The pressure is definitely beginning to tell on the European Commission President José Manuel Barroso at the G20 summit in Mexico. No news yet from Greece, and the markets are still betting against Spain. He may, as he claims, have a “vision of where we need to go“, or he may, as Michael White says, be sticking his head in the sand.
In any case, at Crooked Timber Niamh Hardiman has been looking more closely at the end-game for the political trilemma.
Kevin O’Rourke (whose work I’ve mentioned here before) pointed out that the odd design of the Eurozone was meant to avoid it getting definitively boxed into any two options in this triangle. Trans-national oversight of the currency was delegated to the ECB. Nation states were charged with making fiscal and financial policy within a loose-ish trans-national framework of rules. Democratic debate was expected to internalize the requirements of pooled sovereignty.
But the sharp ends of the trilemma are becoming more and more difficult to span. The fuzzy compromises are under growing strain, and the Eurozone is being pushed into classic trilemma trade-offs. It’s at growing risk of ripping apart entirely.
First, the fuzzy compromise between supposedly depoliticized trans-national rules (run by the ECB), and national-level responsibility for compliance, is now increasingly problematic. Countries in loan programmes find their national capacity for choice dwindling to nothing. National autonomy is subordinated to the requirements of the transnational official lenders. What gets squeezed out is the democratically determined policy choice at national level. They are in Rodrik’s ‘golden straitjacket’. It’s politics without policy choice.
Time then, again, for those historical references – “Rome wasn’t built in a day and it didn’t fall in a day either…”
Adds And as the BBC Europe editor Gavin Hewitt says, “The dilemmas are not just fundamental.”
France, later this month, will receive a report from its auditors on the true state of French finances. Almost certainly, France will need to make extra savings this year and next.
The honeymoon period for Mr Hollande will be truly over. What will the champion of “growth first” do as he struggles to live up to his commitment to reduce the deficit to 3% by next year?
Greece is fundamentally unstable. The political turmoil has meant that it will fail to meet its budget targets.
Further savings are due whilst its economy is in freefall.
Will Europe loosen the strings and give Athens more time to balance its budget? It is another dilemma.
Some, like the Austrian chancellor, says that “one should also give the Greek population air to breathe”.
Angela Merkel, however, says “there can be no loosening of the reform steps”. The Greek crisis almost certainly will return later this year.
The fundamental questions for the eurozone lie unanswered. What, in the final analysis, stands behind this currency? How will large countries like Spain and Italy be saved if they get into trouble? Where will growth come from, without which there can be no solution?
And, at the end of the day, will Chancellor Merkel persuade the German people that they will have to pay – vast amounts – to save the euro. And will Europeans be willing to sacrifice democracy if that is the price of ending the crisis?
The dilemmas of the European summer.