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After a Spanish exit from the euro, there would be nothing left to exit from. By Janet Danley Telegraph.co.uk
The man who delivered this apocalyptic judgment, former Spanish prime minister
Felipe González, being a socialist, might be expected to detest austerity
programmes that require cuts to government spending. But there seemed to be
few disinterested observers of Spain’s economy prepared to quibble with his
assessment.
Forget Grexit. Greece’s teeny, tiny economy is a footnote now. As is Ireland’s
decision – which seemed more like a sigh of resignation than a plebiscite –
to engage in however much self-flagellation the EU gods insist on, for
however long it takes. What might have seemed dramatic a week or so ago has
now shrivelled in importance by comparison to the realistic possibility of a
spectacular crash in the fourth largest economy in the EU. Spexit (and
Spanic) are lodged in the lexicon, and have become part of the psychological
reality that moves markets. The equivalent of more than £55 billion was
withdrawn and transported out of Spain last month – and that was before the
country’s largest bank was nationalised. No one seems to be kidding himself
that the collapse of the Spanish economy could be somehow weathered and
overcome, as the default of Greece might be.
There is no talk of firewalls, or of simply letting Spain go, or of the
European banking system being re-capitalised to compensate for the losses
that it would suffer. Nope. This is it. The cancer has now spread to the
vital organs of the EU. Spain is not a peripheral Mediterranean country. It
is not an insignificant player in the political project. It is not a
marginal going-along-for-the-ride-and-the-free-money passenger on the euro
train. Not only is its economy so large as to be indispensable, but its ties
with Italy mean that the Italian economy (which is the third largest in the
EU) would be fatally compromised by its fall. “Itexit” is almost
unpronounceable, so perhaps it’s fortunate that it will never be required:
after Spexit, there would be nothing left to exit from.
With Spain’s “total emergency”, the point at which denial and bluster become absurd has been well and truly reached, but this being the EU, the gamesmanship goes on. Still the pointless demands for “decisive action” continue, even though the only action that would possibly constitute a remedy is politically untenable if member states are to maintain any pretence of democratic accountability.
To repeat (sorry, but it does seem necessary) what I have said before on these
pages: however much she is beaten about the head by blowhards in Brussels,
Rome, London and Washington, Angela Merkel cannot let the ECB (in effect,
the Bundesbank) print money to soak up the debts of Spain, Greece or Italy.
To do that would not simply be to fly in the face of her own electorate’s
wishes. (What the hell, you might say – every European political leader is
doing that.) It would be to contravene the constitution which was enforced
upon Germany by the post-war settlement. In other words, it would be both
undemocratic and illegal within the terms of the German nation state which,
for all the hokum about European political union, still exists. And there it
is.
This is the heart of the irreconcilable contradiction on which the euro is being broken. As everyone has been saying, in order to be viable in the face of market pressures, a genuine currency (as opposed to a pretend one) must have a “lender of last resort” – a true central bank like the US Federal Reserve System. But this is impossible within the EU because the constitutions of member states are not compatible with each other or with the principle of underwriting debt across national boundaries (as the states of the US are under their genuinely federal system). So, either the existing democratic institutions and historical principles of all EU countries must be forcibly reconciled in a Year Zero political reconstruction, or there can never be a monetary union (let alone fiscal union) that will be sustainable. This is where we are.
What would such a reconstructed political entity look like (assuming that someone in the delusional European political class should think of trying it)? Presumably it would involve wealth redistribution on an epic scale – since the most urgent problem to be remedied is the disparity between the poor, indebted states and the rich, thrifty ones. Fiscal transfers (meaning Germany pays for everybody) would be an accepted, perhaps automatic, mechanism, thus creating more or less permanent dependency of the less productive on the more productive. We have grown accustomed in Britain to this form of cross-subsidy, in which wealth produced in the South East is channelled to the North. Even within one country with a shared identity and linguistic culture, it breeds some resentment and resistance.
Applied across the boundaries of nations whose peoples have profoundly different historical experiences and social attitudes – and whose democratic institutions have been shaped by their collective memories – it would be incendiary. And it is worth saying that there is nothing invidious in this. For Germans to refuse to bend in the face of shrill demands to (as they see it) debauch the currency is a sign of conscience: an unwillingness to forget the shame and criminality into which such a process led them in the last century. It is ironic that Germany itself was one of the great drivers of economic union, and specifically of the democratic socialist model in which “the rich nations help the poor ones” as José Manuel Barroso (who seems less and less capable of remaining in touch with reality) likes to put it.
Now the “socialist” and the “democratic” sides of this utopian vision are heading for a collision: the EU can embrace wealth-redistribution wholeheartedly – with the full works of a central bank, fiscal uniformity and no nonsense about the will of the people – or it can accept the separate, and morally defensible, differences between its member states which will mean thinking seriously about other options than browbeating Germany. Generally, when given a choice, Europe ditches the democracy and keeps the socialism – so I wouldn’t get your hopes up.
This is the heart of the irreconcilable contradiction on which the euro is being broken. As everyone has been saying, in order to be viable in the face of market pressures, a genuine currency (as opposed to a pretend one) must have a “lender of last resort” – a true central bank like the US Federal Reserve System. But this is impossible within the EU because the constitutions of member states are not compatible with each other or with the principle of underwriting debt across national boundaries (as the states of the US are under their genuinely federal system). So, either the existing democratic institutions and historical principles of all EU countries must be forcibly reconciled in a Year Zero political reconstruction, or there can never be a monetary union (let alone fiscal union) that will be sustainable. This is where we are.
What would such a reconstructed political entity look like (assuming that someone in the delusional European political class should think of trying it)? Presumably it would involve wealth redistribution on an epic scale – since the most urgent problem to be remedied is the disparity between the poor, indebted states and the rich, thrifty ones. Fiscal transfers (meaning Germany pays for everybody) would be an accepted, perhaps automatic, mechanism, thus creating more or less permanent dependency of the less productive on the more productive. We have grown accustomed in Britain to this form of cross-subsidy, in which wealth produced in the South East is channelled to the North. Even within one country with a shared identity and linguistic culture, it breeds some resentment and resistance.
Applied across the boundaries of nations whose peoples have profoundly different historical experiences and social attitudes – and whose democratic institutions have been shaped by their collective memories – it would be incendiary. And it is worth saying that there is nothing invidious in this. For Germans to refuse to bend in the face of shrill demands to (as they see it) debauch the currency is a sign of conscience: an unwillingness to forget the shame and criminality into which such a process led them in the last century. It is ironic that Germany itself was one of the great drivers of economic union, and specifically of the democratic socialist model in which “the rich nations help the poor ones” as José Manuel Barroso (who seems less and less capable of remaining in touch with reality) likes to put it.
Now the “socialist” and the “democratic” sides of this utopian vision are heading for a collision: the EU can embrace wealth-redistribution wholeheartedly – with the full works of a central bank, fiscal uniformity and no nonsense about the will of the people – or it can accept the separate, and morally defensible, differences between its member states which will mean thinking seriously about other options than browbeating Germany. Generally, when given a choice, Europe ditches the democracy and keeps the socialism – so I wouldn’t get your hopes up.
