When the International Monetary Fund (IMF) criticises the European Union’s policies toward Greece as too harsh and threatens not to co-operate, we should pay attention. The IMF, after all, has developed a richly deserved reputation for forcing countries to take unpleasant economic medicine – even when it has done more harm than good. Many people in East Asia still remember its ham-fisted role in addressing the Asian crisis in the late 1990s.
Does this mean that even the most doctrinaire and ideologically rigid of organisations is actually capable of learning from, possibly even admitting, its mistakes? Perhaps. Although it’s sadly a measure of how dire Greece’s situation has become that even the IMF feels compelled to break ranks and call a halt to the proposed austerity policies few believe will be effective. When its economy is already dramatically contracting, further cuts mean Greece cannot even start the recovery process, much less begin to pay back its monstrous debts.
Perhaps the Greeks only have themselves to blame as so many northern Europeans believe. No-one forced them to borrow unsustainably – although the same argument could be applied to the lenders who were bailed-out by the EU last time round. The Greeks are collectively responsible for their ineffective political regimes and shonky economic practices, though.
And yet economic governance, especially at the international level, is not a morality play. Nor should it be driven primarily be political objectives, no matter how desirable they may be.
Unfortunately for unreconstructed admirers of the European project, like me, the pursuit of political goals has been at the heart of the EU’s more grandiose – some would say foolhardy and delusional – ambitions. The common currency has proved to be the quintessential example of this possibility. It seemed like a good idea at the time, as they say.
The eurozone’s shortcomings have been amply dissected by now. However, it is important to remember that when the project began to be contemplated seriously in the early 1990s, it was part of a much larger project designed to integrate more deeply the European economies and – by extension – their political systems. Europe’s political elites were driven by the goal of ever-greater union, and the warnings of prominent economists from Germany in particular were blithely ignored.
There is no small irony in history to some extent repeating itself, albeit with important differences. Politics is once again dictating the future of the eurozone and perhaps the EU itself. There may be nothing remarkable about politicians making the decisions that determine economic outcomes. And yet, what is striking now is that the views of supposedly impartial technocrats and economists are being ignored once again.
While the economic goals this time around may seem as inappropriate as they did when the eurozone was established, their architects cannot even pretend to be motivated by noble, far-sighted political leadership. On the contrary, it is hard to escape the suspicion that the Greeks are being collectively punished for their fecklessness and inability to implement reform.
There is no doubt that the likes of Ireland and Portugal – countries that have put in place tough and painful reforms – might not be pleased if Greece’s bad behaviour is rewarded. It is equally clear that German voters have little sympathy for Greece’s plight and even less desire to bail them out yet again.
This highlights the importance of the shift in Europe’s internal balance of power in the period since the euro was first mooted. The then-president of the European Council, Jacques Delors, was one of the architects and drivers of ever-greater union. At that time German concerns about the feasibility of the euro project and the need for strict adherence to the so-called convergence criteria and fiscal discipline were brushed aside.
No-one fails to take German views on economic issues and much else very seriously now, though. Angela Merkel is clearly Europe’s most powerful politician and little of consequence can happen to resolve this crisis without her agreement. The good news is that the German experience demonstrates that a new type of non-military superpower is both possible and highly influential. The bad news is that Europe’s fate may be determined in part at least by the views of a handful of political elites whose history has made them cautious and conservative.
We ought to acknowledge that the economists were right at the start of the euro experiment and they – in the form of the IMF – may be right this time, too. It may be politically awkward to acknowledge that the undeserving Greeks need to be bailed out and let off the fiscal hook yet again.
The alternative may be both paradoxical and unpalatable, though: the creation of an economic basket case with the capacity to undermine the political principles and future of the wider European project.