Papademos: the first of the Banktators

Every time I sit down to write this post, I check the news and everything has changed. With Merkel and Sarkozy now sitting down to discuss the looming breakup of the Euro, events seem to be spiralling out of control and I simply don’t have time to go into the economics of the crisis so I’ll sum it up in one sentence; the EU has consisted of economic cooperation without the necessary parallel political integration.

Ok fine, one sentence plus a supporting paragraph. Upon its original conception there were certain rules in place that governed the amount of budget deficit a Eurozone member state could run. Budget deficit is closely linked to government debt but not exactly and furthermore, these rules were contested, watered down and never fully implemented. No real control over government debts meant that Eurozone governments could run up a high debt with the safe knowledge that other members of the Eurozone would support them, or even provide a bailout if need be. In fact, such rules were impossible to implement as it is well known that different countries in different economic situations require different amounts of debt; a blanket rule was never going to work. Europhiles pointed to countries across the world in which different regions are more or less developed, so why can’t it work within the Eurozone? Well, within a nation state it is possible to carry out fiscal transfers in order to, in the long term, bring less developed parts of the country up to par with the rest and no longer need support. However, this always entails concurrent political integration; something painfully absent throughout the Eurozone.

Now not all debt is bad debt; if one can borrow money and put it to productive use then this is beneficial for both parties. However, the problem with the EU was that countries such as Italy were borrowing with the rest of the Eurozone as an effective guarantor while not being held accountable for their spending. Hence, rather than being invested effectively, the money poured into Italy that has not been lost to corruption has gone towards propping up an archaic system of monopolies, mafia and crony capitalism in which the rich pay almost no tax. This is no conspiracy, Italian politicians have openly turned a blind eye to tax evasion and in many cases encouraged it for years. Stagnant GDP growth and little tax income coming into the state coffers equals a government having to borrow to simply pay off debts.

In fact, in a country where 90% of the media is in the hands of one man and the political class consist of convicted felons, topless models and the fascist (or ethnoregionalist for a more tempered tone) Liga Norde, the extent to which politicians are accountable to their voters is questionable at best. Ask your average young Italian whether they have seen a hint of the money supposedly borrowed to invest in the growth and future of their country and the answer will be no. True, money has been thrown at education, but as the fundamental weaknesses of the economy have not been dealt with, we are simply left with millions of unemployed graduates; back to square one but a few billion euros further in debt.

The original and classic crisis response has been austerity, but it is becoming quite clear that this is not only morally wrong but, furthermore, impractical. Firstly, at the root of any recession lies a slump in aggregate demand; taking money out of people’s’ pockets is only going to worsen this. Secondly, offering the people “no alternative” than to austerity, as well as imposing this upon Eurozone countries such as Greece and Italy when they do not comply is far from democratic and goes against a cornerstone of what it is to be European. Italy and Greece are quite literally seeing technocrats, imposed upon them by the bonds markets, replacing politicians; All hail Papademos, the first of the “Banktaters”!

Even our supposedly democratically elected politicians have been having a hard time pushing through austerity measures so can we really expect the people to accept them from unelected technocrats? Well, we wont have much choice unless we come up with an alternative;

Spend our way out: in theory, putting money into the hands of the people and boosting aggregate demand could pull us out of recession. However, it has proven harder than expected to actually get money into the hands of the people… a lot seems to get lost on the way down.
The ECB: the European Central Bank could buy up Italy’s bonds and, effectively, bail them out. However, this is currently being blocked by the Germans due to their historically ingrained fear of hyper inflation. Furthermore, inflation disproportionately effecting the poor and middle classes, this would feel like a further kick in the teeth to those who already feel they are unfairly bearing the brunt of austerity.
Federalism: many are finding it difficult to imagine any kind of future europe which doesn’t resemble a federal state, but for people to join a federal state they must be democratically involved. The EU boasts a shameful democratic deficit which many are rightful to be wary of. A proposed federalism will drive out all but Germany, France and the Low Countries. Furthermore, do European leaders even want to question each others policies? Why has accountability in the Eurozone only been put on the table now? After all, everyone knew that Italy and Greece for pretty corrupt countries. However, Merkel and Sarkozy also know very well that those living in glass houses shouldn’t throw stones.

Even the most ardent Eurosceptics will recognise that European cooperation has provided us all with great benefits as well as the obvious “inconveniences” we are experiencing today. If economic integration requires parallel political integration then this quite clearly must be done democratically. However, a democratic EU must be built upon the foundations of strong democratic states which are few and far between in Europe. Any reform of the EU will only be palliative if we do not confront the weaknesses inherent throughout its very architecture. People of Greece and Italy; demand your democratic rights, do not accept these measures thrust upon you! And for the rest of us, Greece was just the canary in the mine; throughout Europe we are experiencing a worrying slide away from our once cherished democratic values which must be stopped. Confronting capital, in the banks, the government and ourselves, may be the only way forward.