“The crisis in the Eurozone has convulsed the EU and shaken the confidence of Governments and citizens alike,” says ELDR Vice President Dick Roche. Addressing the “III International Liberal Conference” in Porec, Istria, Croatia, Roche stated that, “as the crisis grew the Union seemed incapable of coming up with solutions.”
"The panic that existed was palpable and destabilizing. All too often the Union seemed to be propelled by events. Overall the response to the crisis has been disturbingly inept.
After over a dozen meetings of the European Council, numerous meetings of EcoFin and a continuous conclave of the then French President and German Chancellor a fiscal compact has been drawn up that has convinced few that it contains all of the solutions that Europe so urgently needs.
That said, the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union, to give the agreement its full title, is worthy of support, it is a necessary step but it should be seen as a first and not a final step.
Eurozone crisis problems lie in the foundation of the Eurozone.
The architects of the Euro zone were hopelessly optimistic. They failed to anticipate:-
- The consequences of the huge expansion of credit into ‘peripheral economies’.
- The consequences of a banking system so interconnected that when things start to unravel nobody can call a halt.
- Anything like collapse of Lehman Bros.
- The possibility of governments behaving dishonestly & hiding debt
The Member States
- Created a European Central Bank that was only ‘half’ a central bank,
- Created a banking regulatory system that is not fit for purpose, and
- Failed to put a strong ‘fiscal oversight’ mechanism into the institutional structure and indeed abandoned the discipline required in Maastricht.
The Fiscal Compact addresses some of the problems. A permanent ‘golden rule’ limiting debt and enforcing budgetary discipline is a positive step.
Incorporated the new rules into Member State national law preferably at constitutional level, is another important step. However, many, and not just those on the extremes, argue that an over focus on austerity will make things worse, kill off domestic consumption, depress demand further and destroy any remaining confidence in the Euro zone.
While the plans for the Fiscal Treaty were being finalised one member of the European Commission “tweeted" as to his concerns that the proposals would involve the destruction of European social model.
Balancing budgets is a good thing but austerity alone will not solve Europe's problems. Other issues still require attention.
High on the list of issues should be the future role of the European Central Bank.
In its very short life the ECB has made a very significant contribution. It oversaw the launch of a major new currency and has dealt well with a series of crises. And it has done all of this with a very narrow range of powers.
The European Central Bank that was only ‘half’ a central bank. It lacks the range of powers normally associated with a central bank. It is over focused on inflation. It can be faulted as having tolerated a regulatory system that failed.
And, there is another issue- one that has not been widely discussed – the approach adopted in putting together the treaty!
The approach that has been adopted in this crisis was not only piecemeal and occasionally panic stricken but it was in many ways the very antithesis of the Community Method. The running was made by the then President of France and the German Chancellor.
The majority of member states were sidelined. The institutional structure, so carefully crafted in preparing the Lisbon Treaty, was largely ignored. The European Commission and the newly created president of European Council played little more then a bit part rules. The Community method was effectively abandoned: this is not as it should have been.
Time to Reflect.
The election of a new President of France and the ratification of the Stability Treaty gives the Union some – short - time for reflection.
Ten years ago when the European Council was considering how it would craft significant European treaty changes it established an inclusive open convention that involved member state governments, national parliaments, the European Parliament and the European institutions - the Convention on the Future of Europe.
The Convention system was short of perfection but it was inclusive, open and democratic: the very opposite to the approach adopted in crafting the Stability Treaty.
Given the enormity of the challenges Europe faces the time is ripe to convene a short sharp Convention on the Future of the Euro.
High on such a Convention agenda could be the creation of a new fully comprehensive Charter for the ECB – giving it a full Central Bank powers – controlling money supply, ‘federal’ powers to regulate banks, power to operate as lender of last resort, a central role working in tandem with the fiscal authorities in the member states and the resources it needs to get the Eurozone and ultimately the Union itself through the crisis in one piece.
The issue of Euro bonds for development programmes could be on the agenda, as could the question of federalising the debts that have arisen from a banking mess that transcends national borders.
Another thorny issue could be the role of the private sector, the thorny question of ‘burden sharing’ and the matter of "moral hazard". Citizens being asked to bear the impositions of austerity rightly question a system that allows vulture capitalists to ‘take a punt' knowing that their 'bets' will be covered by the Community’s taxpayers.
People can only take so much austerity. They will accept hardship if they believe things will get better: they have little reason to believe that better times are coming. A Convention could help to rekindle hope.
Of course the idea of a Convention will be opposed because the matters that need examining re too sensitive or too complex, because the time is ‘not right’ or because a Convention would take too long.
It is perhaps worth recalling that the Marshal Plan was drawn up in just 100 days: the Convention’s duration could be set at 100 days.
There is no reason why a Convention should take any longer. The political leaders in Europe should now call an all-inclusive Convention on the Future of the Euro."
© Dick Roche 2012
Based on a paper delivered to the III. International Liberal Conference, Poreč, Istria, Croatia. 18th May, 2012