From small boy to grown, responsible man?
The first song of the debut album of the unforgettable Led Zeppelin begins with Robert Plant singing the lines:
“In the days of my youth, I was told what it means to be a man,
Now I’ve reached that age, I’ve tried to do all those things the best I can.
No matter how I try, I find my way into the same old jam.”
The European integration project started after World War II with the establishment of the not so known Western European Union and the European Coal and Steel Community. Under the wings of statesmen like Robert Schuman, Jean Monnet and Jacques Delors and pushed forward by a blend of political realism and idealism Europe seemed on its way to becoming a political, military, diplomatic, and economic behemoth. Small boy Europe – once held back and torn apart by narrow minded nationalism and the supremacy of national political interests – would grow into a tall, muscular man that would be a match to the US and other great powers.
From sclerosis to euphoria
Alas, this dream stumbled onto quite some nightmarish bureaucracy, infighting, timid electorates and to sovereignty clinging national politicians. That’s why in the late 1970s and early 1980s after a period of relatively quick integration, Europe came to a standstill. People began to speak of eurosclerosis.
But the German reunification among other things helped to get the integration project back on track and the love affair between the European countries started to grow with serious plans for one currency. With the EU reaching a mature age, it tried very hard to works towards a union that was irreversible. Leaders like Mitterand, Chirac, Schmidt and Kohl worked tirelessly to overcome national and international institutional, electoral, and personal forces trying to tear the European fabric apart. They thought a unified currency would prevent Europe from ever going to the hells of the first half of the 20th century by making nations economically so dependent on each other that they couldn’t afford to go to war anymore.
Elvis knows what’s needed
Unfortunately since the financial crisis starting in 2008 Europe seems to have fallen back into its dangerous old habits of letting national interests get the better of European interests. The people who forged the monetary union must have felt some recognition when hearing Plant’s waling, high-pitched voice sing: “No matter how I try, I find my way into the same old jam.”
That ‘same old jam’ now makes it very hard to form the political, economic, and fiscal union needed to overcome the political and economic crisis that still haunts Europe. To quote another musical legend, Elvis Presley:
“I need you so to keep me happy
If I can’t have you, I cannot go on”
Most analysts and economists agree that without a full fledged union, the Eurozone will not be able to survive in the long term. Last week some baby steps were made in the direction of a banking union, but it wasn’t what markets and pro-Europeans hoped for.
Something to hold onto
The last couple of days there was still some good news to report from Europe. European leaders and the European Parliament have after all agreed on the budget for the coming seven years. As Euractiv reported:
“Lawmakers have approved a compromise struck last week on the multi-annual financial framework, the EU’s budget for 2014-2020. The deal left unchanged the total amount if the seven-year budget which was set at €960 billion at an EU leadership summit in February….. MEPs said the budget invests in programs that will help lift the EU out of its economic doldrums.”
Other positive emanating from Brussels was the European Parliament clearing the way for Latvia to adopt the euro in 2014, ahead of the final go-ahead expected to be given by EU finance ministers next week. Latvia will be the 18th member of the currency union and is a poster child for successful austerity: Latvia was one of the hardest hit countries by the financial crisis: it lead to a GDP decline of 20.5% from 2007 to 2010. Latvia has emerged from recession and its 5% growth in 2012 was the fastest in the EU. Nearly 4% growth is anticipated for 2013.
The European project is not attractive only to Latvia. This week Croatia became the 28th member of the EU. And other former Yugoslavian republics are also longing to join the union. It shows that despite the fact that despite European integration project is struggling with its greatest crisis in the last decades it still holds great attraction to outsiders.
Crisis back with a vengeance?
Nevertheless, the EU and Eurozone are still losing appeal by the bucket loads. The bad news coming from Europe drowns out the upbeat developments. The core and periphery of the EMU are both struggling and some of the countries in the latter seem to be sliding back into the crisis mode of the heydays of the crisis.
The Portuguese governing coalition has just lost two ministers. One of them the leader of the junior coalition partner, the other to man behind the austerity and reform program in Portugal. Market turmoil was the result with country’s main PSI 20 stock index falling 5.3%. Bank shares fell up to 13 percent. Stock indices across Europe also dropped on the crisis in Portugal. Another sign of investor wariness, the interest rate on the 10-year bond of Portugal, jumped 0.85 percentage points to 7.31 percent. The rate, which is what Portugal would pay to borrow 10-year money, is far above the 5.23% rate it hit in May.
