Guest post. Translated from the French by Tim Gupwell.
The headline in the newspaper Welt am Sonntag, the Sunday edition of the German daily Die Welt, revealed “a secret plan for a new Europe” put together by Hermann Van Rompuy, Jean Claude Juncker, Mario Draghi and José Manuel Barroso, the leaders of the four main European institutions. It is destined to be presented for adoption at the end of this month during the Summit of Heads of State and Government.
Billed as a decisive reinforcement of the European construction, the plan is based on the creation of three unions – banking, fiscal and political – as well as the structural reform of labour laws and social programmes. In other words, the sort of broad gestures and supposedly coherent visions which leaders are so fond of when they set about solving the world’s problems: a plan that will also allow them to indulge in one of their favourite things, the drafting up of the latest pompous press release.
The first two components will aim to resolve the opposing aspects of the debt crisis. The banking union has a threefold aim: a regulation of the sector, a deposit guarantee fund and the raising of an emergency intervention fund. The fiscal union will take up the measures already foreseen in the budgetary austerity pact, even tightening them if possible. Finally, a programme of structural reforms will re-affirm the direction already taken, which is intended to restore the loss of Europe’s competitiveness. This will implicitly be a carbon copy of the Hartz Laws for the Reform of the Job Market adopted in Germany between the years 2003 and 2005. The reform of social budgets will be blamed on that recent and unforeseeable discovery: an ageing population…
In response to Mario Draghi’s call for a “vision”, and the “working method” advocated by Hermann Von Rompuy a week ago without further explanation, this plan is a compilation of the various approaches which have progressively emerged; to which a political aspect has been added to make it more presentable. The objective is to consolidate the strategic choices already taken, whilst adding the final touches to the banking system in the light of recent developments. It will also grant, by way of compensation, a few sparkling concessions to the stimulation of growth.
The expression building castles in the air applies perfectly to this project. In the first place it comes up against the problem of how to finance the guarantee fund and the ‘banking union’s’ emergency intervention fund. How many years of the envisaged taxation of the banks will actually be needed to produce a sufficient nest egg to make the first fund credible, and to bring the second into play? In some way or another, this union will have to be backed up by public finances, the European Stability Mechanism (ESM), the ECB, or a combination of both.
The fiscal union has already led to intense discussions, resulting in a watering down of the most constrictive measures. The reopening of the subject, when the process of the ratification of the budgetary treaty is still in progress, is unlikely. Moreover, even the strictest rules are not fire-proof as the previous dispositions of the Maastricht Treaty have proved.
With regard to structural reforms, a political agreement couched in general terms is still possible, but what will happen when it is applied on a country-by-country basis? A glance back at numerous episodes in Europe’s recent history should be sufficient to appreciate the potential difficulties….. Finally, whilst it is possible to comprehend that a political aspect may be required in order to pass off the relinquishment of sovereignty, is this really the most appropriate moment to propose it?
In every country, starting with Germany, such a plan is going to arouse reticence and rejection. Repeating the democratic blackmail carried out in Ireland and in Greece on a European scale will take some doing. If it ever sees the light of day, this plan will claim it is going to wrest back control of the situation, but it will nonetheless remain impossible to put into practice.
The debt reduction strategy in which it continues to persevere has been proven not to work, accentuating a plunge into economic depression with no apparent way out. The primary effect of structural reforms will be to increase the profit margins of the international corporations as well as to restrict the national budgets. Growth – the word endowed with magic powers – is even less of a panacea since it will remain impossible to find.
Never change a winning team !