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As Angela Merkel comes under increasing pressure to soften Germany’s obsession with austerity in the eurozone, Ms Merkel stubbornly stands firm. The debate on austerity vs. growth seems far from over. Meanwhile Europe is on the brink of catastrophe.

More world and European leaders stress now that cutting public expenditure too fast and too far is strangling southern European countries’ economies, burying their chances of economic recovery and condemning them to years of economic recession. Spain is coming close to insolvency as interest rates in bond markets keep growing, hitting unsustainable levels. No doubt that if Spain were to fall, Italy would not be far behind. Perhaps they could even followed by France and Germany, in a disastrous domino effect. Alongside the British, American and other western economies outside the eurozone are being dragged down.

Yet a more subtle but potentially more threatening challenge to the future of the Euro is emerging in Europe. A fault line of mistrust and disaffection is increasingly dividing northern and southern eurozone countries. At the same time populism and euroscepticism is sharply on the rise through Europe

While northern eurozone countries consider southern countries as irresponsible spenders who have been enjoying a party whose bill the refuse to pay, in the south there is an increasing perception that Germany is taking advantage of the crisis, benefiting from their pain. For example, Germany can borrow at virtually zero cost while a remarkable part of southern countries’ cuts in their welfare systems goes to pay high interests in the bond markets.

That growing euroscepticism represents a challenge for the process of European integration is self-explanatory. Nevertheless, in a time when more integration is increasingly seen as the only way to overcome the Eurozone crisis, growing euroscepticism becomes a matter of life and death for the EU.

The Economic and Monetary Union’s (EMU) market design has received some criticism from analysts. They claim that having a stateless currency within a federal monetary union and an intergovernmental economic union is at the heart of the crisis. Two straightforward solutions emerge; either to dissolve the federal part of EMU, the monetary union, hence breaking up the Euro and returning to their original currencies or to federalise the economic union.

Since the breaking-up of the Euro, due to the devastating costs it would bring about, is not even considered, the latter option, federalising the EMU, seems to be gaining ground among eurozone leaders. Yet forming a truly economic union would represent a dramatic leap forward in the integrating process.

Transferring fiscal and other economic policy power to Brussels touches the very heart of state sovereignty. It also appears evident that if the monetary union is not viable without a real economic union, the economic union will not work without full political union. We may be witnessing the forming of a federal EU.

Taking such a historical step towards the creation of a sort of United States of Europe is certainly something that would require people’s consent. Otherwise it would not be sustainable in the long run. Here lies the significance of the challenge posed by the growing popular euroscepticism and the emerging disaffection and mistrust between eurozone countries.

It is somewhat paradoxical that while people’s euroscepticism and polarisation in Europe is largely a consequence of the EU inability to resolve the crisis, the same euroscepticism could act as the barrier stopping Europe from making the necessary institutional reforms aimed to address the crisis. The long term consequences of polarisation are yet to be seen.

The European project has always been about bargaining, compromise and solidarity. While Germany’s position is not unreasonable, for budget deficits must be under more strict control, Europe will not overcome the crisis with austerity measures. A milder and more flexible approach to austerity alongside policies aimed to boost economic growth and employment is overdue in Europe. Improving the economy seems a precondition to ease tensions within and between eurozone countries, hence facilitating the introduction of the necessary institutional reforms the EU so badly needs. To sum up, Europe should be more German and Germany a bit less.


Article published in The Groucho Tendency

Author :
EurActiv Network