European integration after the third Greek bailout

2015-08-06

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It is that time of the year when not much happens in the day-to-day affairs of the European Union. Things are quiet, sometimes deceptively so. This might just be one of those cases.

On the face of it, the July 12 Euro Summit on the Greek crisis, prevented the fragmentation of Europe’s Economic and Monetary Union (EMU). It preserved the integrity of the single currency, giving hope that prosperity is about to make its return. Though perhaps valid for certain parts of the euro area, that sentiment would be misplaced if applied to Greece’s medium-term outlook.

The Euro Summit did not deliver a definitive solution. Its response was anything but decisive and far-reaching. Rather, the meeting was but another instance of the inter-governmental politics of extending and pretending. European leaders clung on to their failing, albeit vaunted practices, while acting as if the material implications of their policies—the facts—do not discredit their case.

Yet in spite of its shortcomings, the July 12 Euro Summit may go down in future history books as a milestone. The events that took place there revealed to everyone what critics have been pointing out for a long time: the current decision-making framework of the EMU cannot deliver optimal results.

Change is in the air

No one is satisfied with things as they are, including those congregating as the European Council. Inter-governmental policy formation has time and again been proven susceptible to abuse by states that happen to enjoy a position of strength in situational power relations. This not just a matter of the agents’ aspirations. Rather, the very structures—the parameters informing the case—condition, foster and invigorate some profoundly antagonistic mentalities, of one side gaining at the expense of the other.

While this “zero sum game” framework was never lauded for its rational design, what actually pushed things past the mental threshold was the degree of abuse exercised during the last Euro Summit: the manner in which a desperate and bewildered Greek government was turned into a group of filling clerks tasked with little more than rubber stamping its creditors’ edicts.

Though the euro has remained in tact, bullying can be no firm foundation for a common future in a European Union that misses no opportunity to boast of its founding values and democratic tradition.

Many want change. Perhaps most powerful among them is French President François Hollande who, having acknowledged the apparent sub-optimality of the EMU’s policy-making set-up, has already claimed to be drafting plans for a euro-specific government, bolstered with a fiscal capacity and a parliament of its own.

The specifics of future proposals remain obscure, let alone that “the devil is in the details”. Still, it is safe to expect efforts towards a certain qualitative shift in the European integration process, at least as concerns the EMU. While hoping for the formation of a genuine European Democracy, my expectation is that there will be no substantial deviation from the triptych of inter-governmentalism, neoliberalism, and technocracy.

There is no sign for optimism, because: (1) the same kind of austerity will continue to be the norm, at least over the medium-term, and (2) whatever reforms to the EMU will still be predicated on inter-state Treaties, most likely preserving the inherent inter-governmentalism of the broader architecture.

Austerity reaffirmed

Though there is truth to the claim that Greece is not the most eager of parties in these reform programmes, the inherent antinomy of the kind of austerity implemented in the country is never questioned by official Europe.

Recessionary measures will be front-loaded once more in an economy that is already in recession. The debt to GDP ratio will increase due to the shrinkage of the latter, reinforcing the “need” for further cuts to meet fiscal targets (assuming no root and branch debt restructuring). More cuts entail less disposable income, hence lower aggregate demand that will reinforce the downward pressures. A vicious cycle. Add to that the severe limitations in the financial sector and you get the perfect cocktail for another lost decade.

To be a critic of such dubious economics does not amount to being an apologist of Greece’s long standing kleptocracy. Corruption was endemic. Clientelism was standard procedure, while partitocracy reigned supreme. Public spending was frivolous, crony capitalist to the core. In short: nothing a modern citizen wants or expects from their polity.

Nonetheless and whatever view each may have formed about Greece’s condition, all democrats qua democrats can agree on a few normative criteria:

• no shock treatment: as the wise saying goes, “Rome was not built in a day”, suggesting that the enactment of social-economic change requires a reasonable time horizon, especially when the original cause of the problems is traced back to historical-cultural path dependencies;
• popular will: the essence of democracy is that political initiative springs from the bottom and proceeds upwards, so that all policies, including the economic reforms, are owned and endorsed by the people, rather than being imposed ex cathedra by unaccountable technocrats;
• humanitarianism: punitive treatments that are intended to make an example of a people end up violating the very principle of human dignity, not least in the very material sense of the immiseration and resulting powerlessness particularly of those on the lower parts of the income distribution;
• no racism: not “all Greeks” are responsible for the disgrace that was/is their state, just as not “all Americans” are to bear the brunt of the blame for Wall Street’s egregious greed and emergent irrationality; a humane, open-minded, and eclectic approach is needed, one that appreciates the significance of structure in framing the behaviour of situational agents and patients.

