Not unlike politicians elsewhere, what leaders of the European Union say is not always what they do. Back in the nineties, they agreed to something called the Stability and Growth Pact (SGP), originally proposed by the Germans to help keep a lid on inflation in the run up to implementing the euro, and to exert some fiscal discipline into an ever-widening Union. The goal was to establish debt and deficit parameters for everyone to maintain.

However, even with the best of intentions, it did not work very well. Apart from the fact that Germany, France, and many other countries repeatedly ignored the SGP almost immediately after it was signed – there was no way to enforce the rules – it represented shades of things to come a decade later with the euro’s congenital fiscal birth defects which plague things today.

The dilemma in Europe remains the same gap between intention and reality. As much as Chancellor Merkel calls for “more Europe,” that appeal runs smack into the political wall of national interests, or simply the unwillingness to move the bar beyond them.  It is not only the Greek example. The new president of France is continuing that old French tradition of wanting the cake while eating same. One might recall Marie Antoinette’s fate in connection with cake.

Chancellor Merkel made still another run at this challenge this week in her address to the Bundestag prior to both the Greek elections and the G20 summit coming up in Mexico. “All eyes are on Germany” she reminded the country. She is caught between the expectations of non-Germans aimed squarely at Germany’s fiscal capacity to put out the fire in Europe and the hesitations of her fellow Germans worried about their own fiscal future if they keep having to share the burdens of others. That is in addition to the question about the actual capacity of Germany’s fiscal fire engines.

Amid the complicated machinery operating in the European institutions dealing with this economic mess – most of which the average European neither understands nor can influence – there remains another kind of deficit. The gap between the decision-makers grappling with the complications of the euro and those citizens watching them is growing. The oil in the political gears of democracies is called trust and that is beginning to run low – and political leaders know it.  The default response is to pull the nationalist card as is now being illustrated in Greece. However, this is not isolated to Athens. Governments are facing headwinds all over Europe, where citizens are nervous and have melting faith in their leaders.

Merkel, a leader still enjoying popular support, has few good choices in the midst of what many are seeing as an increasingly contagious sense of panic in Europe. There are all too few voices that are maintaining a focus on the need to keep nationalist interests in sync with the interests of the future of the EU.

The Chancellor is not known for making panicky responses – perhaps with the exception of her quick exit from nuclear power following the Fukushima event. On average she is prone to moving cautiously, a trait that has reaped her both respect as well as repudiation. Many Germans see all too much of the latter coming out of Washington these days, along with other European capitals and media outlets. Yet Merkel is not responsible for the platforms of her political counterparts in Europe or in the U.S., or for their campaign promises. She is, of course, facing re-election next year. But for right now she is focused on maintaining a viable equation between the stability of a trustworthy currency and a credible path toward shared growth on the European continent. She knows she has the leverage and she also knows that she needs to use it judiciously. She is being challenged both at home and within the EU, as well as in Washington, in an effort to change her course and policies, but it is being carried out by others who in some cases have not done their own fiscal homework. Merkel will meet several of them next week at the G20 in Mexico.

The lessons Germany has recorded for itself out of not only the last three crisis years, but going back two decades, are understood to offer clear signals about what it takes to put an economy on firm footing. Those lessons were not without serious adjustments and some pain as well. That includes the long and still uneven process of German unification for which Germans, east and west, have paid dearly. It is understandable to then see Germans bristle at criticism from those who avoided those steps or even lied about their policies.

What is at stake here for all Europeans is the ability to agree not only on a way out of the present crisis, but also on what amounts to a refreshed narrative about the purpose of the European movement. It cannot be justified primarily about overcoming the past scars of war or the accomplishments to date, impressive as they are. Nor can it be based solely on the creation of new institutional arrangements as important as they are. The equation between stability and growth has to be better connected to the lives of those Europeans who are affected by it. When there are huge swaths of people, old and young, facing uncertain futures, the response is anger and fear, and that is fertile ground for extremes. In fact, people want both stability and growth, but there should not be a situation in which they begin to see the two as mutually incompatible or, worse, where there are some who have both and others who have neither.

