Europe puts future at risk by playing safe

1/3/2015

By Wolfgang Münchau

There exist perfectly rational reasons to op­pose membership both of the eurozone and the EU, writes Wolfgang Münchau

The economic equivalent of a ceasefire agreement is a debt rollover of an insolvent state. In Europe, we have had both in the past three weeks. Europe’s political and economic diplomacy is focused solely on averting imminent catastrophe with no strategic purpose. The danger is that Ukraine and Greece are ending up as failed states.

Just look where Greece has ended up after five years of crisis resolution. It has had one of the worst performances in economic history; yet we have just concluded an extension of the same policy.

Can this be sustainable? The pragmatists in Europe’s chancelleries say they can roll over loans indefinitely at very low interest rates. Economically, this is the equivalent of a debt writedown; yet politically it is easier to deliver because you do not need to recognise losses. The equivalent statement in a military conflict would be: if you renew a ceasefire often enough, you end up with peace.

This type of argument is not only immoral and dishonest. It also does not work. While you play this game of ex­tend-and-pretend, the real economy implodes: austerity has caused a meltdown in income and employment. Monetary policy mistakes caused a fall in eurozone-wide inflation rates that made it impossible for Greece and other periphery countries to improve the competitiveness they lost in the early years of monetary union.

If the EU deals with Ukraine in the same way it dealt with Greece, you can expect to see a parallel development in a few years. The Minsk ceasefire, negotiated between the leaders of Russia, Ukraine, France and Germany, may hold for a while, more or less. The Europeans may use this as a pretext for not renewing sanctions, and for not imposing new ones. And once the ceasefire breaks down — as it will — the European policy making establishment will pretend to be surprised and appalled, leaving Ukraine as a failed state and a buffer zone between the EU and Russia.

They will also have failed to rein in Russian President Vladimir Putin’s territorial ambitions elsewhere in eastern Europe. The EU should have confronted Greek debt and Mr Putin’s territorial ambition early on, rather than allowing both to spin out of control. By playing it safe for now, the EU puts at risk its military and economic security.

I have been pro-EU all my adult life and a proponent of monetary union, but it is increasingly hard to argue the case for a union that behaves in this manner. I always felt that euroscepticism was an irrational gut instinct. But today there exist perfectly rational reasons to op­pose membership both of the eurozone and the EU itself. Even some of the EU’s achievements of the past are being erod­ed. The most important are the fundamental rights agreed a long time ago, which form part of our legal systems today. These include the freedom of movement by people, capital, goods and to a lesser extent, services. It includes the right to take up residency anywhere in the EU.

Today, we have less of a single market in finance than we had before the financial crisis. The UK government challenges the right of residence. Fifteen years ago, the euro began as a process towards economic integration. It has degenerated into a modern version of a gold standard with exit doors.

Now ask yourself: could Greece ever have a rational economic interest seeking an exit from the eurozone? The emphasis is on “rational economic” and “seeking”.

My answer is yes. For me, the principal argument would be the ability to liberate oneself from a particularly lousy set of policies — procyclical austerity and a deflationary monetary policy. The rational reason for leaving the eurozone is an opportunity to be less stupid.

As EU policy becomes cynical and dysfunctional, it becomes progressively harder to distinguish the good guys from the bad in those pro-versus-anti European debates. Twenty years ago, I would not have hesitated to characterise a eurosceptic as a xenophobe, or worse. I would not do so today.

For the EU to regain any moral and political authority, it will need to resolve the Greek debt crisis and stand up for Ukraine and use the economic and fin­ancial instruments at its disposal to sec­ure its own geopolitical interests. The EU is currently failing on both counts.

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