“The result is a crisis in European democracy”

On the back of a survey of more than 5,000 people of working age in the UK, Germany, France, Poland and Spain, the Guardian editorialises on the future of the EU.  They’re promising a month long series of articles mapping out the social, political and economic terrain.  From the Guardian editorial

The poll we publish today is taken from a sample of more than 5,000 people of working age in the five leading EU states – Britain, France, Germany, Spain and Poland – and clearly speaks to a crisis in European governance. Only 6% truly trust their government, and just 9% think their politicians are honest, either in power or out of it. Political anxiety is driven by economic pessimism, particularly in France and Germany, the powerhouse of Europe. Almost three-quarters of the French think they will be worse off a decade from now, and so do half of all those polled in Germany, despite its economic recovery.

If Europe is unthinkable without its nations, and those nations are led by a generation of politicians so lacklustre that the only character who stands out, for all the wrong reasons, is Silvio Berlusconi, does that mean that the grand European project is on the wane, however you define it – as a market, a union, a currency, a set of rules, standards and law? Which would now seem more eloquent of the collective mood – the optimism of Beethoven’s Ode to Joy, the EU’s official anthem, or John Cage’s four minutes and 33 seconds of silence?

And in what looks like the first of those articles, Hans-Olaf Henkel offers his solution

If Europe wishes to go back to being a creative community based on competition, it will need a new approach that takes account of the prevailing economic differences that exist.

I suggest splitting the euro into two zones, reflecting the cultural differences in mentality between the countries in question – a “northern zone” centred around Germany, Austria, the Benelux countries and Finland, whose adherence to monetary stability and budgetary stability would be represented by the hard northern euro; and a “southern zone” centred around France, Spain and Italy, whose soft variant of the euro would reflect their free-spending mentality and talent for monetary improvisation. Considering that it suffered primarily from an absurd banking policy rather than a lack of budgetary discipline, Ireland should be part of the north.

The “southern countries” could retain their own competitiveness through a greater tolerance for inflation and corresponding regular devaluations. They would no longer be forced by the European Central Bank into the “straitjacket of Germanic stability phobia”, as the outraged students of Athens and furious unemployed of Madrid perceive it. They could do what they used to do before the introduction of the euro: remain competitive in their own way.

Something, perhaps, for Taoiseach Enda Kenny to contemplate as he considers his next move?  And on the quid pro quo Ireland is being offered in the game, the Irish Times adds an editorial of its own

From an Irish perspective, the continued pressure not only on CCCTB [common consolidated corporate tax base] but the corporate tax rate itself – a line that cannot be crossed – is deeply worrying. Mr Sarkozy made clear that “we’re not asking Ireland to put up their corporate taxes to the European average but to make some effort”. In reality, of course, he is less concerned about Irish revenues than with the drain on French tax revenue which healthy tax competition facilitates.

There are those, however, who are beginning to suggest an Irish fall-back position on the CCCTB – that what may matter more than the principle is the structure of a CCCTB regime, specifically the mechanism for apportionment of taxes raised in states where multinationals book their profits. In truth, with Ireland desperate to see its interest rate cut and likely when new bank stress tests are published to need further assistance in recapitalisation, Mr Kenny has a very weak hand. His trump veto is simply unplayable.

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  • Ronan McDonald

    Henkel’s inclusion of Ireland in the stable northern Eurozone belies the neatness of his proposed division. The problem with a monetary union is not just that its members pursue different fiscal policies, but that they are vulnerable to different shocks in different ways. Splitting the eurozone in two would be just a baby step in reducing its current instability.

    The first short term solution is a negotiated default on Irish bank debt; the ultimate long term solution is to include all sovereign debt in a stable euorzone-wide bond. These solutions are hinted at in Wolfgang Munchau’s fairly sensible op-ed in today’s FT : http://www.ft.com/cms/s/0/157cb6ce-4daa-11e0-85e4-00144feab49a.html#axzz1Gau9QwMk

    On a separate, related note, I think the Irish Times editorial shows up how difficult Ireland’s negotiating position is so long as they do not dare to threaten a default. Changing our corporation tax rate in exchange for a reduced interest rate will result in little net gain, and possibly in a net loss. Only a partial default will meaningfully improve our fiscal situation.

  • Nunoftheabove

    If the opportunist pre-election Merkel and Sarkozy don’t like Ireland’s corporate tax rate then why don’t they have balls to lower their own ? If they had any honesty about them they’d admit that corporate tax rates are a red herring. Several decent reasons therefore why Kenny should tell them to fahrk away awff and play the only card that matters – default. Either make the terms of the deal acceptable, and thus make a more realistic partial repayment plan more affordable, or go hang.

  • Henry94

    Splitting the euro is a good idea but Ireland would not fit comfortably into either the north or the south. In the event of such a division Ireland should go it alone.

  • Greenflag

    ‘Considering that it suffered primarily from an absurd banking policy rather than a lack of budgetary discipline, Ireland should be part of the north.’

    Does Herr Henkel not think there was anything about absurd about the disgraceful over leveraging of German and French and other banks in the central zone which was ‘lent out ‘ to peripheral countries to attract a better return on investment ? As I understand it the Spanish followed all of the EU guidelines with regard to membership of the Eurozone but their economy also went belly up due to the ‘cheap money ‘ emanating from the centre of the Euro zone countries .

    Do Europeans even know that the so called ratings agenices such as Standard & Poors and Moody’s have more market influence than the German Kanzerin or the French President or even Cameron’s Britain ? As to the criteria which Moody’s and Standard and Poors use to decide who is a good , bad or dangerous risk -that’s a well kept secret known only to the cognoscenti . Why this should be so is never asked by commentators . Even the USA for all it’s sovereignty dare not upset the backroom boys at Moody’s .

    And all of this despite the fact that these same rating agencies gave Lehman Brothers , Bank of America and other prominent American financial institutions triple A ratings days before they collapsed .

    You don’t need to be a conspiracy theorist to think that there is something more than rotten in the methodology of these rating agencies -but no government has yet called their bluff . I wonder why ?