It's About Politics, Not Economics
There was a time, at the height of the euphoria over globalization in the 1990s, when nation-states and their governments seemed to be, well, beside the point. Economic forces were alleged to be in the driver’s seat, determining not just fiscal and monetary policy, but social policy as well.
The roller coaster ride that we have experienced in Europe over the past two weeks is a potent reminder that politics – and more precisely, democratic politics - are alive and well, frustrating the efforts of the elites to craft the “right” solution to the Eurozone crisis.
The economic pundits seem to be in broad agreement about what needs to happen. The Greeks need to swallow the medicine, no matter how distasteful, and agree to the conditions attached to their loan. The rest of the Eurozone countries (read Germany) need to step up and provide sufficient resources to shore up the Euro. And the IMF needs to become – as it was during previous financial crises – the all-important anchor and source of liquidity in the global economy.
But in all three cases, politics have intervened. As the conversation in Cannes revealed, neither the U.S. nor the U.K. – let alone the squeamish Chinese – could promise to pump large sums into the IMF. In the case of the former two, their domestic parliaments and congresses just wouldn’t agree. In Britain, for example, there is a powerful sentiment against allowing taxpayers’ money to travel via an IMF infusion in the coffers of the Eurozone. And so no precise figures were promised at the G20 meeting. Instead we saw an agreement on the part of Italy to be “monitored”, and vague discussions about a new “special facility” that might be created to support Europe in its hour of need. But the overwhelming sentiment at Cannes, shared by the Europeans themselves, was that this is the Eurozone’s responsibility to sort out first, if it can.
In the case of the Germany, it is history that seems to shape so much of its policy response. On the one hand, German policy-makers from this particular generation are hard-wired to support European unity, no matter what it takes. The European ‘project’ has delivered peace for a generation, and offered Germans the possibility of new history. Hence the strength of Merkel’s commitment last week to bail out Greece. Yet, at the same time, another ghost from Germany’s history – rampant inflation – has served to dampen its enthusiasm for providing what the markets seem to crave: a huge sum of money that can prop up not only Greece, but Italy as well.
And then we come to the embattled Greek Prime Minister, George Papandreou. As I write, he has survived a no-confidence vote in the Greek parliament, but only on the condition (it appears) that he step down and pave the way for a new government of national unity that will attempt to deliver on the requirements of the bail-out package agreed last week by European leaders. The task facing the government that emerges from this turmoil is no less than monumental, given the continued presence of large protests in the Athens’ square just outside parliament.
There is much irony in the fate of Papandreou. Most obvious is the fact that his grandfather (whose name he shares) was first elected as Prime Minister 48 years ago on November 3 – the very day that Papandreou the younger was warding off calls for his departure. But there is also irony in the fact that it is Greece – the birthplace of democracy – that has done a u-turn on the promise of the referendum. These days it seems that to be a “good European” is to act against the instincts of one’s electorate (or, in the case of British Prime Minister David Cameron, the desires of a good portion of his own party) and avoid – at all costs – referenda.
Europe has, of course, been here before. The reaction of the Irish public to the Lisbon Treaty threatened to scupper the handiwork of Europe’s enlightened technocrats. But this time, there is arguably more at stake. The economic and social dislocation that threatens Greece (no matter how much the Greeks may have contributed to their own malaise) is very real. And for a relatively young democracy, it is deeply unsettling. What is particularly striking about the protesters in Athens is their age: they are predominantly young, under the age of 30. They are Greece’s future, yet their overwhelming sense is that their future is bleak.
Given that reality, was it really so audacious for Papandreou to seek a mandate from those who will bear the costs of austerity? The reaction of his European peers suggests that he had committed the ultimate betrayal. The script had been written, and all Papandreou needed to do was act out his part. Perhaps, in the end, Greece will deliver its lines – even if later than expected, and with a new Prime Minister. But something important has intervened to remind the guardians of the Eurozone about who, ultimately, should be in the driver’s seat.
More broadly, the Greek tragedy points to Europe’s hubris. It was politics, not economics, which motivated the push to include Greece in the Euro. The signs were there, for anyone who cared to look, that Greece’s ‘economic fundamentals’ might not be compatible with the requirements of its inclusion in the common currency. But the symbolic prospect of inclusion was just too tempting. How could the country of Plato be, as proclaimed by one French official, outside of Europe’s great scheme for monetary union? And so, today, politics rears its head again, though not quite in the way that the leaders of the Eurozone might have expected.
Photo courtesy of Reuters.