Globalaffairs

Issue 20/April-June 2010
By Glen Ruffle

“There is no way in which one can buck the market” said Margaret Thatcher to the British House of Commons in 1988 [1]. What was true then is still true now. Market economics simply cannot be avoided: if you spend more than you earn, you will run out of money. You will need to make savings. You will need to have cuts. And failure to do these things will cause economic crisis.

Greek tragedy

Greece has got itself into a big problem. Many have jobs that, constitutionally, mean they can never be lost: jobs for life. Tax evasion is practised by everyone - it is normal and expected. Jobs in the public sector are prized above jobs that create wealth in the private sector, because you cannot lose the public sector ones. Successive governments have expanded the public sector as a way of rewarding those who voted for them, as this provided quick solutions to unemployment. Public sectors are the natural home of Unions, which then, despite the fact that no one was creating any money or doing much work, demanded much higher wages. Some people were able to retire at 45, and subsequently receive pensions and expenses for the next 30 or more years of their lives [2]. For normal people, the average age of retirement is 61, and the government only hopes to raise it to 63 by 2015 [3]! The whole situation is a mess, the logical consequence of socialist policies pursued for a long time [4].

The cold facts and figures

This is not a new situation: Greece has been in trouble for a while. IMF figures show that Gross Domestic Product, the measure of the value of everything a country produces, peaked in 2008 at a value of 352,000 million Dollars, and has since been falling. The Current Account Balance, the amount of exports and imports the country is buying and selling, shows a consistent trend also: in 2004, Greece bought $13 billion more than it sold; in 2005, $18 billion; in 2006, $29 billion; in 2007, $44 billion; in 2008, the highest year of deficit, $51 billion; in 2009, $37 billion, and this year an estimated $31 billion [5]. Greece, put simply, has been very good at buying things it cannot afford, using borrowed money.

Secretary-General Ban Ki-moon (second from right) walks to the opening ceremony for the Global Forum on Migration and Development (GFMD) inside the Athens Concert Hall, the Megaron, in Athens, Greece. He is flanked by Karolos Papoulias (to the left of Mr. Ban), President of Greece, and George A. Papandreou, Prime Minister of Greece. UN Photo/Mark Garten

Future of Europe

The most significant statement from an international perspective was that of German Chancellor, Angela Merkel, who stated that the Greek crisis was threatening the future of the European Union itself, announcing to the Bundestag: “Nothing less than the future of Europe is at stake”[6]. Such a statement obviously had political motivations to get other European states to contribute more, but it was also a scare story lacking substance.

‘A dream’ of Europe is very safe

The European Union, as it currently exists, could indeed fall apart - indeed, some have been predicting that for a long time [7]). Yet there will remain a core of countries, so committed to the federal vision of a united European state that will never let the dream die. The elites of the Euro-core will forever continue their dream - just see the statements from Commission President Jose Manuel Barroso for evidence: “We will defend the Euro whatever it takes” [8]. France, Germany, Belgium, Luxembourg, and perhaps Italy, the Netherlands, Spain, Portugal and Austria, along with some of the newer Eastern European members, will still want to continue with the precious dream of the new Roman Empire [9].

President Sarkozy of France had already shown discontent with the direction of the European Union as it currently is. The UK membership of the European Union seriously hindered French ambitions: the UK wanted a free market area for trade and enlargement [10]; the French a political structure to entrench European power. The passing of the Single European Act in 1985 helped turn it into a free market area, and the enlargement into Eastern Europe, and the continual enlargement plans into Ukraine and Turkey, places that blatantly push the definition of Europe to its limits, seriously weaken the original vision of the French.

Because of this, Sarkozy proposed the idea of the Mediterranean Union in 2007 (11), which would have undermined the EU and rebuilt French dominance at the heart of this new block, a key aim of the politicians in Paris. It never took off as an idea, but under pressure from the economic strains of countries abusing the stability and growth pact rules of the EU (deficit no higher than 3% of GDP, national debt lower than 60% of GDP [12]), this is the ideal chance for Sarkozy and Merkel to jettison states that are blocking the development of their dream.

Smaller, deeper

Losing Britain (and Denmark) would be a key gain; or at least, giving them an associate membership status. Europe needs the UK’s armed forces, but with the people of the UK consistently hating the idea of the European Union [13], and with most people voting for a party in the recent election that explicitly promised to bring power back from Europe to Britain [14], its membership and involvement is only an obstacle for the planned superstate.

Losing Greece and other Mediterranean states with deep economic problems will raise the Euro’s status as a really strong global currency. Eastern Europe has also grown quickly because of the borrowing of money; Hungary, Poland, Bulgaria and Romania all have long negative current account deficits [15]. The fact is that Germany is the motor of Europe; Germany has sensibly pursued good economic policies; and Germany is the bedrock of the Euro. But Germany cannot carry all of Europe. A smaller, but deeper Europe serves the purposes of Brussels, Paris and Berlin.