Who can and should voice that narrative? It will certainly fall to the national leaders given the fact that many who represent the European institutions remain intangible, indeed invisible, to most citizens. Yet they should be able to reinforce each other. That was more the case when Europe was expanding in an economic climate different from now. In tougher climates, the case will be harder to make but no less important. One should recall that there are still many countries that wish to become part of the European Union beyond Croatia, which joins next year. That is testimony to the possibilities of Europe. However, there remains a need to remind both current and future members about both privileges and responsibilities of achieving stability and growth.

At the moment, Chancellor Merkel is still arguing for more Europe in terms of more pooled oversight, coordination, and indeed a stronger political union. She has proposed more pooling of sovereignty in the European Union.  “ Germany is strong…and the anchor of stability in Europe. It is putting its strength and its power to use for the well being of people, not just in Germany, but also to help European unity…” Here the emphasis on stability reflects a focus on strengthening the rules of the Union – monetary, fiscal, and political.  Such steps could lay the basis for more stability amid the current fiscal storms and those sure to follow in the future.  Yet the challenge is to persuade Germans and all Europeans that the effort, with both gain and pain, is worthwhile for growth in economic and political terms. That narrative needs a renewal now to enhance more Europe and more Europeans.

  • Chris T.

    The concluding sentence describes the author’s presuppostions and biases.
    Who is to say that MORE “Europe” is desirable, or a good thing?

    Ultimately, what that has meant, and wil mean even more in the future, is an even more centralized state, with more power to government / the state.
    While it is a hard notion to accept for the elites in all countries, it is government that is the problem, so more of that will not make things better, quite the opposite.

    The United States is in substantially the same mess as most European countries, in most ways perhaps even worse off than many countries within the EU. The only inuslation is the still reserve status of the dollar.
    This shows that a lack of a central political structure, the USA now vs. the putative USE in future, is NOT the thing that can or will prevent this.
    If it could or would, then the US would be in much much better shape than the EU, and we are not, and neither will the EU be.

    Further you write:

    “Not unlike politicians elsewhere, what leaders of the European Union say is not always what they do”
    That is a nice way of saying that politicians lie!

    “…, they agreed to something called the Stability and Growth Pact (SGP), originally proposed by the Germans to help keep a lid on inflation in the run up to implementing the euro….”

    That statement adopts the official version as per Theo Waigel and Helmut Kohl, but it does not make it correct.
    The SGP was a cynical attempt by these two and the German government, to counter the extreme headwind within Germany against the Maastricht treaty and its proposed currency union, and the abolition of the DM.
    A slick sales job that had the desired effect. How they really operated can be seen in the development with Denmark’s rejection of the treaty. These leaders never accept a no, and keep trying.
    Same m.o. was seen after the Irish rejection much much later.

    “However, even with the best of intentions…”
    See above, best intentions can hardly be justified.

    Finally, the fatal congenital flaw mentioned by the author is not the lack of a singly state behind the currency, but rather the creation of just another fiat currency, unchecked by any tether.
    The failure of even the slightest attempt at human self control, as seen by the hapless SGP, proves this.

    Even the DM itself, looking at its devaluation from inception to its demise, the roughly 50 years, was not free of this problem, only less so than elsewhere due to the ingrained-from-birth experiences with money devaluation in 20’s hyperinflation, and again of the Reichsmark post 5/8/1945.

    What happened to the Euro, and the crisis that that system is in now, was not only predictable, but in fact PREDICTED by those who follow a valid economic theory, as set out by Menger, von Mises, Boehm Bawerk, Hayek and Rothbard. (unlike the modern day followers of Keynes AND Friedman, who alas happen to all sit in the places where decisions are made).

    Also predicted, and NOW HAPPENING, is that the coming Euro crisis will be used to justify a further increase in the competence of the supra-national state AGAINST the wishes of the very large majority of Europe’s people, not to go there.
    This has always been a project that needed to be forced down peoples’ throats by a small group of the elite.
    So much for government of the people and by the people.

