From denial, to grudging acceptance, to substantial intervention, to debacle: that was the European Union’s trajectory once the storm that nearly consumed Wall Street in 2008 had crossed the Atlantic, starting the euro crisis. Twelve years later, the EU’s reaction to Covid-19’s arrival is following an ominously comparable trajectory.
Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.
Cross-posted from Yanis’s website
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Eurosceptics take aim at the EU’s excessive red tape and incompetence, the Commission’s vaccination fiasco being a case in point. Euro-loyalists contend that the EU has learned its lessons and has responded to the pandemic with refreshing proficiency and solidarity. They are both wrong.
The EU’s multiple failures are due to a deeper malaise, one the euro crisis unveiled and the pandemic is now exacerbating. What malaise? The EU’s formidable immunity to the smallest amount of democracy.
From denial to acceptance
It is hard to tell which was the EU’s darkest hour. Was it in 2009, when we realised that Europe’s banks – French and German ones primarily – were insolvent and were part of a monetary union that was unable by design to address a doom-loop of collapsing banks and governments? Or did our darkest moment arrive last March when, as Italians and Spaniards were dying of Covid-19 in heart-wrenching numbers, some EU governments put limits on exports of masks and other medical equipment, choosing that very moment to disregard Europe’s celebrated single market?
Technically, the EU’s initial response was legally justified both in 2009 and 2020. In 2009 the EU’s institutions lacked the authority to save either the collapsing banks or the hamstrung member states. Having created a European Central Bank (ECB) lacking a government to support it and banned from either recapitalising eurozone banks directly or helping national governments do so, the EU was never going to have a good global banking crisis. Similarly, during the pandemic in 2020, with public health largely outside the EU’s “competence”, it was not surprising that the moment the body count began to rise, and intensive care units to fill up, it was every country for itself.
But getting caught out by events was part of the EU’s design. Its architects understood that the institutional edifice they had created was not fit for purpose, but hoped that emergencies would force their successors rapidly to forge new institutions which, without crisis, there was no political will to create. The question in 2009, and once more today, remains: did denial turn to acceptance fast enough? And how fit for purpose were the new EU institutions that resulted?
A decade ago, the EU’s reaction time was around six months. The first time EU leaders heard that a Greek government bankruptcy was about to bring down two German and two French banks was in the middle of December 2009. By May 2010 the first Greek bailout was finalised, saving the Franco-German banks and setting precedent for similar bailouts across Europe. That intervention has since led to the mobilisation of trillions of euros, channelled through brand new institutions: the European Financial Stability Facility, the European Stability Mechanism, the informal Troika (the trio of the Commission, the ECB and the IMF) nestling within the all powerful but still informal Eurogroup. There was also, of course, QE, or “quantitative easing” (effectively a money-creation programme of the ECB), which did most of the work to hold together the eurozone and, consequently, the EU.
In 2020 the EU’s reaction time shrank from six to three months. Following their countries’ restrictions on exports early in the crisis, Germany’s Angela Merkel and France’s Emmanuel Macron pushed the EU towards coordinated action: a €750bn recovery fund to assist the member states hit hardest by Covid-19 followed a potential €1.8trn pumped into Europe’s economy through the ECB’s bond-buying scheme. Then there was the now-infamous centralised vaccine procurement programme.
Given that the EU lacks a homogeneous state’s nimbleness, requiring quasi-unanimity between its 27 national governments, a reaction time between three and six months before trillions are mobilised to tackle unforeseen calamities is not too bad. Moreover, it would be unfair not to acknowledge that the EU conjured up rivers of euros with which it tried to extinguish both the euro crisis and the Covid-19 recession. And yet the result has been, in both cases, a comedy of errors.
From acceptance to motivated failure
As a boy, on stormy winter nights, I would count the seconds between lightning and thunder to work out if the storm was getting closer or moving on. During the euro crisis, including when I was Greek finance minister, I caught myself doing something similar after each monthly EU crisis summit, which always ended in a press conference announcing new impressive numbers and crisis-busting initiatives. I would record the half-life of the post-EU summit euphoria, noting how it shrank from weeks in 2010 to days in 2013 to hours by 2014. In 2015 I found myself inside those Eurogroup meetings, where I witnessed the true reason behind the EU’s failure: an institutionalised inclination to pose the wrong question.
When finance had its near-death experience in 2008, the UK’s then prime minister Gordon Brown and the governor of the Bank of England, Mervyn King, and in Washington, DC the then Treasury secretary, Henry Paulson, and the chair of the Federal Reserve, Ben Bernanke, brought together bankers and Treasury aides and asked the right question: “What will it take to stop this crisis from consuming us?”
