I doubt anyone will ever write a rap musical about the European Union – the idea of overpaid technocrats engaging in rap battles about banana regulations is somehow not very appealing. But there is more to this story than meets the eye. The EU is a tale of post-war quixotic dreams, and the corruption of these ideals by greed, arrogance, and unaccountability.
Putting all criticisms aside for the moment, there is no denying that the European Union is a remarkable political achievement. Today it’s easy to forget that Europe was once poor, broken, and rife with the tensions brought about by the post WWII period. The formation of the European Economic Community (the antecedent of the EU) sought to lessen these tensions by making member states share resources. Countries would be less likely to declare war if their essential industries were tightly interwoven by commerce. And the EU achieved this feat. Europe has enjoyed peace for more than 70 years, and democracy has been extended to the so-called periphery of the continent. By providing development funds, the EU also helped modernize and consolidate nascent democracies like Greece, Portugal, and Spain.
When the USSR collapsed and the Iron Curtain came down, the Europeanist liberal technocratic élite salivated at the prospect of further uniting the continent. An age of mutual peace and prosperity awaited. Indeed, reflecting the optimism of the times, even the “end of history” was proclaimed by a no less famed (should now one say infamous?) intellectual than Francis Fukuyama. High up in their ivory-towers, EU leaders engineered utopia in the form of a single currency. The Euro would bridge all divides and the invisible hand of the free market would create new democratic openings. The spread of liberal economic institutions and democracy were one and the same. So, what better way to expedite the political union of the continent than with a monetary union? The Eurozone was born.
For the first time since the Roman Empire, Europe had a single currency. But the Eurozone is only a half-baked union. It seeks all the rewards of a single currency, without the obligations of a federal democracy to sustain it. There is no single system to raise tax among member states, nor is there a pan-European finance agency to run the economy. It’s a monetary union without a fiscal union. The introduction of the single currency was an unprecedented economic experiment. States with different political systems had never shared the same currency. The Euro had no guarantee of working, and to raise the stakes even higher, there was no obvious exit mechanism, as the Greek meltdown clearly showed. The monetary union really is a marriage based on the vow of “until death do us apart” with the Greek people doing the dying in the financial meltdown of 2009. The Swedes, the Danes, and the Brits saw this clearly enough from the Euro’s inception, and said so at the time. This is why these countries did not join the single currency.
During its first few years the Eurozone looked great on paper: decent growth, low interest, and low inflation. But these numbers concealed the rising structural tensions beneath the surface. Germany’s economic dominance of the EU buried the rising problems in the poorer member states’ economies.
As Germany was and still is the continent’s economic powerhouse, and thus the Euro’s de facto guarantor of last resort, the interest rate set by the European Central Bank has always reflected Germany’s strong credit worthiness. This is why, believe it or not, countries like Italy and Spain can borrow at a lower interest than the United States.
But what makes sense for Germany is not necessarily beneficial to the rest of the continent. The low interest rate and low value of the euro helped Germany’s export-oriented economy, but allowed the peripheral economies of Europe, like Greece and Italy, to finance their excessive and reckless spending at low cost. In addition, the artificially induced low interest rate environment also created real estate bubbles as was the case in Spain. Typically, when a country faces excessive government spending or real estate bubbles, interest rates rise as a corrective mechanism. But being tethered to the German economy, the other members of the Eurozone had effectively signed away their economic sovereignty. The German dominance of the EU created the conditions for a financial meltdown. The dominoes were set to fall.
After the Lehman Brothers’ crash that sparked the onset of the global financial crisis, all the bubbles popped. The European Union, like the Tower of Babel, threatened to topple under the weight of its own ambitions. Sharp economic contraction and bank implosions plagued the periphery of the continent. States like Greece, Portugal, and Spain –the very same countries that initially benefited so much from the EU- were on the brink of economic collapse, and shouted Mayday to the so-called Troika: The International Monetary Fund, the European Commission, and the European Central Bank.
