on austerity policies in return for financial assistance, and some EU citizens, particularly in Eastern Europe, are beginning to turn against what some perceive as German imperialism.
Habermas called on Germany to move away from policies to stabilize the budgets of shaky Eurozone economies through austerity, to a policy of “solidarity”—common liability and mutual debt, along with more democratic inclusion of smaller countries in the decision-making process.
The revolt against austerity brewing in the Eurozone will target not only German leadership, but also the role of the European Central Bank, which has been working since September 2012 to bring more fiscal uniformity and stability to the Eurozone by becoming a lender of last resort to local banks on the verge of collapsing under bad debt. The ECB must take a stand in banking reform, moving away from a “too big to fail” mentality and forcing banks across the Eurozone to put some “skin in the game.” Nassim Taleb and George Martin, in the SAIS Review, wrote, “[N]obody should be in a position to have the upside without sharing the downside, particularly when others may be harmed. While this principle seems simple, we have moved away from it in the finance world, particularly when it comes to financial organizations that have been deemed ‘too big to fail.’” The captain must go down with the ship; bankers must reap the consequences of bad decisions.
Such reforms—increased political inclusion and constitutionalism in the European Union, as well as reforms of the financial sector—are vital to returning stability to the Eurozone and preventing the spread of protests and a virulent rise in nationalism across the EU. From the Golden Dawn in Greece to the latest anti-austerity protests in Slovenia, a combination of high youth unemployment and cuts to social benefits are setting the stage for a growing backlash. Said Damijan Sencar, a 51-year-old electrical engineer, to Reuters during protests through Ljubljana, “I am here because I believe we have to get rid of anyone who has held high political office during the last 20 years. I fear that things will get even worse in Slovenia if the Troika comes, but I hope that can still be avoided.” This is not the mindset of a citizen who feels included in democratic or decision-making processes affecting his life.
The latest story in the Eurozone crisis is perhaps not just a retelling once more of an old news story, but instead is the latest slice in a tragedy of the Euro of death by a thousand cuts. The Euro was built on shaky ground to begin with, but it could still be possible to turn things around. However, it will require a difficult rethinking, from all across the region, over what kind of future should be built for Europe.
This article was originally published in the special annual G8 Summit 2013 edition and The Official ICC G20 Advisory Group Publication. Published with permission.
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Tough Decisions Ahead: The Future of Europe
September 6, 2013
In April 2013, it became clear that Slovenia was nearing the cliff of fiscal collapse and was working to avoid becoming the fifth Eurozone nation to need a bailout. Initial analysis and statements from EU financial leaders suggest that Slovenia is not suffering from the same severity of troubles as Cyprus, the last troubled Eurozone nation to make headlines. However, the handling of the Cyprus crisis is still very fresh on everyone’s mind—seemingly manageable financial problems escalate when the national government responds too slowly or hesitantly, and EU authorities step in to impose unpopular and possibly counterproductive measures. There are questions over the future of the Euro, talk about Germany’s leadership through the crisis, calls for reform of the banking system, and protests against austerity measures and intervention by the “Troika.”
It is not the first time we have heard this story, and time will only tell if it will be the last.
The response to the financial crises in both the U.S. and the EU have been repeatedly described as “technocratic,” driven by “ostensibly scientific techniques [that] would manage risks and predict rare events.” The European Union, united by a common currency but divided by fiscal policies decided on a country-by-country basis has struggled to find an economic—let alone political—solution for its structural weaknesses. In the process it has, in the words of Frankfurt professor Jürgen Habermas, resorted to constructing a “technocracy without democratic roots,” trapping the European Union between fiscal accountability and democratic legitimacy, unsure of what form it truly wants to take. In a speech in late April at the Catholic University of Leuven in Belgium, he called for a revival of Europe’s otherwise doomed constitutional efforts, as current policy has become torn between, on one hand, “the economic policies required to preserve the euro and, on the other, the political steps to closer integration.”
Clearly, the European Union is in the early stages of a new transformation, and one in which member states must decide what the future of a united Europe will be. A fiscal union, with the ECB as a lender of last resort, seems to be the preference of EU authorities, pushed by German Chancellor Angela Merkel; however, this option leaves the voices of the people out of the equation, and has contributed to a rise of nationalist and anti-EU sentiment. A fiscal union will require further political integration to be successful.
The challenge of the Euro crisis has been described as Germany’s most challenging political test since reintegration after the collapse of the Soviet Union. If the Euro fails, Germany will be blamed; if it makes it through the crisis successfully, Germany will be credited. But Angela Merkel is becoming a lonely advocate of austerity—the French Socialist party has accused Merkel of “selfish intransigence” for insisting on austerity policies in return for financial assistance, and some EU citizens, particularly in Eastern Europe, are beginning to turn against what some perceive as German imperialism.
Habermas called on Germany to move away from policies to stabilize the budgets of shaky Eurozone economies through austerity, to a policy of “solidarity”—common liability and mutual debt, along with more democratic inclusion of smaller countries in the decision-making process.
The revolt against austerity brewing in the Eurozone will target not only German leadership, but also the role of the European Central Bank, which has been working since September 2012 to bring more fiscal uniformity and stability to the Eurozone by becoming a lender of last resort to local banks on the verge of collapsing under bad debt. The ECB must take a stand in banking reform, moving away from a “too big to fail” mentality and forcing banks across the Eurozone to put some “skin in the game.” Nassim Taleb and George Martin, in the SAIS Review, wrote, “[N]obody should be in a position to have the upside without sharing the downside, particularly when others may be harmed. While this principle seems simple, we have moved away from it in the finance world, particularly when it comes to financial organizations that have been deemed ‘too big to fail.’” The captain must go down with the ship; bankers must reap the consequences of bad decisions.
Such reforms—increased political inclusion and constitutionalism in the European Union, as well as reforms of the financial sector—are vital to returning stability to the Eurozone and preventing the spread of protests and a virulent rise in nationalism across the EU. From the Golden Dawn in Greece to the latest anti-austerity protests in Slovenia, a combination of high youth unemployment and cuts to social benefits are setting the stage for a growing backlash. Said Damijan Sencar, a 51-year-old electrical engineer, to Reuters during protests through Ljubljana, “I am here because I believe we have to get rid of anyone who has held high political office during the last 20 years. I fear that things will get even worse in Slovenia if the Troika comes, but I hope that can still be avoided.” This is not the mindset of a citizen who feels included in democratic or decision-making processes affecting his life.
The latest story in the Eurozone crisis is perhaps not just a retelling once more of an old news story, but instead is the latest slice in a tragedy of the Euro of death by a thousand cuts. The Euro was built on shaky ground to begin with, but it could still be possible to turn things around. However, it will require a difficult rethinking, from all across the region, over what kind of future should be built for Europe.
This article was originally published in the special annual G8 Summit 2013 edition and The Official ICC G20 Advisory Group Publication. Published with permission.
