How the fate of Europe could be decided ‘within hours’

By Paul Mason, Economics Editor, Newsnight 15 June 2012
Man walking past Athens graffiti

Athens, a street below the Acropolis: the old man in front of me stops in mid-stride to read a leaflet, which has been trodden into the pavement at his feet. He doesn’t bend, but squints at it for a very long time.

From a balcony an old lady and an even older lady express their views on the motorcycle parking skills of a young woman with a spiky hairdo.

Iced coffee is served. Petty rivalries between coffee waitresses are played out at the cash till.

Here at the foot of the Acropolis you are reminded that human beings do remarkably similar things from one historical epoch to the next. People in Shakespeare behave in much the same way as they behave in Aristophanes, and in the Wire.

They form elites. They launch overweening projects fuelled by the perception of unchallengeable power. They stride around proclaiming a project’s permanence, oblivious to the shadow of catastrophe that looms behind them.

They crash empires and are gone, and the people who come after wonder what all the fuss was, about Mr X or Mrs Y.

Such a drama we are now seeing played out in Europe. As I write, Spain’s Foreign Minister Jose Manuel Garcia-Margallo is warning that the fate of Europe will be decided “within hours”. The governor of the Bank of England, Sir Mervyn King, has dubbed this “the worst crisis since World War II”. The French industry minister, Arnaud Montebourg, has accused the “German right” of crashing the European project: “Certain European leaders, led by Mrs Merkel, are fixated by blind ideology.”

That we are in a double vortex of crisis should, by now, be obvious to anybody who has read the papers.

There is the Greek crisis, where Sunday’s election threatens to bring to power a party committed to defying the old, Merkel-Sarkozy designed austerity package.

And there is Spain, whose political class makes the Greeks look professional. Right now, the ruling Partido Popular, whose leader Mariano Rajoy thought it was a good idea to go to the football while his country teetered on the brink of breakdown, is calling for the resignation of the man sent in to sort out the banks. The very banks that cronies of the two main Spanish parties ran and crashed. The resignation call comes because Joaquin Almunia, the EU competition commissioner, has had the temerity to suggest some of these banks-cum-political organisations might have to be “liquidated”.

Not surprisingly, the people paid to tell the truth about banks and sovereigns – the ratings agencies – are downgrading entities in Spain just as fast as their fingers can hit the “B” key on their laptops.

How will it end? Well there are still variables, still options. Unlike a Greek play, where the ending is determined in advance, by fate, human action plays a part. But the possible endings are being narrowed down with every day that passes.

In Greece, as veteran commentator Antonis Papagiannides said to me on Thursday, the problem is clear: it’s being suffocated. If you suffocate somebody, and they can’t breathe, they panic, lash out; they do not behave rationally.

So Greeks are switching in large numbers to the far left party, Syriza, which may win, but probably will come a close second. The (narrowly) likely option is that the conservative New Democracy wins the election. It may even get enough to form a coalition government with the old socialists of Pasok and the eurocommunists of the Democratic Left.

But the price will be a third Greek bailout on terms set by Francois Hollande, Jose Manuel Barroso and – if truth be told – the United States. However, the German government is wavering between a position which says “drive the Greeks out” and one which says “do the minimum possible to avoid catastrophe at the last moment”.

This, and most Greek politicos know it, mean that even a New Democracy government will find it difficult to stave off a debt default in Greece. The only service it will perform is to separate that event in time from the unfolding carnival in Madrid.

So next come the big ifs: if the Germans would agree to a banking union; if they would give a signal for a fiscal union; if the German-controlled European Central Bank would act like a normal central bank and print money… it would all be all right again.

For all the crisis moments illustrate how close the solution is.

Two and a half years ago, in the anarcho-hedonist stronghold ofExarchia, I wrote that north Europe had seized control of southern Europe and would demand austerity that would crash the latter as the price for a fiscal union.

That article is still worth a read but I got one thing wrong: the Germans – indeed the policy elite that surrounds them, committed to sound money, balanced books etc – have taken control of and crashed southern Europe but made no moves towards a fiscal union.

We are used to seeing and hearing that Greek voters will not accept austerity at current levels. And that German voters will not accept a bailout, and future fiscal union, with anything less than full-blown austerity in the olive oil and suntanned countries of the EU.

If the stones of the Acropolis could speak – with 2,500 years of watching human nature and political ideologies collide – they would probably say: well, that means the euro has become intolerable to the people of Europe.

Already, most of the Germanophiles in my contacts list are talking, tweeting or briefing of a “north-European euro” – a smaller fiscal union. Some believe Germany already has a plan, a list of who’s in and who’s out – a timetable, even.

Meanwhile, the mainstream politicians of Greece, Spain and Italy increasingly struggle to know what their timetable is for the next 24 hours.

A sharp series of globally-co-ordinated actions could stem the crisis. You can list them:

  • unlimited money-printing by the ECB
  • massive global liquidity operations by central banks
  • rapid restructuring, nationalisation and even closure of troubled banks, with shareholders and even bondholders wiped out
  • a Marshall Plan for southern Europe, which ends the experiment with death-spiral economics, and allows them to combine modernisation (ie paying taxes and cleaning up corruption) with growth
  • a German commitment to the basic elements of fiscal union, with German taxpayers finally locked in to paying for the mismanagement of south Europe.

There is a camp in politics that would like all this to happen and they are struggling to make it happen: the French, Mr Barroso, Italy’s unelected prime minister, Mario Monti. They probably have more support in the broadsheet newspapers of Europe than they have in the finance ministries and central banks. That is the meaning of all the anti-Merkel stuff in the papers this morning.

So over the weekend, once the finance ministers start their scheduled “emergency conference call” on Sunday night, if any of these things happen you can surmise the balance of forces is changing.

But crises move faster than elites, especially disorientated elites whose basic world view has been thrown into confusion by events. That’s the long view – and the stones of Athens, if they could speak, would probably concur.

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