Greece and the mythology of the EU

April 6, 2010

Laurence_Copeland- Laurence Copeland is a professor of finance at Cardiff University Business School and a co-author of “Verdict on the Crash” published by the Institute of Economic Affairs. The opinions expressed are his own. -

The (probably temporary) resolution of the Greek crisis seems to have produced a result which was unexpected – by me, at least. For the first time in the history of the EU, the German taxpayer has refused to be sacrificed on the altar of European solidarity.

To see the significance of this event, recall that the Eurozone was born out of the willingness of former Chancellor Helmut Kohl, supported by the majority of Germany’s political class, to ride roughshod over the wishes of his electorate in the name of the country’s supposed postwar responsibilities and the associated moral imperatives.

By contrast, the current chancellor’s stance is an eloquent statement that Germany no longer feels any compulsion to play that role, that it can now be guided by its own national self-interest just like France or Britain, and that it is time for the EU to grow up and stand on its own two feet.

In the meantime, in the same way that, in spite of decades of brave talk from Brussels, Europe still depends on NATO for its defence, it will now have to rely on the International Monetary Fund for its economic security, Economic and Monetary Union notwithstanding.

In an important sense, this is the old EU problem recurring, going back to its birth in 1958. From the outset, it was the triumph of top-down government, the result of a series of key decisions taken in smoke-filled rooms by several generations of mostly French and German “statesmen”, then proudly announced to a waiting world like Papal edicts, with the job of coercing reluctant electorates left to domestic politicians using whatever shabby and dishonest tools came to hand.

It is too soon to conclude that this process will no longer work – never underestimate the ingenuity of European (including British) politicians in finding ways to bribe the voters with their own money to act against their best long term interests – but the Brussels way of doing things has certainly suffered a major setback.

The Germans have not choked on the gross cost of a bailout. After all, Greece’s economy is, barely a tenth the size of that of Germany, and Portugal is even smaller, though the prospect of Spain and Italy close behind them in the queue is far more daunting.

The key issue is one of trust, however – or, rather, of its absence. It is not that the Greek government is in denial. Unlike our wonderful British politicians with their seemingly unendless list of sacred cows they promise never to slaughter, their Greek counterparts are committed to delivering painful budget cuts.

But the German “nein” effectively questions either the extent to which the Greek government’s resolve will stand up to the protests and strikes it is already facing on all sides as it announces where the axe will fall, or even the ability of the government itself (and possibly Greek democracy) to survive.

In these circumstances, the Germans have wisely decided to steer well clear of a situation in which they could end up with the worst of both worlds, being cast in the role of the domineering Germany of old while still failing to get their debts repaid. It follows that those who concentrate on the economic credibility or otherwise of Greece’s retrenchment plan are missing the point.

As ever, talk is cheap. As anyone who has ever tried slimming knows only too well, guaranteed weight-loss diets are ten-a-penny. Germany, having been once bitten when Greece and the other Club Med countries cleaned up their act just long enough to satisfy the EMU entrance criteria, only to backslide as soon as they were admitted, is now twice shy.

Formulating a plan for fiscal stability is the easy bit; carrying it through is the hard part. In this regard, Germany is in a no-win situation: refusing a bailout invites accusations of non-communautaire selfishness, but lending to Greece risks even greater opprobrium if, or rather when Germany presses for repayment or attempts to restrict the Greek Government’s freedom to carry on spending.

A senior Greek politician has already given a foretaste of the possible reaction, with an attack on Germany harking back to the wartime occupation. Under these circumstances, Germany would be crazy to get involved.

As ever, the underlying problem is the central founding lie on which the EU has been based ever since its inception in 1958, the myth that somehow the people of Europe feel the urge to unite in one nation, and that therefore Berliners feel the same responsibility and warmth towards Greeks, Italians or Britons as they do towards Bavarians or Rhinelanders, and vice versa.

Talk to anyone outside the political class and you find this is as much wishful thinking today as it was when the Treaty of Rome was signed. What unites Europeans, over and above the determination to get out of Brussels in subsidies at least as much as they contribute in taxes, is little more than shared anti-Americanism, to an extent which varies from country to country.

All the rest is simply politicians’ hot air. So far, they have always been able to paper over the cracks, or more often stuff the cracks with money. As soon as the money runs out, so does the Euroenthusiasm.

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