The Two Great Euro Gambles That Failed: Wall Street Journal


Via the National Platform for EU Research & Information Centre, Mats Persson writes @ The Wall Street JournalThe Price of the Euro in Finland; The single currency is exacting ever-higher political and economic costs:

When European Union leaders forged their monetary union without a full political and economic merger, they gambled on two vital factors: That economic forces could be kept in check, and that national democracies could be managed.

Over the past 16 months, we have been reminded time and again exactly how big and how irresponsible those gambles were. Sunday’s was arguably the strongest reminder yet, courtesy of the anti-euro True Finns party that may hold the balance of power in the next Finnish government. Paris, Berlin and Brussels seem not to have factored Nordic populism into their grand plans for the euro. But ultimately the euro zone is about politics, and politics remain as local as they ever were.

In the run-up to Sunday’s polls, the True Finns strongly opposed a bailout for Portugal. Their promise to block any future transfers of Finnish money to rescue profligate European governments helped them win a spectacular 19% of the vote, compared to just over 4% in the last general election. That put them only slightly behind the largest group in parliament, the National Coalition Party, which won 20.4% of the vote, and behind the second-biggest Social Democrats by only a hair. By skillfully moving along the right-left political spectrum—acting as social democrats in nationalists’ clothing—the True Finns filled a vacuum in Finnish politics that stemmed from disillusionment with the traditional parties…

Writ large, this weekend’s Finnish elections are a rebuke of one of the euro zone’s central, and fatal, conceits: that political ambition can trump economic and democratic realities.

For years, politicians as well as markets assured themselves that economies could share a single currency (and a single interest rate) despite having radically different levels of competitiveness and credit-worthiness, and even lacking centralized fiscal policies and proper labor-market mobility to compensate for economic divergences. Markets have now finally woken up to the fact that Greece and Germany are poles apart; it is time for EU leaders to do so as well. Ireland, Greece and Portugal have made all too clear that economic forces can rarely be predicted, let alone contained.

Some particularly federal-minded EU leaders took this as a pretext to push even harder for a full-fledged fiscal union. Former European Commission President Romano Prodi wrote in an op-ed in the Financial Times last May that “When the euro was born everyone knew that sooner or later a crisis would occur. . . . I was warning years ago that, through no one’s fault in particular, extraordinary events could occur that would force joint co-ordination of fiscal policies.”

That sentiment spurred EU leaders to take their next major gamble, which was even riskier than the first: They bet that once they did start to effect robust economic and political union, national voters and parliaments would play along and vote the “right” way. So last year, when the EU elites decided to break their own treaties and turn the euro zone into a de facto debt union, they forced taxpayers in some countries to take on the liabilities of foreign governments in other countries—without the possibility of voting these governments out of office.

But taxpayers are now showing signs of revolt. It is too early to tell how the results in the Finnish election will affect the ongoing bailout operation in Euroland. The True Finns could hugely complicate a Portuguese bailout, since use of the euro zone’s rescue package requires unanimity among participating governments and, by Finnish law, the Finnish parliament’s approval…

Even if they succeed, EU leaders will still have to deal with the countries on the other end of the bailouts: Greece, Ireland and Portugal, whose voters are increasingly wary of EU-backed austerity measures. As much as taxpayers in rich countries don’t like to pay for other governments’ mistakes, voters in poor countries also don’t like being told what to do by people they never elected and can’t vote out of office.

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This entry was posted in Accountability, Bankers' Bailout, Budget, Debt Default/Restructuring, ECB/IMF, Economy, Elections, EU, Euro / Sovereign Money, Geopolitics, Ideology, Independence/Nationalism, ireland and tagged , , , . Bookmark the permalink.

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