EU economic governance plans: more than a whiff of the Versailles Treaty
At the end of 2010, EU leaders agreed a permanent crisis mechanism to try to safeguard the stability of the euro area. But the big risk now is that the EU will act towards weaker economies more in line with the punishment provisions of the Treaty of Versailles after 1919 than the generosity of the Marshall Plan after 1945.
These are important issues. The existing (temporary) scheme is currently deployed to deal with the Greek and Irish problems and instill confidence that there will not be other casualties. It is not working very well at present. Austerity is killing growth which in turn is killing confidence. The bond markets are not particularly impressed with the sacrifices being made because they fear there will be little or no growth.
The proposed mechanism is predominantly penal with its emphasis on financial orthodoxy, paying off debt, cutting public expenditure, reducing pay and benefits, and making labour more “flexible” (i.e. workers more vulnerable and cheaper!). The aim is to reduce the level of pay and benefits in member states in trouble – a kind of internal devaluation and deflation but with actually more pain inflicted than would be the case with an external one of the kind that the UK has experienced so far in the past two years. And the proposed competitiveness pact would put the European Union on a collision course with social Europe.
European leaders have made the wrong choice. Instead of following the example of the Marshall Plan – a genuine European Recovery Plan – which stimulated the continent’s rise from the ashes and wreckage of the Second World War, they are following the mean spirited example of the Treaty of Versailles 1919. That Treaty was about punishment of the defeated, about painful austerity, and about national humiliation.
The result of Versailles was disastrous. Germany could not meet its reparation payments and out of its consequential hyper inflation and default came the Nazis and war.
This time, the war outcome is only a remote possibility thanks to the EU and its ability to pull the nation states of Europe into some kind of common endeavour. But the EU needs policies of hope as well as discipline. Most of all it needs policies to spur economic and employment growth and new economic governance rules that assist those processes.
So the scope of EU issuing its own bonds should be on the tables in Brussels. So should plans for a Financial Transaction Tax (at European level- if the rest of the world won’t follow our lead). So should a European New Deal encouraging investment in young people (especially hard hit by the crisis) in a more sustainable economy and environment and on the new jobs of the future.
It took the threat of the Red Army in central and eastern Europe and the menace of powerful Communist movements in France and Italy to secure the Marshall Plan. What will it take today for a similar act of generosity? Or will our guide to the future be Georges Clemenceau, the President of France in 1919, and his disastrous reliance on reparations? Europe’s leaders have a heavy responsibility to make the right choice.