More non-democracy

The other interesting thing to note is the way that Merkel was willing to sacrifice her own countrymen for the sake of the dream of Europe [16]. German citizens, the ones who voted for her and the ones who share her culture, language and gene pool, were ignored and forced instead to pay for the Greeks. The era of politicians being responsible to the people who elected them in Europe has truly died.

In part, this is now a structural problem. The creation of the Euro necessitates that the people of Europe can no longer have national economies and taxation systems. Dominic Strauss Kahn, head of the IMF, noted this, stating that Europe needed fiscal union if the Euro was to remain stable [17].That means the member states of the EU will no longer even be able to control their own taxes. National politicians would be truly redundant.

Conclusion

The Greek crisis shows us that in the modern world, left-wing politics cannot work together for a long time with globalised markets. This will not sit well with European public opinion. But the idea of Europe is not threatened by the crisis in Greece; rather it is an opportunity for those who really want integration to cut off the problems to their dream.

Glen Ruffle
Masters degree from the University of Southampton

Bibliography and Sources

[1] The Independent (1998) Leading article: You can’t buck the market, 06/04/1998, at: http://www.independent.co.uk/opinion/leading-article-you-cant-buck-the-market-1154872.html

[2] Helena Smith (2010) Greek profligacy, pensions and perks cost nation dear, The Guardian, 07/05/2010, at: http://www.guardian.co.uk/business/2010/may/07/greek-debt-crisis-jobs

[3] BBC News (2010) Greece plans to ban early retirement, 09/02/2010, at: http://news.bbc.co.uk/1/hi/world/europe/8506142.stm

[4] Friedrich Von Hayek (1944) The Road to Serfdom, London and Henley, Routledge and Kegan Paul Ltd (reprint 1976).

[5] International Monetary Fund (2010) World Economic Output Database April 2010, at: http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?pr.x=87&pr.y=6&sy=2004&ey=2011&scsm=1&ssd=1&sort=cou=

[6] Ambrose Evans-Pritchard (2010) Merkel plea to save Europe as contagion hits Iberia, 05/05/2010, The Daily Telegraph, at:
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/7683271/Merkel-plea-to-save-Europe-as-contagion-hits-Iberia.html

[7] Ambrose Evans-Pritchard (2007) Rising Euro nears danger level as politicians round on ECB, 06/04/2007, The Daily Telegraph, at: http://www.telegraph.co.uk/finance/economics/2806896/Rising-euro-nears-danger-level-as-politicians-round-on-ECB.html

and;

Ambrose Evans-Pritchard (2009) Trichet is bounced into defence of the Euro, 30/06/2009, The Daily Telegraph, at:
http://www.telegraph.co.uk/finance/financetopics/davos/4394914/Trichet-is-bounced-into-defence-of-the-euro.html

[8] David Batty (2010) Debt crisis: EU leaders announce €70bn plan to protect Euro, The Guardian, 08/05/2010, at: http://www.guardian.co.uk/business/2010/may/08/debt-crisis-merkel-sarkozy-euro-protection-plan[7] David Batty (2010)

[9] Boris Johnson (2006) The Dream of Rome, Harper Collins Publishers.

[10] Adele Brown and Michael Attenborough (2007) EU Enlargement: The Western Balkans, House of Commons Library Research Paper 07/27, 14th March 2007, at: http://www.parliament.uk/documents/commons/lib/research/rp2007/rp07-027.pdf

[11] Katrin Bennhold (2010) Sarkozy’s proposal for Mediterranean bloc makes waves, 10/05/2007, The New York Times, at: http://www.nytimes.com/2007/05/10/world/europe/10iht-france.4.5656114.html

[12] European Commission (2010) European Commission Recommendations for Greece, 03/02/2010, at: http://ec.europa.eu/economy_finance/articles/sgp/2010_02_03_sgp_en.htm

[13] Eurobarometer Poll (2009) Page 95: Generally speaking, do you think that (OUR COUNTRY)’s membership of the European Union is…? A good thing, at:
http://ec.europa.eu/public_opinion/archives/eb/eb71/eb71_std_part1.pdf

[14] Conservative Party Manifesto (2010) Where we stand: Europe, at:
http://www.conservatives.com/Policy/Where_we_stand/Europe.aspx

[15] International Monetary Fund (2010) World Economic Output Database April 2010, at:
http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weorept.aspx?pr.x=86&pr.y=9&sy=2008&ey=2015&scsm=1&ssd=1&sort=country&ds=.&br=1&c=918%2C964%2C968%2C944&s=a=

[16] BBC News (2010) Merkel urged to put struggling Germans first, BBC News website, 07/05/2010, at: http://news.bbc.co.uk/1/hi/world/europe/8667836.stm

[17] IMF Press Release (2010) IMF managing director Dominique Strauss-Kahn calls for strengthening European integration and cooperation, 29/03/2010, at: http://www.imf.org/external/np/sec/pr/2010/pr10120.htm

http://blogs.telegraph.co.uk/finance/jeremywarner/100005473/merkel-goes-to-war-in-battle-she-cannot-win/

The views and opinions of contributors expressed herein do not necessarily state or reflect those of Global Affairs

 Print Economy | Permalink | eva