Closer fiscal integration a runaway train

Spain has joined the list of nations who have fallen into the clutches of the IMF and the EU in order to have their banks bailed out. What had long been rumoured to be a certainty came to be realised in the last week and will have serious implications for the Spanish people for a long time to come.

Despite the bluster from the Spanish prime minister to the contrary, it would seem the terms of the bailout would entail a similar brand of austerity to that being endured by the Irish, Greek and Portuguese people.

 

It was probably these protestations on the part of Mariano Rajoy that led the Irish opposition parties to immediately demand better terms for Ireland in relation to our bailout deal. Unfortunately for the opposition and the population, Spain is not getting off as lightly as the Spanish leader wished to imply they were.

The failings at the heart of the European project have been exposed by the ongoing financial crisis and ramped-up urgent political action is required to deal with it.

This has led to an increased discontinuity between what politicians tell their electorates and what actually needs to be done to ensure the future of both the euro as a currency and the European Union as an entity. The commonly accepted view of how the German people view the current crisis is that they feel hard done by.

The likes of Greece, Ireland and more recently Spain are taking from them in order to keep their heads above water. In fact, it is entirely in the German’s interests to maintain the euro as a currency, as a reversion to the Deutsch Mark would have a devastating effect on their exports. At home, Angela has missed a trick by explaining this because the opposition has been quick to leap on the opportunity presented by the crisis and portray Germany as the rich idiot paying the bill for the profligate members of the union who have neither the sense nor the cash to cover the cost of their actions.

As mentioned above, the Spanish leader has been trying to play down the implications of what is actually happening to the country in order to temporarily fool the electorate at home. While the Spanish deal is not as extreme as the one Ireland sought, it is at least half of the same pie and has just as significant implications.

During his election campaign, Francois Hollande told the French people that he would take Europe to task and reorder the approach to the crisis. Since his successful election, there has not been as noticeable a change as his electoral proclamations might have suggested there would be but how much actual change he will instigate remains to be seen.

Whoever the local politician, in whatever part of Europe, the approach is always the same. Say what they want to hear locally, keep them on board and then try to deal with the runaway train that is integration when you are on the continent. When the various leaders of Europe’s nations come together in Brussels, they have all been watching their backs at home. Each has been keeping the electorate happy and trying to put as positive a spin on the situation as possible.

The problem for them is that there is no longer a blueprint for the future of the project. In order to save the currency, greater political unity is needed and from this need, the spiral of integration is gathering pace at a rate only the most ardent Euro-skeptics would have predicted. Unlike the reality they predicted, this rush towards closer union is not necessarily driven by pure ideology, it is driven more by the desperate need to save the currency and the economies of the nations who signed up to it.

This not only means the economies in the single currency. In Britain, Prime Minister David Cameron is issuing statements demanding that the Eurozone get itself sorted out and move towards greater political union. It is telling that the nakedly self-interested British leader is so concerned about the Eurozone all of a sudden, given the financial implications for his people if the euro ceases to be.

The requirement in the Irish constitution that leads to the kind of referendum just held provides, in most people’s minds, a great defence. In the coming years, as the pace of ultimately necessary legislation to facilitate European integration intensifies, don’t be surprised if the provision itself comes under scrutiny. The leaders of other European nations certainly worry about their electorates and do their best to keep them sweet but in the case of European treaties, they don’t need their approval.

The extent to which the project is a learning process was recently underlined by a statement from an EU commissioner in early June, “Taxpayers must not fund bailouts.” There would be many thousands of Irish people in a better financial position today if this policy had been adopted a few years ago.
Now, just as Spain has been saved, the markets have dropped after an initial surge. In a near carbon copy of the Irish and Greek bailouts, as soon as a country receives the support, the rumours of which nation will be next abound. With Italy firmly in the crosshairs and a bailout fund not capable of covering their exposure, the frenzy of panic around the European Union will continue unabated.

If Germany’s wealth was pooled with the rest of the union, there would be enough to cover the Italian losses. And so, as the panic evolves, such an option might begin to seem like the only option. Greater integration is the only way of solving the crisis that is has been exploding at the heart of the European project for the last number of years. Steps taken in the past 20 years with a positive intent of integration now carry massive implications for all the nations that signed up to the single currency.
There is no conspiracy in this. It is merely a runaway train on a course that some predicted but most did not. The trouble is there seems to be only one way to bring it back under control and that is through even greater political and fiscal integration.