This triple-headed entity had very strong ideas about how to repair the drowning economies. They lent these governments money on the condition that they impose severe austerity measures – cuts in government spending, higher taxes, and harsh structural reforms. The Troika coupled this painful “medicine” with colorful charts showing how the economy would recover if their policies were put into effect. But the results of austerity were abysmal. The countries forced into severe austerity experienced sharp downturns that were roughly proportional to the extent of spending cuts and tax increases. Even worse, unemployment reached depression era levels. In 2013, the unemployment rate in Portugal, Spain, and Greece spiked to 16.4%, 26.1%, and 27.5% respectively. And the unemployment rate among youth was even higher.
This is not surprising. Austerity measures have been tried many times, and always fail. Severely cutting government spending in a weak economy, only leads to further weakness. It’s difficult for the country to grow, making it harder for the government to pay its debts. In other words, the state is placed in a debtor’s prison. And if the economic numbers look bleak, the human consequences are even worse. Bailout-austerity packages are usually accompanied by mass unemployment, despair, forced emigration, and an increase in suicides. Even the IMF –historically the poster child of austerity- grudgingly issued a mea culpa for not recognizing the severe effects of its austerity policies.
What should have been done instead? Keynesian principles tell us that under depression conditions, governments should increase (not decrease) their spending to create jobs, so that people have money to spend and revitalize the economy. This is easier if a country has its own currency. The government can print money in times of crisis to avoid a cash-squeeze, and finance safety-nets for the most vulnerable members of society. It can also temporarily devalue its currency, making its exports alluringly cheap. Overall, having a national currency affords a state greater flexibility, autonomy, and economic prospects, especially in times of panic.
Alternatively, if states can’t revert back to their original currencies, the richer member states should share the economic burdens of the poorer member states. That’s what occurs in a true monetary union. But this will likely never happen: the rich (Germany) will simply never pay for the poor. Like Thomas Jefferson raps in his Cabinet battle with Alexander Hamilton: “If New York’s in debt, why should Virginia bear it?” Instead, EU leaders prefer to keep the status quo and continue kicking the can down the road.
Indeed, years after the Eurozone crisis in 2009, the region is still languishing in a state of economic stagnation, with double digit unemployment levels, and widespread political dysfunction. An Italian crisis is looming, and EU officials continue to doggedly pursue austerity despite its utter failure and the human suffering so viscerally associated with it. So why doesn’t the EU change course? Why do the technocrats in Brussels so arrogantly defend their abysmal economic policies?
Self-interest. Turning away from fiscal and monetary stimulus hurts workers, but gives assurance to creditors that the debt will be fully repaid. In this light, the Greek crisis was merely a backdoor way to bailout German bondholders who were holding Greek debt. And although the economic policies adopted by the EU look terrible by most measures, the top one percent hasn’t felt too much pain. Inadmissible levels of unemployment persist and median income continues to decrease, but at least profits and stock-indices have bounced back to pre-crisis levels. The latter are the only measures that matter for technocrats with no accountability to an electorate.
And that is one of the largest problems with the EU: it is not democratic. When EU leaders impose ineffective policies – the ones hurt the most have no recourse – ordinary folk can’t vote them out. A system that is largely responsible for the region’s economic slump, but does not answer to the millions of unemployed there, is bound to generate rather than diminish tensions. We saw this in Britain’s shock vote to leave the European Union, and in the election of far-right leaders in Poland and Hungary who proudly wear their anti-Brussels sentiments. You would think that this would act as a cautionary note about the rift between pro-immigration, neoliberal élites and ordinary folk. But, as per the modus operandi of the EU, its leaders continue sleepwalking across the economic wastelands their policies have created.
It’s time to let go of the EU in its current form, or the continent will give up its shot at promoting mutual peace and prosperity.
Annette Egerstrom
Photograph: An anti-Troika March in Greece before the bailout referendum, 3 July 2015 Credit: Byrne
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