Strains have eased somewhat, but we fear that tensions could come to a head in September when the seriously weakened government – which entered office in June 2011 – has to present a new budget and when the Portuguese go to the polls for local elections. The political crisis could also endanger the scheduled exit from the bailout program in June 2014. Lots of commentaries in Portuguese newspapers fear new elections and a worsening of the economic crisis (unemployment already stands at 17.6% and the economy has been contracting for ten straight quarters). Publico wrote:
“The government is dead, brought down by its internal contradictions and by the incompetence of a Prime Minister unable to keep it together. […] What we are witnessing is the hara-kiri of a coalition. […] The government fell apart because it was incapable of reaching agreement on the structural reforms that the country needs. [...] Europe, which is panicking over the self-destruction of the good student of austerity, will have to accept that a fresh election is the only way forward possible.”
Not only Portugal….
Other periphery nations are also facing renewed political and economic pressures resulting in rising interest rates and market volatility. Despite hopes of an economic recovery, Ireland has fallen back into a recession, after its gross domestic product was found to have contracted for the third quarter in a row.
On top of this, the financial sector is facing renewed anger after some phone calls from Anglo Irish Bank came out in the open. As The Guardian wrote: “Taped phone calls between two senior executives at Anglo Irish have compounded suspicions that bankers lured the then Fianna Fáil-led government during the crash of September 2008 into a costly financial trap.” Anglo’s director of capital markets Bowe can be heard saying: “The reality is that actually we need more than that. But you know the strategy here is you pull them in, you get them to write a big cheque and they have to keep, they have to support their money, you know.” This scandal has heightened political tensions in Ireland and will not help in finding a solution to the problem of 12.3 per cent of mortgages fallen at least 90 days behind in payments by the end of March.
The big fish also in trouble
Not only the smaller periphery countries are on the brink of falling of the cliff. Today, numbers showed that Italy’s budget deficit widened to 7.3% of GDP in the first quarter largely due to an increase in expenditure. This depressing number follows on the back of a judicial verdict sentencing Berlusconi to years in prison. Of course, the media tycoon will appeal and a definitive ruling could take years. But we fear that if Berlusconi starts to feel really threatened he could trigger a political crisis by withdrawing support from the coalition his PdL is in.
Core not immune
But increasing tensions are not contained to the euro periphery alone. S&P has downgraded the growth prospects for the Netherlands and fears the Dutch economy will be weak for years to come. The economic troubles and euroscepticism have resulted in the populist, right-wing PVV of Geert Wilders to rise to the first place in the polls. The current governing coalition parties would lose big time.
In Finland the anti-euro and anti-immigrant True Finns are also doing very well in the polls. If elections were held today, the party would end in second place.
In France President Hollande is forced to deal with scandals within his cabinet, unruly unions, and the French weary of EU interference and austerity (although the French have barely started cutting the government). The latest setback for the President is that he felt he had to sack his Environment Minister Delphine Batho after she publicly criticized a 7% cut to her departmental budget as part of the French government’s plans to cut total public spending by €14bn next year.
Bad moon rising?
All of the above implies that we do not see a serious recovery of the European Union in the coming months. Most analysts expect Germany to keep tensions from rising too much before federal elections on September 22. But even Merkel will not be able to keep the lid on when more scandals erupt around Europe in the coming months, if unemployment keeps rising (already a record 12.3% in the Eurozone) and if the international geopolitical and economic climate is not helping Europe with overcoming the crisis. We will talk about the outside influences – among them the developments in Egypt – on Europe in soon to be published blog.
For now, we complete the rock hat trick by citing the ominous words of John Fogerty singing one of the iconic songs of his Creedence Clearwater Revival:
“Don’t go around tonight
Well, it’s bound to take your life
There’s a bad moon on the rise”
Let’s hope that politicians will show the courage to go out there, risk political capital and find a way to get the European project back on track, overcome the ‘same old jam’ and start the long-awaited sustainable recovery.