Wednesday, June 08, 2005

Euro dreams, and the nightmare to come

Bemoaning the lack of political union in the EU, and the watering down of the Stability Pact, the Financial Times concludes in an editorial today that -

In short, the euro needs precisely the kind of neo-liberal reforms French voters rejected on May 29. Break-up is a nightmarish option: the exit costs for countries such as Italy would be huge. A soft euro would lack credibility in the market. Eurozone politicians should stop playing to the gallery and tell their people that flexible markets offer the only way to generate jobs and keep the euro dream alive.

Full text @ The euro needs actions not words
The reality is that what makes sense in theory doesn’t always work when implemented. The kind of reforms that are championed by the FT are going to be deeply unpopular, and politicians are nothing if not people who desperately want to be loved by their electorates. I think the writer of the above FT editorial will find this appeal falls on the ears of the severely deaf!

Of course it could be the case that such reforms are pushed through by the European Commission via the backdoor as another FT editorial notes –
State aid is often a substitute for structural reform at the national level, a lazy way for a government to help a company or sector instead of privatising or deregulating it. If, therefore, Brussels can use its powers to reduce state aid, it may be able indirectly to spur national economic reforms over which formally it has no direct influence. In other ways, with her parallel plans to launch investigations of the energy and financial services sectors, Ms Kroes also seems to realise that the commission can use its autonomous competition powers to achieve some of the liberalisation that member governments, after the referendum No votes, seem increasingly incapable of.

State stinginess plea
Devious indeed!

However I think the Commission does this at its peril. The recent rejections of the Constitution demonstrate a growing unease among EU citizens about the direction the EU is taking. Politicians in Germany, Italy and France are increasingly sensitive about “interference” in the way they manage they their economies, and therefore by default election manifestos. The recent wave of criticism of the €uro from Germany, and others, is tinged with fond memories of the way things were, but it also sends a very strong subliminal message that “we want our own money back” could all too easily become a popular mantra. Italy could yet prove the test case - Silvio Berlusconi’s government is looking increasingly as though it is going to ignore calls for it to address its budget deficit, and members of the coalition are set to try to prompt a referendum on the re-introduction of the lira.

Then there is the small matter of the EU member states attempting to agree on what to do about the Constitutional Treaty – States split over stance on EU Treaty approval

Let’s not forget too that the EU budget has also got to be agreed, and there seems to be more than a little disagreement on that issue between EU leaders.

Frankly the future is not looking bright for either the €uro, or the EU, at present – regardless of whether you are for or against economic liberalism it is clear that there is a nightmare looming on the horizon.