The euro crisis is, as far as Euroskeptic conservatives are concerned, the gift that keeps on giving. A European summit announces a final settlement of the crisis, usually by giving many billions of euros to a country trembling on the brink of default; the markets calm down; a few months later another country (or the same one, usually Spain) approaches the brink again; and a European summit is again convened to solve the crisis.
There’s another summit this weekend, as it happens, that has been convened to settle the crisis once and for all by creating a euro-zone fiscal union, uniting 17 countries within the EU’s 26, that will become the economic sovereign power of the euro zone with final authority over the budgets, taxes, and spending of all its members. It will also have a common bank regulator and assume responsibility for the debts of the zone’s troubled banks, mainly French banks as it happens. The Brits under Cameron seem content to let this ramshackle Leviathan be created provided that they remain outside it and that non-members are protected by a “double majority” from having its decisions imposed on them.
So it will probably go ahead. Crisis finally over? I’m afraid not.
There are several problems with this structure which no one is impolite enough to spell out. The first is that a fiscal union, like the common currency it is designed to save, can work well (i.e., without additional instruments of coordination) only if the productivity levels of different member states are pretty much on the same level. But the difference in productivity between German and North European workers on the one hand and Greek and Southern European workers on the other is vast. No one believes that it can be reduced to modest levels, let alone to rough equality, by any measures available to a democracy. In a rational world the euro would be restructured into a Northern and Southern euro so that a fall in the latter would compensate for the lower productivity of the Mediterranean countries and make them competitive again. But a single European currency is the fixed utopian vision of the European political elites. Sooner than surrender it they will accept super-high unemployment levels without limit and without end. And Austerity without end is what they are getting.
The Eurozone Fiscal Union (or EFU for short since FU seems objectionable on other grounds) proposes to ameliorate this by fiscal transfers, “mutualizing” debt obligations, requiring its members to run German-style responsible budgets, and additionally compelling Southern Europe to embark on supply-side economic reforms that would eventually make them competitive with Northern Europe. “Vast enterprise,” as de Gaulle said in another context. What the first two of those aims entail above all is massive fiscal transfers from Northern to Southern Europe for as long as low productivity, high unemployment, and fiscal Austerity prevail there. And since the euro imposes Austerity without End on the South, the EFU will impose Fiscal Re-distribution without End on the North. German, Swedish, and Estonian taxpayers will be asked to pay more in taxation in order to finance subsidies to Greek, Spanish, and Portuguese benefit recipients of all kinds. That will not end Austerity, of course, but merely make it more tolerable. So fiscal re-distribution will not end either. And if the EFU embarks on the third aim and compels governments to run more responsible budgets — i.e., keeping deficits low — that will force the South’s governments to cut spending on everything except social transfers and interest payments (the police, defense, infrastructure, in short the traditional duties of the limited state.)
That brings us to the fourth aim of the EFU — compelling Southern Europe to undertake supply-side economic reforms in order to achieve higher productivity and greater competitiveness. Such reforms are always hard to achieve because they involve people giving up traditional ways of life and methods of working and learning new trades. They take time and meet strong political opposition (see, the Thatcher years for evidence of this.) And they are much harder to push through if they are introduced against a background of economic stagflation and social distress. But the whole theory of the EFU requires that they be introduced against a background of endless austerity — not by the European institutions that will be calling the shots, however, but by national governments and elected politicians that will be carrying out their orders. If the entire political class locally is united in support of this combination of reforms-within-austerity, then it can survive the loss of elections. That will not necessarily guarantee the successful implementation of reforms, of course, if people simply refuse to go along with them as in Greece. But it means that a kind of Potemkin reform program can survive, and that helps the national politicians to chisel a few more billions out of Brussels. Eventually, however, some political entrepreneur or dissident party will see the opportunity of power by offering the voters an end to austerity and a program of stimulating growth outside the euro — and the entire house of cards will tumble down.#more#
In fact that has just happened in Italy. Last week Berlusconi, the former prime minister, announced that his center-right political party no longer supported the reform program of Mario Monti, the ”technocrat” (read bureaucrat) whom Angela Merkel and Brussels forced Italy to accept as prime minister. As a result Italy will hold new elections some time between now and February. The political forces on both sides are lining up exactly as one might expect: in support of the euro, the EFU, and Austerity are the Euro-establishment, the local Italian establishment, the center-left Olive Tree party, various small center parties, and Mario Monti; in support of an end to Austerity, a program of growth, and a loosening of the euro constraints are Berlusconi’s center-right party, some small rightist parties, and Berlusconi himself. This division does not seem propitious for the Right; it has been declining in popularity for several years now; its poll rating is in the mid-thirties; and it has lost some past political allies such as the Gianfranco Fini of the former National Alliance. But given the exhausted hostility of the Italian people towards endless Austerity, these recent patterns of public opinion might be transformed in a vigorous democratic election campaign.
The chief drawback of such a campaign is that Berlusconi would be leading it. His private life would be a handicap, of course; it is hard to see him making inroads into the Left’s women supporters. But even if we take Macaulay’s view that “a man may be a very good Christian but a very bad Chancellor of the Exchequer,” or in this case vice versa, Berlusconi is not the right man to lead this campaign even if he remains head of his party and a strong influence behind the scenes. He was a moderate economic reformer (Italy is more capable of leaving the euro financially than any other Mediterranean country) and he would likely make strong noises about restructuring the euro in the campaign. But many voters, given his past complaints about the constricting effects of the euro that led nowhere, will doubt his determination and suspect his willingness to cut a deal with Brussels. What this campaign needs is a leader of the Right who is generally acknowledged to be a man of integrity, someone who is technically competent in fiscal and monetary questions to match Monti’s undoubted expertise, and a skeptic about the Euro in its unreconstructed form who is not hostile to the European Union in a wider sense.
Not many people fit this bill. But one does.
Antonio Martino, a former Italian foreign minister in Berlusconi’s first administration and defense minister in his second, is one of Europe’s most distinguished monetary economists and respected in the profession as such. (Americans might also note that he was a favorite pupil of Milton Friedman’s.) He is rare among Italian politicians for being known for his unwavering adherence to the principles he espouses publicly — and, not coincidentally, he has a following on the left as well as on the right because he can make the case for classical liberalism in a way that persuades opponents rather than merely cheers up supporters. He pointed out the design flaws of the euro in advance, and his criticisms have been validated by its crisis-prone experience since then. But though a skeptic about the euro, he is not a Euro-skeptic in the wider sense. Indeed, he is the proud son of the Italian foreign minister who, as the host of the Messina conference that launched the original European Economic Community in 1956, was one of Europe’s founding fathers. What he resents and resists — as far as I can judge from past conversations — is the current attempt to transform the cooperative international institution that his father helped to found into a vehicle for imposing regulatory interventionism on a continent undemocratically.
Admittedly, there is one drawback to his candidacy. He doesn’t want to be prime minister. He would prefer to retire to his favorite Italian island, open a bottle of good Sicilian red wine, and read the comic novels of P. G. Wodehouse.
As far as I am concerned, that clinches the case.