Bat­tle con­tin­ues be­tween EU, Greece

The China Post - - COMMENTARY - ARTHUR I. CYR

The in­tense con­flict be­tween the Euro­pean Union (EU) and heav­ily in­debted Greece con­tin­ues. On June 22, Greek Prime Min­is­ter Alexis Tsipras pro­posed con­ces­sions in­volv­ing more taxes. On June 25, Greece’s gov­ern­ment re­jected coun­ter­de­mands, risk­ing de­fault on an im­pend­ing pay­ment to the In­ter­na­tional Mon­e­tary Fund (IMF)

Ger­many is firmly es­tab­lished as the dom­i­nant EU econ­omy. That na­tion’s Chan­cel­lor An­gela Merkel has in­sisted that the Athens gov­ern­ment press aus­ter­ity in re­turn for more fi­nan­cial aid.

In re­ac­tion, Greek vot­ers in Jan­uary re­belled and voted for the rad­i­cal left anti-aus­ter­ity Syriza. The party surged to vic­tory with the largest share of the vote, but fell just short of a par­lia­men­tary ma­jor­ity. A coali­tion gov­ern­ment was formed with the right-wing Anel (In­de­pen­dent Greeks). This po­lit­i­cal odd cou­ple is united by strong op­po­si­tion to EU aus­ter­ity.

A pay­ment by Greece of 1.6 bil­lion eu­ros — the com­mon cur- rency of the EU — to the IMF is due at the end of June. To meet this, EU aid is es­sen­tial. Athens’ con­ces­sions in­clude in­creas­ing some taxes. EU and IMF of­fi­cials re­port­edly de­mand pen­sion cuts and even higher taxes.

Debt de­fault could un­ravel Europe’s con­fed­er­a­tion. If Greece should leave the euro, that might spark cur­rency col­lapse. Fail­ure of Europe and the IMF to sup­port Greece fi­nan­cially could lead to a re­ces­sion.

In these broad terms, events in Europe to some ex­tent echo those in the United States of ap­prox­i­mately eight years ago. Then, the hous­ing and sub­prime mort­gage mar­ket col­lapse sparked a ma­jor fi­nan­cial cri­sis, then in­ter­na­tional re­ces­sion.

How­ever, such a chain of events now in Europe re­mains un­likely. First, only 19 of the 28 EU mem­bers use the com­mon cur­rency. Sec­ond, the Greek econ­omy is rel­a­tively small, with a gross do­mes­tic prod­uct less than the mar­ket val­ues of Ap­ple, ExxonMo­bil and sev­eral sov­er­eign wealth funds. Com­mer­cial ac­tiv­ity is heav­ily con­cen­trated in tourism and other con­sumer sec- tors, not pri­mary in­dus­tries.

Third, grumpy Greek pop­ulism is a use­ful wakeup call to Euroeli­tists far re­moved from the public at large, mean­ing vot­ers. The fi­asco in 2005 over the pro­posed Euro­pean con­sti­tu­tion demon­strated the dan­ger of Euro­pean in­te­gra­tionists be­com­ing steadily more utopian in per­spec­tive, and seg­re­gated from the cit­i­zenry. Ref­er­enda in France and the Nether­lands clearly re­jected the con­sti­tu­tional ini­tia­tive.

Equa­tion is Un­pre­dictable

Democ­racy

The long-term suc­cess in Europe’s eco­nomic in­te­gra­tion, plus an ex­pand­ing in­flu­en­tial body of Euro­pean law, en­cour­ages bu­reau­cratic belief that eco­nomic mar­ket co­or­di­na­tion is the same as po­lit­i­cal uni­fi­ca­tion, a se­ri­ous mis­cal­cu­la­tion. Left out of that equa­tion is un­pre­dictable democ­racy, ex­ces­sive na­tional debt, and emo­tional pop­ulism rep­re­sented in Greece.

Civil ser­vants are rel­a­tively re­moved from both busi­ness and public opin­ion. The harsh re­al­i­ties of eco­nomic com­plex­ity and public sus­pi­cion tend to rein in im­prac­ti­cal plans of Euro­crats. In­di­rectly, the Greece chal­lenge is pro­vid­ing use­ful lessons for Europe as a whole.

Fourth, ef­fec­tive gov­ern­ment reg­u­la­tion, es­tab­lished in the U.S. dur­ing the New Deal, is es­sen­tial. Fi­nan­cial ir­re­spon­si­bil­ity which led to the last re­ces­sion was fa­cil­i­tated in im­por­tant ways by abo­li­tion in the late 1990s of the U.S. Glass-Stea­gall Act. That law from the Great De­pres­sion era strictly seg­re­gated com­mer­cial from spec­u­la­tive in­vest­ment bank­ing.

Bail­ing out failed fi­nan­cial in­sti­tu­tions, and na­tions, is not enough. Roots of ex­ces­sive spec­u­la­tive risk must be ad­dressed ef­fec­tively. Europe led by Ger­many is friend­lier to such reg­u­la­tion than is the U.S.

Over time, Chan­cel­lor Merkel has skill­fully jug­gled com­plex, var­ied in­ter­ests to main­tain na­tional and EU co­he­sion. We all ben­e­fit, greatly. Arthur I. Cyr is Clausen Distin­guished Pro­fes­sor at Carthage Col­lege in Wis­con­sin and au­thor of “Af­ter the Cold War” (NYU Press and Pal­grave/ Macmil­lan). He can be reached at acyr@carthage.edu

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