Eurozone crisis: EU’s leaders roam uncharted waters
26 July 2012
European leaders have been have been accused of “improvising” their way through the debt crisis for the last two and a half years. But given the uniqueness of the event, are they completely to blame? wonders an NRC Handelsblad columnist.
There are many metaphors for the crisis. A car accident in slow motion: you can see it happening, but are powerless to stop it. A vortex, with financially strong countries being sucked down by the weaker countries. The crisis as a stereo player. How do you get a dodgy player to work? Pull the plug on it, fiddle about with the wires and give the amp a knock.
European leaders appear to have adopted a comparable approach to the crisis. Moody’s drew a similar conclusion on Monday. Policy is too reactive and cautious. Moody’s certainly has a point there.
Cost cutting, for example, served as the vehicle to get out of the crisis for two years. The mantra went as follows: only if the eurozone gets a grip on budgets and national debt, will confidence in these countries and in the bond market return.
Is anyone to blame?
But the euro leaders are reneging on this position. If Europe as a whole cuts back and taxes are raised, the economy won’t grow. This will fuel unemployment, the slump will worsen in the short term, and resistance against reform will grow. That’s why the catch phrase has become one of cutbacks coupled with growth.
A fixed rate approach is not being applied to Greece. Initially, the International Monetary Fund (IMF) would not be involved in any emergency loans to Greece.
Later, it appeared impossible without it. Initially, the remission of Greek debt was a taboo. This would set off a wave of panic across banks and investors; later, writing off the debt became the desired approach.
Initially, an emergency fund of 440 billion euro was thought to be sufficient in heading off the crisis. Then the figure jumped to 780 billion euro. And a further 500 billion euro had to be added to the structural support fund. And the IMF had to add just shy of 500 billion euro as well. Even now, experts believe the war chest contains insufficient reserves.
And so the list of uncertainties goes on. Finland is now demanding collateral for loans to Greece. Or the matter of whether the emergency loan to Spanish banks should count as national debt. As a consequence, one constant has emerged: the crisis will not pass.
Is anyone to blame for roaming around? Analysts, professors and stockbrokers are quick to blame. Political gumption and decisiveness are required, they say. If only it were that simple.
Investors like pension funds, insurers and hedge funds are calling for radical intervention to invest their money in the eurozone with confidence: more control, more supervision of banks, less leeway to make the same mistakes.
Europe bumbles on
But intervention means more Europe and many European leaders are aware that their electorates are hardly keen on that. That restricts their room for manoeuvre. Gradually feeling out the boundaries and redefining them seems to be their preference over radical intervention, however necessary this may be.
It’s equally important to realise that the euro crisis is basically uncharted territory. For everyone. For politicians and the civil servant and economists who support them, but also for the financial markets and the sciences.
Debt crises are as old as the hills. But solving a debt crisis in an ailing monetary union, with precious little growth? Now that’s unique. There are no standard recipes. Greece, Spain, Portugal and Italy cannot devalue to swiftly make their economies competitive.
Precisely because there are no easy solutions, politicians and bankers are harnessing all sorts of complicated structures, the consequences of which can hardly be foreseen. And why, for each detail, is it necessary to obtain political consensus? And so Europe bumbles on. Until they discover in Brussels that it’s simply a question of replacing the remote’s batteries or until they blow the speakers.
Translated from the Dutch by Kelly Boom