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Monday, February 15, 2010

'Economic government' and the democratic deficit

The comment pages of today and the weekend's papers were understandably filled with reflections on a potential Greek bailout and the wider implications for the euro and the EU as a whole. We argued in our recent briefing that a bailout would have far-reaching negative implications for the eurozone, establishing a precedent for rescuing profligate states that fails to address the inherent problems of a monetary union between the eurozone's differing economies without the harmonisation of fiscal policies, for which there is no public support.

The crisis is nonetheless being used to justify the establishment of EU 'economic government' - the next step towards the federalists' Holy Grail of fiscal or political union, with common taxes and redistribution across the eurozone. This marks a significant change to the rules of the game, with the EU now largely dictating the terms of Greece's economic policy to the Greek government. This is precisely what citizens were told wasn't going to happen when EMU was designed and agreed, even if certain politicians had other ideas.

In the Weekend FT Tony Barber noted that:

It looks very much as if Greece’s fiscal sovereignty will be, for most practical purposes, temporarily suspended. [The EU] can either clutch its worry beads and hope that Greece, acting under formidable outside pressure, will transform itself into a self-disciplined polity. Or it can exploit this crisis as an opportunity to shift European monetary union into a higher gear by taking irrevocable steps to closer fiscal integration.

Meanwhile, in the Guardian, Gary Younge argued that the eurozone crisis is emblematic of an EU democratic crisis:

The issue is not the failure to match economic and monetary ­union with political union. It is the naked disregard for democratic engagement in the entire system that in no small part ­explains why voter turnout in EU elections has plummeted by more than 30% in the last 30 years. Whenever people vote no to a phase of integration – as they did in Ireland two years ago – the EU simply orders them to vote again until they produce the right result. Once they vote yes there is no turning back.

The Weekend FT's leader writers concurred:

...even for advocates of closer integration in Europe, this is a mistake. The EU suffers from a lack of popular legitimacy. The manner in which the Lisbon treaty was passed was unedifying, giving the impression that the EU is a stitch-up by a small elite. If Europe, or just the Eurozone, is to become more deeply joined, it should be a deliberate and honest process, not an accidental and covert one.

However, there is a short term path of less resistance. As the Weekend FT article argues:

There is no need for the EU to expose itself to these difficulties. It has another option for saving Greece: the International Monetary Fund. It would be embarrassing for a member of the EU to receive help from the Washington-based Fund, so admitting the continent could not solve its own problems. But better that than sleepwalking into constitutional upheaval.

Going to the IMF is the best of a bad bunch of short term options but the EU's leaders have a nasty habit of staking pride and prestige ahead of the democratic process.

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