At last the sun is shining, after months of rain. London gears up for the Olympics and is thronged with visitors. Brussels is quiet, Paris is empty. The roads to the south are crowded. The mountains and the beaches beckon. It must be the summer holidays. But not for those politicians and officials across Europe struggling with the latest phase of the eurozone crisis, nor for all those individuals whose lives have been turned upside down by the economic downturn and cuts in public spending.
Back in autumn 2007, when I posted the first of this regular series of blogs on European affairs, nobody could have anticipated the scale of the economic crisis which was to hit Europe, nor conceive of the threat which this would pose for the future of the monetary union and indeed for the European Union as a whole. These have been transformative years.
Five years ago the main preoccupation for the EU was approval of the Lisbon Treaty, still to be ratified by several countries and then blocked by the “no” vote in Ireland in 2008. The euro was riding high on world markets and the level of indebtedness of governments, banks and individuals was ignored. Then in the autumn of 2008 came the credit crunch. Most people were unaware how close the world came to a global banking collapse. It was only drastic action by central banks and governments which stabilised the situation.
There have been many victims since then. Almost every country has changed government and changed leader (Germany’s Merkel a notable exception). Coalitions have taken over from single party administrations. Politicians have been forced to take tough decisions, promising little other than hard times ahead, and although they have been punished at the ballot box their successors have been obliged to sustain a policy of austerity.
Ordinary individuals and families have been taking the biggest hit, whether through unemployment or cutbacks in social benefits and other government spending.
The “European social model” will never be the same again. The crisis showed that it depended upon state borrowing and the loading of debt on future generations to fund current spending. Indeed, it’s worth remembering that the Commission took the Council of Ministers to the European Court in 2004 because of the refusal of France and Germany to respect the limits on debt and spending in the Stability and Growth Pact – limits which had originally been put in place on German insistence because of fear that Italy would spend beyond its means!
Of course the emphasis now is on economic growth, but the challenge is to stimulate research and innovation, to encourage training and apprenticeship – all measures which call for public expenditure – and it is the weaker economies such as Spain where the need for such measures is most compelling, to build a dynamic economy for the future.
It’s said that European integration surges ahead in response to crises. The eurozone will only survive if it has all the attributes of a monetary union, including economic and fiscal policy-making at an EU level and the means to ensure that the rules are respected. For those countries outside the euro, and especially the UK, this development will pose a major problem – how to influence policy developments while keeping a distance from the institutional process.
As my series of blogs comes to an end I see that US Republican candidate Mitt Romney, who is attending the opening ceremony of the Olympics, has rather a sour view of alternative ways ahead, of which “one leads to Europe. The other leads to the kind of dynamism and prosperity which has always characterised America.” It would be interesting to see Romney’s remedy for the US budget deficit. In any event the crisis is forcing Europe to put its economy on a sound footing and rebuild its dynamism and prosperity. The process may well take another five years – or perhaps more.
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February 8, 2024
November 27, 2023