While there’s a lot of talk about the sheer size of the EU stability package agreed yesterday, doubts are already mounting about how much good it can do – as David describes below. A familiar theme is coming through a lot of today’s analysis: the Eurogroup’s ability to react to future crises is still seriously compromised by its lack of real fiscal and political unity. Here’s Wolfgang Munchau:
This deal is going to be ineffective beyond the very short term, unless it is followed up by substantive reforms – the introduction of a single European bond, an agenda to co-ordinate economic reforms with specific relevance for the monetary union, policies to reduce economic imbalances, much tighter supervision of fiscal policies that kick in well before budgets have already been announced, and, in my view also a kernel of a fiscal union – in essence all the things over which the EU has been, and still is, in denial.
Ouch. Over at the Economist, Charlemagne rams the point home:
Is this the start of a fiscal union or political union, a great leap forwards in EU integration? I have been saying for ages that I did not sense such a leap in integration, and I stick to that. I think political will is increasing, but it is in the direction of intergovernmentalism, not federalism. In fact, as a wise colleague pointed out to me just now, this crisis has actually shattered the idea that the eurozone as a whole is a single unit. It is, in his words, the return of country risk, as markets test and probe the credit-worthiness of each member.
Another striking factor is that, like the Greek bailout, the new stability package offers the IMF a big role in propping up the Eurozone. As I note in a short piece for Global Europe today, this is not what eurozone purists hoped for:
On Sunday, the International Monetary Fund’s board signed off on its part of the Greek bailout — a cool €30 billion, nearly a third of the total. The IMF’s involvement is arguably essential to securing the markets’ confidence in the deal and to reassuring the European governments providing the rest of the cash. It may be the only institution hard-hearted enough to hold the Greeks to account or turn up the heat if they start to go astray.
But if the IMF’s presence is reassuring, it’s also rather embarrassing for the EU. Two months ago Germany, France and the European Central Bank were against any major IMF role in Greece. The idea of an organization traditionally dominated by the U.S. propping up a Eurozone member (and so the Euro) was too much to bear. That was then.
Now there’s recognition that the EU simply can’t match the IMF’s experience in disciplining dysfunctional economies — not to mention ignoring the street protests this often involves. While European finance ministers discussed a “stabilization mechanism” to fend off future crises this weekend, this also relies on a promise of further funding from the IMF, potentially passing €200 billion. It would be an exceedingly confident EU or IMF official who entirely ruled out another IMF intervention in southern Europe this year.
All of which raises deep and difficult questions about the EU’s place in the world:
The Greek bailout marks a blow to European exceptionalism: the idea that the Union, although a friend of multilateral institutions like the IMF and UN worldwide, can run its own affairs without these organizations’ assistance (or interference).
This annoys many African, Asian and Latin American observers who complain that the EU urges them to do what multilateral organizations tell them on everything from finances to human rights. They’ve taken some grim satisfaction from events in Greece.
Pramit Pal Chauduri, a commentator for India’s Hindustan Times, summarized his view of Europe’s Mediterranean economies with a quotation from an African diplomat based in Switzerland: “Africa begins south of Geneva. The southern Europeans are just like us.”
