Gisela Stuart MPWorking hard for Bartley Green, Edgbaston, Harborne and Quinton

Greece and the EMU // February 17th, 2010 // Speeches, Articles and Interviews

Everyone can see that Europe and in particular Economic and Monetary Union (EMU) faces an economic crisis, but there is a political crisis too, and one that has been brewing for a long time.

This was brought home to me when I served on the EU Convention which drew up a European Constitution, ratified as the Lisbon Treaty. The terms of reference of the Convention included the instruction to come up with proposals that improved the democratic accountability of the EU and examine how powers that had been conceded to the Union might be returned to member states. Under the chairmanship of Giscard d’Estaing both these two issues were ignored and the outcome was a Constitution that consolidated Europe’s old, unaccountable political model.

After the defeat of the EU Constitution in referendum in France, Holland it was brought back, virtually unchanged, as the Lisbon Treaty and forced through by politicians avoiding the electorates where possible and where not, as in the case or Ireland, the people were told to vote again until they got the result that Europe’s political elite thought “right”.

This is the same gang that pressed on with the EMU project, the workings of which have the cause of the current economic crisis, which is not primarily about budget deficits (which are excessive) but about lost competitiveness and the problems of regaining it within a monetary union. The one-size-fits all monetary policy inevitably meant that interest rates were too low for some countries which consequently lost competitiveness as relative inflation increased. EMU created an asset boom on top of anything made in America which has burst, leaving Greece and some other countries in a trap.

In effect a number of countries in EMU are being persuaded to implement two thirds of a “traditional IMF package”- to cut spending and raise taxes- without the third component- currency depreciation. The combination of massive unemployment and deflation will wreck the capacity of the private sector to meet their debt obligations and increase the danger of private sector default which will further undermine public finances, increasing the risk of public sector default.

If the crisis in Greece only centered around public finance, we would see current account deficits accompanied by inflationary pressure. This is not the case. The problem is the lack of competitiveness and the inability to adjust exchange rate.

A one-off bail out will not work, because it will do nothing to restore the competitiveness of Greece (or the other countries in trouble) and most of the other solutions would impose intolerable burdens on Germany. There is no way out of this mess that will not be horrible for all concerned and threatens another leg in the international crisis.

Of course it is said that EMU has always been political, but bad economics make for bad politics and these are turning sour in several part of the EU and there’s not much sign in the present crisis of “community spirit” or solidarity; it’s more like cats in a sack.

However, Europe’s political elite don’t give up, seeing the opportunity to use what they call a “benign crisis” to bring about a greater degree of integration than would have been impossible without a crisis. The fact that electorates across the union do not favour more integration is neither here nor there. The current crisis has already seen unprecedented intrusion by the EU Commission, telling Greek minister what they must do; there are others who see this as an opportunity to establish an economic government to challenge the ECB and railroad the smaller countries; while there have always been those, like Jacques Delors, who took the view that a monetary union must also be a debt union which would end fiscal sovereignty as well as monetary sovereignty inside EMU.

Europe is developing into an empire, not a military or hereditary one, but an empire run in the interest of a narrow elite. The danger is not that Europe replaces the nation state in the loyalty of the people of Europe, but that it undermines national identity without replacing it with anything better so that people are tending to seek other identities in ethnicity or the tribe. Anyone familiar with the Austro-Hungarian Empire will recognize the characteristics and that in attempting to hold itself together this latter day empire became more and more repressive.

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