Eurozone: And now Spain…
by John Humphrys in Commentary and Editor's picks
Wed June 6, 3:28 p.m. BST
Is the Eurozone crisis too big for national politicians to solve? And if so, asks John Humphrys, what on earth can we do about it?
While Britain has been enjoying a long Jubilee weekend of joyful (if wet) celebrations, the rest of the world has been carrying on as usual.
That’s to say, sinking into ever-deeper crisis. In Europe, the Spanish government has all but admitted defeat in its attempts to solve the country’s financial crisis on its own. But a Europe-wide rescue seems no easier to bring about. The euro itself looks shakier than ever. So are we now facing problems that are beyond the power of politicians to solve?
Up to now the crisis in the Eurozone has been all about smaller countries, like Ireland and Greece. But the risk that bigger countries could get into difficulties beyond their own capacity to sort out was always there. Now the moment has come. On Tuesday, the Spanish Prime Minister, Mariano Rajoy, admitted his country was in a situation of 'extreme difficulty'.
The problem is easy enough to explain.
Spanish banks got themselves into severe difficulties during the boom years by making excessive loans to finance a building and property bubble that burst when the global financial crisis erupted four years ago.
Their assets went up in smoke, leaving them with insupportable liabilities. The Spanish government has already had to bail out the second biggest bank but others desperately need help too. The trouble is that the Spanish government itself needs to borrow the money to finance any bailout and its own existing indebtedness means that potential lenders in the financial markets are demanding prohibitively high interest rates to come up with the money. In effect, the government can no longer borrow from the market, or, as the budget minister put it, Madrid 'does not have the door to the markets open'.
The obvious solution is for the Spanish government to go to its partners within the Eurozone and ask for a bailout, just as Ireland, Greece and Portugal have already done.
But the government is reluctant to do this because it knows that the price would be the sort of severe austerity package that has already been imposed in those other countries and which, in the case of Greece, has roused huge public opposition and which could well be rejected entirely after the Greek election in a couple of weeks time. Spain is already suffering from unemployment of over 20%, with youth unemployment at over 50%.
Nor is it just the Spanish who quake at the prospect of a Eurozone bailout of the country. Spain’s economy is bigger than all the other bailed-out economies put together and the money needed to support it would use up the bulk of the money that Eurozone countries have put aside for such assistance. Spain, however, might well not be the last applicant. Italy, an even larger economy, could well find itself in a similarly precarious position before too long. Would there then be any money left?
All this is leading some outside observers to conclude that the crisis in the Eurozone may well be beyond the capacity of Europe’s politicians to solve.
Certainly, governments elsewhere in the world look on in alarm at the way the crisis is deepening, aware of how important the European market is to their own prosperity, and expressing frustration at how an endless series of summit meetings called in order to solve the problem seems to lead nowhere.
The Canadian prime minister, Stephen Harper, said this week: “We’re four years into the crisis and we’re still trying to get a sense of what the game plan is. We need measures that are going to be decisive.”
It is not that there is a shortage of ideas about what to do. The latest crisis in Spain, for example, has seen the proposal floated for a European banking union. In simple terms, this would mean there would no longer be Spanish banks, French banks, Italian banks and the like, but just European banks, with European-wide regulatory systems and European-wide deposit insurance schemes. The appeal of this is obvious (at least to the Spanish): it would mean the problem of potentially insolvent Spanish banks would disappear overnight since they would now be protected by the strength of other solvent European banks (i.e. German ones).
The problem is that such Eurozone-wide solutions (and there are plenty of them) come against the obstacle of national politics – usually the understandable refusal of German voters to pick up the tab for what they regard as the folly and profligacy of some of their Eurozone partners.
European politicians, however much they may subscribe to the vision of European unity, have first to get any solutions to Europe’s problems past their national voters who are ultimately the ones with the power to decide who stays in office and who gets kicked out. The result is inevitably the policy-making paralysis which outsiders like the Canadian prime minister get so frustrated about.
What all this may suggest is that an increasing number of our political and economic problems are simply beyond the capacity of our elected politicians to solve.
That’s because the problems are bigger than the nation, but the nation is what constrains their room for action. In the case of the Eurozone, critics would say that that’s because Europe’s politicians tried to run before they could walk: they didn’t need to create a supranational entity like the euro, and now have only themselves to blame that they find it is beyond their national powers to control.
But others would say that there are plenty of other non-self-inflicted problems we face, equally beyond our control. Climate change and the population explosion are two that come to mind.
The question inevitably arises, therefore: have we reached the limit of what we can expect democratically elected politicians to achieve on our behalf and, if so, what should we do about it?
One answer is to try to bring everything we can back into the jurisdiction of national governments. In the case of Europe, that means accepting that the Eurozone was too ambitious a project and letting it break up.
We might decide that other issues (like climate change), are simply beyond us, leaving us to do what we can at a national level but without much hope that what is a global problem can ever adequately be solved.
The alternative is to make democracy take the strain.
It’s to say that the difficulties we face are so grave that we cannot afford any more to let electoral politics stand in the way of their solution. In Europe that means embracing Europe-wide answers, greater fiscal and political integration and telling voters it’s all for their own good and they must just lump it. A few democratic elections could be thrown in for good measure (to elect a Europe-wide president with sweeping powers, for example), but we’d have to abandon the idea that democratic politics should go on being conducted primarily at national level. But that’s a pretty radical solution and would require bold politicians to drive it through their national electorates.
Without either of these approaches, though, are we destined to continuing paralysis and a deepening crisis?
What’s your view?
- Now we’re back to the old post-Jubilee problems, how do you view the emerging crisis in Spain?
- Do you think a solution can be found within the existing bailout arrangements in the Eurozone or not?
- If not, do you favour a break-up of the Eurozone?
- On the broader issue, what do you make of the argument that we are increasingly encountering political paralysis because the problems we face are more and more beyond the capacity of nationally-elected politicians to solve?
- Do you think we need to try to bring powers back to the nation state, or be prepared to give supranational bodies, like the EU, greater powers even if they are less democratically accountable?
- And what do you think the outcome of the Eurozone crisis will be?