The bailouts to Greece do not partake of those principles, nor are they underpinned by rigorous economic logic. They are products of power politics, embellished by moralistic palaver.

The third package is not finalised yet. Technicalities are still being negotiated; and negotiated they shall. Whatever the case and just like the July 12 Euro Summit, the deal will be celebrated as a success, though “success” in the EU lingo of late tends to signify “least bad outcome”.

On the substance of the bailout, the Greek government does not just pick and choose at will what policies it finds compatible with its agenda. Its “agenda” has already been rendered void. Instead, Prime Minister Tsipras’ cabinet has to proceed with a coherent, exogenously-determined plan that can only withstand marginal deviations on secondary issues.

While a number of measures may be sensible, indeed desirable, their impact must be appreciated in context. It is false to treat them in isolation, for the programme is a whole, a sum of numerous parts operating in concert to deliver results that may not be fathomable from the micro-perspective of each one item. In short, the combined effect of these reforms, introduced in their given time-frame, will most likely worsen Greece’s economic woes.

If Greece’s treatment is any indication, if the EMU is to be consistent with its own policies over the medium-term, if the governments who forced this agreement do not contradict themselves, then the euro’s underlying mindset will most likely not be brought into question, French President Hollande’s possible aspirations or pronouncements to the contrary notwithstanding.

Economic governance

As I have discussed over a series of recent posts, such as the one on the inaccurate notion of “shared sovereignty”, the euro is a stateless currency. There is no euro-level republic underpinning the monetary union. All there is, is a club of states that have agreed to forgo their monetary sovereignty and be bound by a complex, interweaving web of laws and procedures that exemplify the EMU’s model of economic governance.

Governance is effectively exercised through the European Semester, a variant of the inherently inter-governmentalist Open Method of Coordination. While the European Commission, supposedly enjoying an enhanced democratic legitimacy courtesy of the spitzenkandidaten process, remains but a technocratic enforcer of the rules, while receiving whatever mandate from the European Council and/or the Eurogroup.

In that light and from a constitutional perspective, the EMU is best described as a league of states operating on the principle of common rules without common politics. (for more see In search of Europe’s common politics, and On the emergent contradiction of Europe’s inter-governmentalism)

In the EMU’s framework of economic governance, there is no state that governs just as there is no state representing the interests of the euro at-large. No federal government is in place to resolve whatever tensions may appear among the states. Similarly, no fiscal authority, a counter-party Treasury to the European Central Bank, exists. Such an entity ought to be already present, fully empowered to raise taxes, issue debt, and fund fiscal transfers with an aim to address area-wide cyclical asymmetries.

The July 12 Euro Summit has furnished, in the most concrete of fashions, proof of the EMU’s inability to deliver optimal results when placed under pressure. Coupled with its unique brand of quasi-confederal technocracy, this system deviates from the normative objectives of republicanism, though not in the “democratic deficit” sense, but in that it completely lacks the essentials of democracy.

President Hollande may defy his own track record of failing to deliver on his promises (such as when he campaigned against the fiscal compact…) and proceed with an ambitious strategy to overhaul the established order. Though that initiative may prove to be interesting and fecund, it is highly unlikely that the current course will be fully corrected, not least because any abolition of inter-governmentalism under the present circumstance is, paradoxically, contingent on that very method.

Furthermore, it is clear that certain Member States enjoy the benefits of inter-governmental bargaining. Either they are powerful enough to bend the rules to their favour, or when it comes to negotiations, they stand in a position of strength, and would be most unwilling to abandon it in favour of a common ideal that could, at least over the short term, increase the political cost on them.

The euro needs to change. What the history of European integration teaches us, is that in the context of inter-state politics, reforms to the supra-national level will be incremental, while never assailing the inter-governmentalist mindset.

As for the economics of it, that peculiar form of statist, scientistic, anti-democratic, and technocratic euro neoliberalism will continue to be the over-encompassing agenda. Greece is already in the process of negotiating its renewed commitment to it, while the full array of supra-national rules that underpin it, will not be reviewed any time soon, not by this constellation of forces, not when extensive Treaty changes are necessary.

Make or break

It is in times of duress when the resilience of a product of politics—the single currency—is put to the test. What the July 12 Euro Summit made readily apparent is that the spirit of consensus does not rest on solid ground. The conflict of several national interests—the absence of an overarching European interest—will not always engender the kind of “win-win situation” diplomats often allude to.

European integration is expected to deepen, at least in as much as the euro area is concerned. The EMU might become a top-down “political union” of sorts. Whether it will be any good is a separate discussion altogether. One can hope for the best, but wishful thinking—present author’s included—had better not obfuscate the fact that thoroughgoing reform is not characteristic of this Europe’s modus operandi.