    War as an excuse for this?
    No war in Europe, whether Hitler’s or the Jacobins or Napoleons, was started by the people, but by the elite that ruled.
    (where it may appear that people were behind this, it was only after the long-term propagande by the elite).

    Finally a comment about the majority not understanding:
    That may be true for some, but back during the Maastricht days, any objection to the treaty and its intent was always met with:
    ‘we must do better to inform you, because if we did, you could not possibly be against this”
    In other words, it is only due to ignorance that anyone could be opposed.
    What arrogance that was and still is, and it well illustrates how this experiment has been run ever since the steel and atomic union days!

    • Chris T.

      my apologies, the following:
      “This shows that a lack of a central political structure, the USA now vs. the putative USE in future, is NOT the thing that can or will prevent this.”
      should have said:

      “This shows that a central political structure (as in the USA for many many decades and supposedly lacking in the EU) is NOT the thing that can or will prevent this.

  • K Bledowski

    Europe’s dilemma is best summed up by Jack, when he points to the feeble “ability [of Europeans] to agree not only on a way out of the present crisis, but also on what amounts to a refreshed narrative about the purpose of the European movement.”

    The political paralysis we see now directly stems from this dilemma. The Europeans want both ‘growth and stability’ – they want a bigger cake that is equitably distributed. But when the cake gets smaller down the road, the European narrative takes the beating. In fact, the ‘European Project’ gets blamed for falling living standards, open borders get the blame for unemployment, and ‘more Europe’ is the flip side to national politicians’ inability to put chicken in every pot. Little wonder that we see no euro-politicians step up to the plate to propose the ‘great bargain’ for a new federal structure.

    There is some parallel to the U.S. in this. The Tea Party’s ascendancy coincides with falling living standards amid quests for quick fixes. The ‘old time’ GOP establishment feels uneasy precisely because the Tea Party solution of minimum government at all cost flies in the face of reality. We’ve seen just recently how instrumental a government can be, as when it alone stemmed the financial hemorrhage.

    I’m afraid Europe won’t be able to advance the ‘big bang’ idea of federalism any time soon. Political voluntarism has its limits. As Jack says, claiming over and over that ‘we are committed to Europe’ won’t deliver a bigger cake or better governance or restore citizens’ trust or make Greek debt disappear. But Merkel is right to insist that the Germans should be open to closer Europe if it means greater stability in the future. Unfortunately, I don’t see what ‘baby steps’ toward ‘a closer union’ would be sufficient to deliver at this stage. Perhaps it is time to take a breather to the big ideas and admit that many of the Euro-Institutions that don’t work (parliament, executive presidency, etc.) should be either scrapped or scaled back. When the First or even the Second Bank of the United States didn’t pan out, the U.S. lived without a central bank for well over a century. The notion that ‘Europe’ can only advance in order to survive is obviously wrong and should be debunked. Perhaps this is the first step to regain trust of the citizenry.

    • Chris T.

      The previous poster writes:
      “We’ve seen just recently how instrumental a government can be, as when it alone stemmed the financial hemorrhage.”

      Sorry to say that this shows such little understanding of the CAUSES of the hemorrhage.
      At root is the “government” you praise for being the cure.
      Some cure!

      By government is not meant some sort of bogey-man, but real, deep and long-term misguided policies, that lead to these outcomes.
      Reread my post above about the predictability of this.

      There is an incredible level of positive correlation between the ever encroaching arm of regulation/government/the state, and the growth of the scope of these crises.
      When does that become so obvious as to no ;longer be deniable?

      Certainly not for Paul Krugman, who is always of the mindset:
      we didn’t do it boldy enough, it was too little, and so .

      If you wish to see a different perspective, one whose correct identification of the principles involved is shown by the accuracy of their predictions, look into the work of the economists mentioned above.
      Hopefully that can disabuse you of the notion I quote at the beginning.