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Why European institutions cannot handle the Greek crisis

Posted by hkarner - 19. Februar 2017

Date: 17-02-2017
Source: The Economist
Subject: The European Union’s delicate political economy

GREECE’S marathon crisis is at least instructive. Past flare-ups have illustrated a textbook’s worth of economic principles. The latest episode—a dispute over the sustainability of Greece’s mammoth debt—provides a lesson in political economy. The beleaguered economy itself is not at the centre of the disagreement; rather it is the European Commission and the IMF and others that are at loggerheads, squabbling over projections of Greek growth. This sort of institutional wrangling is not incidental to the process of European integration; it has historically been a crucial ingredient, helping defang the continent’s tricky interstate relations. But as Greece’s latest turn in the spotlight demonstrates, the role of Europe’s institutions has changed during the euro-area crisis. Paradoxically, they themselves have become part of the existential threat facing the European project.Like European identity itself, the role of “institutions” can seem vague, amorphous and of overstated importance. Yet institution-building has been one of the most consequential aspects of European integration. Economists view institutions as the solutions to social problems beyond the scope of markets and the state. Europe’s supranational bodies are not simply talking-shops or bloated bureaucracies. They are entities apart from the EU’s members, and come to develop their own identity and culture.

That the term “Brussels” is thrown around in national capitals as a catch-all for the pesky creature that is EU authority is a design feature, not a bug. Old enmities between European neighbours hinder co-operation. Even when the topic under discussion offers mutual gain, the spectre of, say, French leaders making concessions to Germans can so repel French voters as to scupper deals. Bowing to Europe’s supranational institutions is less painful.

So Brussels has proved useful in domestic policy battles. In countries where politics long thwarted efforts to rein in inflation, put budgets on a sustainable course or liberalise the economy, EU membership altered the political dynamic: tough decisions could be blamed on the hard taskmasters in Brussels. And for countries looking to join the EU, the benefits of membership made unpalatable domestic reforms easier to swallow.

Perhaps most important, the architects of European integration counted on the institutions they were creating to defuse the danger posed when vacuums of power led to crisis. As Jean Monnet, a French official and a founding father of the European project, put it, “Europe will be forged in crises, and will be the sum of the solutions adopted for those crises.” In the past, states at odds with each other might use diplomatic or military pressure to settle an argument. But in post-war Europe self-interested Eurocrats in Brussels would charge into power vacuums to assert their new authority. European institutions were a mechanism through which European infighting could be turned to state building.

These old patterns, however, have broken down during the drawn-out euro-area crisis. The locus of decision-taking, argue Markus Brunnermeier, Harold James and Jean-Pierre Landau in “The Euro and the Battle of Ideas”, a book published last year, has moved: from Brussels to national capitals; then to Berlin and Paris; and finally to Berlin alone. When the crisis erupted in 2010 it was soon clear that meetings of heads of government or finance ministers mattered more than what the commission or parliamentarians said. Early on, Germany and France decided to reach their own consensus before EU meetings. It would prevail, focusing power in Berlin and Paris. As German economic performance and political continuity diverged from France, the duet became a solo. This dynamic brought back the sting to negotiations within Europe, along with old chestnuts about northern heartlessness and southern profligacy, eroding an already thin sense of European solidarity. In peripheral economies, the battle lines are clear enough; Greeks see themselves as bowing to Angela Merkel, Germany’s chancellor, rather than to faceless Eurocrats.

EU national governments argue, with reason, that policies imposed by Europe did more harm than good: that, for instance, without an independent monetary policy or a currency to devalue, austerity is counterproductive. Brussels has graduated from convenient scapegoat to the IMF’s bogeyman enforcer. Mainstream parties used to diverting blame to Brussels find themselves challenged by radical parties desiring to escape it.

Critically, instead of expanding in an attempt to limit the damage, as Monnet would have hoped, the authority of Brussels has been checked. The crucial decision to involve the IMF in euro-area programmes was partly based on a need to get around the Maastricht treaty’s “no bail-out” strictures. But it was also rooted in a mistrust of EU institutions. Member states, and especially Germany, reckoned the IMF could impose conditions on indebted countries more credibly than the European Commission. A proposal to create a new institution, the European Monetary Fund, was rejected. The European Central Bank is the exception among EU institutions; its power has grown massively in the course of the crisis. But as the least accountable of the European institutions, its expanded authority does more to undermine the legitimacy of the European project than to reinforce it.

Blue Angela
Had the EU a longer history before it faced this existential crisis, enough power might have shifted to Brussels to make a more centralised response inevitable. But there is also an irony in the way the crisis has unfolded. No leader has worked harder to hold Europe together than Mrs Merkel. And yet the forcefulness of German leadership, and its decision to trust the IMF over the institutions in Brussels, have shaken Europe’s delicate political economy. Strange to relate, Europe’s unhappiness with Brussels may stem not from too much eurocracy, but too little.

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