A kinder, gentler eurozone, fueled by the printing presses of a looser, laxer European Central Bank and, once fiscal union has been safely set up, significantly higher transfers from the frugal “north” to the PIIGS, might be one way of smoothing the path to some sort of recovery. But the rise of the populist True Finns, the collapse of the Slovak government, and the continuing success of Holland’s Euroskeptical Geert Wilders all suggest that growing numbers of northern voters are in not such a generous mood. The only fiscal union they would be likely to support would be more Scrooge than Santa. These voters are signing checks, not receiving them. Their concerns ought to count for far more than those of the pauperized periphery. And they just might.
Even in Germany, there is some evidence that portions of the overwhelmingly Eurofederalist political class are becoming unnerved not only by popular discontent (as a proxy for that, nearly 80 percent of German voters are opposed to the issuance of Eurobonds guaranteed by all the eurozone’s members) but also by clear signals of unease from the country’s powerful constitutional court over the liabilities Germany may be taking on. Merkel’s grudging responses to the bailout requests of the last two years may have been an attempt to maintain financial discipline, but they are also a recognition that her domestic voters once again count for something. And maintaining that tough stance is playing well at home. According to a new ZDF poll, the percentage of German voters who approve of Merkel’s handling of the crisis has risen sharply (from 45 to 63 percent) over the last month.
To the extent that Merkel is a fan too of a Scrooge-style fiscal union, this may actually strengthen her hand as the eurozone’s bad cop. That’s something that alarms another key participant in this drama: the financial markets. Market players are fond of a quick fix. They are not very interested in the plight of the eurozone voter. Most are pushing for closer integration (preferably Santa-style) as the only way to make the single currency work. Merkel has not appreciated this pressure, or the turbulence that has come with it, and she is not alone. The currency union echoes with the rage of a European political/bureaucratic class that prefers to blame the crisis on wicked “Anglo-Saxon” speculators rather than on overspending and the shortcomings of a gimcrack currency union that should never have seen the light of day.
And it’s in the operation of the latter that the immediate danger lies. As Paul de Grauwe of Belgium’s University of Leuven has noted, if markets panic about one of the eurozone’s members, euros will pour out of that country (let’s call it Greece), and unless that flow is somehow reversed, that country (unable to print its own money) will simply run out of cash, and it will go bust. As I said, let’s call it Greece.
That gives markets the whip hand, and that does not play well on a continent that has never really shaken off its command-and-control traditions. So long as financial markets bought into the euro dream, their exuberance was welcome and, indeed, encouraged in Brussels, Frankfurt, and elsewhere. There were few complaints about ratings agencies, banks, or speculators back then. Now the bubble has burst. The markets have woken up, and, as we all know, the results have not been pretty to see — and they are visible to all.
This has not pleased the eurozone’s leaders one bit. They have responded with an onslaught of measures — from bans on certain kinds of short sales, to the financial-transaction tax, and, even, an aborted plan to censor the ratings agencies — all designed to throw sand in the gears of the free market, cut financiers (whose pay, even higher than that of the Brussels elite, has long been a source of irritation) down to size, and, in particular, give those semi-detached Brits, arrogant Yanks, the greedy City, and even greedier Wall Street a very good kicking.
To be continued . . .
– Mr. Stuttaford is a contributing editor of National Review Online.