At this point Europe is not even halfway its 100-day political
“honeymoon” since the Treaty of Lisbon, which transformed the EU into a state
in its own right, came into force. So far the honeymoon has been a nightmare.
Since the beginning of the year, the EU’s currency, the euro, is on the brink
of collapse; Greece has been placed under EU financial supervision to prevent
it from going bankrupt. Now U.S. President Barack Obama has announced that he
will not attend next May’s EU summit in Madrid. It was to have been Obama’s
first visit to post-Lisbon Europe – the consecration of the new political
Washington informed Brussels last week that Obama is not coming because
it is not clear who is his European counterpart. Since the Lisbon Treaty came
into force on January 1st, Europe has its own President, Herman Van
Rompuy. This former Belgian politician chairs the European Council, the assembly
of the heads of government of the 27 EU member states. However, there is also
José Manuel Barroso, a former Portuguese politician, who is the president of
the European Commission, which is the EU’s executive body. And there is José
Luis Rodriguez Zapatero, the Spanish Prime Minister, who is hosting the Madrid
meeting and as such co-chairs the summit meeting of the EU heads of government
with Mr. Van Rompuy.
Messrs. Van Rompuy, Barroso and Zapatero all want to be the first to
shake Mr. Obama’s hand and receive the deep bow which the American President is
in the habit of making to foreign leaders. Because of the embarrassing
intra-European squabble about who should have the honor, Obama has declined the
invitation until the Europeans have figured out which of them is the most
Obama’s decision has come as an unexpected blow to the European
leadership. It has upset them so much that they are considering postponing the summit
to the autumn. Meanwhile, they have begun quarreling about who is to blame for
the present debacle. The Europeans generally agree that the vainglorious
Zapatero is mostly to blame, but others are damaged more. “The Spanish have
made a mess of the summit but Van Rompuy and the post-Lisbon EU institutions
will carry the can in the long term. The squabbling has damaged the EU in the
eyes of the most powerful nation in the world,” a senior EU official said.
Although Obama’s snub hurts Europe’s pride, the euro’s monetary problems
are far more serious. They not only affect Europe’s finances and economy, but
may also tear down the political EU framework. When the European Commission
placed Athens under EU supervision last week, Greece was almost bankrupt.
Brussels has forced the Greek government to present a plan to drastically reduce
its budget deficit from 13% to 3% by the end of 2012. The plan will cost the
Greeks blood, sweat and tears. It includes a freeze on civil service wages and
the postponement of the retirement age. Brussels has invoked new EU powers under
Article 121 of the Lisbon Treaty, which allow it to reshape the structure of
Greece’s pensions, healthcare, labor market and private commerce.
“The envisaged correction of the deficit is feasible but subject to
risks,” says EU Commission President Barroso – an understatement. The
Commission fears a backlash from the Greek unions, who might organize strikes
and bring down the Greek government. Trade unions in other countries are
nervous, too. They warn that it is unacceptable that the European Commission
intervenes in setting national wages.
The EU’s Monetary Affairs Commissioner Joaquin Almunia declared that the
Greek targets will be enforced strongly and that, if necessary, even more
draconian measures will be taken. “Every time we see or perceive slippages, we
will ask for additional measures to correct these slippages. Never before have
we established so detailed and tough a system of surveillance,” Almunia said.
Much is at stake. In the coming weeks, the strength of the euro will
depend on whether the markets believe that the government in Athens is strong
enough to implement the reforms or trust that the other eurozone countries will
bail out the Greeks. This year the eurozone governments have already borrowed a
record €110bn from the markets, thereby forcing up the cost of borrowing for
countries with the weakest public finances, such as Greece, Portugal, Spain,
Ireland and Italy.
Nobel Prize winner Joseph Stiglitz warns that the plan to slash Greece’s
budget deficit could end up stifling the country’s economic growth. He said
that the whole eurozone should share responsibility for the Greek situation.
For political reasons, too, a bailout would be counterproductive.
“German and French taxpayers cannot pay for Greece,” Rainer Brüderle, Germany’s
Economy Minister, said at the World Economic Forum in Davos.
Bailing out the Greeks will lead to a surge of anti-EU feelings in other
countries. The alternative is to allow Greece to default on its debts. This,
too, would have devastating consequences for the euro and affect all the
countries in the eurozone. Hence, there seems to be only one way out: Greece
must leave the eurozone. Legally, however, a country cannot be thrown out of
the eurozone. Nevertheless, the British economist John Kay wrote in the influential
German financial newspaper Handelsblatt that “if there is political will,
it [i.e. throwing the Greeks out] might happen. Bureaucrats, lawyers and
bankers would solve the technical difficulties. Central bankers cannot afford
not to have an emergency plan for that.”
Even if the situation in Greece can be stabilized, the EU’s nightmare is
far from over. The next eurozone dominos that might fall are Portugal and
Spain. Portugal’s deficit reached 9.3% of GDP last year, Spain’s 11.4%.
Greece and Portugal are small countries. No matter what happens, they
will not break the euro, writes Wolfgang
Münchau, the associate editor of the Financial Times. The Greek situation may even be considered as
something of a joke. “European farce descends into Greek tragedy” and “Spartan
solutions from Brussels will be fought by Athens” are two titles of recent
articles by Münchau.
His pessimism is shared by Professor Nouriel Roubini of the Stern School
of Business at New York University. He says that Spain poses a looming and
serious threat to the future of the eurozone. “If Greece goes under, that’s a
problem for the eurozone. If Spain goes under, it’s a disaster,” he told the
World Economic Forum’s annual meeting in Davos
If Brussels puts
Madrid under EU supervision or forces Spain out of the euro, the repercussions
for Zapatero will be worse than missing a photo-op with his political hero,
Barack Obama. However, in this matter, too, the man who is to blame most for
the debacle, is not the one who will suffer most harm from it. It is unlikely
that the euro can survive a Spanish catastrophe. It looks as if 2010, which
should have been the year of its triumph, is going to be an annus horribilis for the EU.