Meanwhile, in Brussels, a similar gathering took place, but the question posed was very different: “Given that our rules can no longer apply, how can we continue to pretend that they do?” Even if the answer given to this question is ultra-smart and implemented fully, only by accident will it ever minimise the human and economic cost of a crisis.
Why this penchant for asking the wrong question? The answer is that if the right question had been asked at the peak of the euro crisis (ie, “What will it take to stop this from consuming us?”), the answer would be self evident: tear up the EU rule-book, which banned the ECB from doing what the Federal Reserve and the Bank of England did, and instruct the ECB to print the money the French and German banks – and even member states – needed to survive. Alas, that was something that Europe’s oligarchs, whom EU leaders are loathe to cross, were supremely averse to doing. Why? Because by consenting to cast aside the original EU rule-book they would be willingly undermining their greatest achievement.
As originally constructed, the eurozone is an oligarch’s wet dream. It features a central bank that finances every corporate oligarch with unlimited free money within a large, rich economy where, due to the rules ruthlessly constraining what political institutions can do on behalf of the majority, it is impossible for the electorate to vote in any government, national or federal, that may transfer substantial portions of wealth from the few to the many.
Why would they ever allow this dream to end?
Were the EU’s powers-that-be unaware that answering the wrong question would undermine not just the workers and middle classes of Greece and Germany, but also deal a mighty blow upon aggregate investment and, thus, European capitalism? Of course not. But, in their eyes, the debacle of the euro crisis, and the avoidable pain it caused across Europe, was a price worth paying for their immunity from the democratic process. If anyone needs a textbook definition of a motivated failure, this is it.
Smoke and mirrors
Since 2010 tremendous effort has gone into circumventing the EU’s own rules while pretending to respect them. It began with the Greek bailout, which the rules did not allow but which was essential to re-float the Franco German banks. To disguise the EU bailout loans so that they would not look like EU bailout loans, the EU employed super-smart financial engineers, some of them former Lehman Brothers employees. They were the ones who designed fiendishly complex loan facilities and new institutions for delivering them in a manner that meant not a euro would be wasted on needy Europeans. And when the deed was complete, with huge austerity paying to support Europe’s bankers, they allowed the ECB to print as many billions of euros as necessary to cover up the underlying stagnation and further to enrich the oligarchs. Countries such as Greece, Italy, Portugal and Spain had been converted to debtors’ prisons, while thousands of eastern Europeans, unable to find work in the depressed eurozone, were drawn to a UK boasting relative economic dynamism, thus giving the Brexit cause the push it needed to win narrowly in 2016.
Cut to last year, and the EU’s economic response to Covid-19. Once more, after a period of denial and comical retributions, the EU announced large sums and new institutions to spend them across the continent – causing predictable euphoria among the commentariat. Equally predictably, six months later the euphoria has deflated, leaving behind it the usual foreboding. With hindsight, what transpired was a faithful rendition of the euro crisis, only this time with a whiff of radicality in the issuance of common debt.
Last March, in a moment of harmonised panic following EU-wide lockdowns, 13 heads of governments, including President Macron, demanded from the EU the issue of common debt (a so-called eurobond) that would help shift burgeoning national debt from the weak shoulders of our states to the EU, so as to avert Greek-style austerity in the next few years. Chancellor Merkel, unsurprisingly, said “Nein” and offered a consolation prize in the form of a recovery fund to be financed by up to €750bn of common debt. It sounded like a lot of money to be raised by something sounding very much like the requested eurobond. But, alas, it was – like the Greek bailouts from 2010 onwards – lots of smoke and mirrors.
The press did not see it as such, at least not initially. Merkel’s decision to end her opposition to fiscal transfers was widely portrayed as the Hamiltonian moment (referring to Alexander Hamilton’s portrayal of common debt as the cement of the American union) the EU needed to turn into a proper union. The argument was that the EU bonds, which will finance the recovery fund, were the proverbial foot-in-the-door that might allow a substantive fiscal union to squeeze through later. The problem is, however, that a foot in the door can just as well end with a crushed foot and a slam shut.
The reason that, six months after the announcement of the recovery fund, the thrill is gone is that Europeans have begun to sense not just its insignificance but also the dangers it brings. To defend the EU’s weakest people and communities, the recovery fund should be large enough to offset the austerian cuts that would be otherwise necessary to balance the budget deficits once Berlin goes back into the black and demands other EU countries do the same. It packs less than one tenth of that, ensuring that a new tsunami of austerity will hit sooner or later.
And then there are the toxic politics that the recovery fund has already engendered and is bound to magnify. Suppose, for instance, the UK functioned like the EU: lacking a nationwide unemployment benefits system, an NHS and, generally, automatic transfers from better off to worse off regions. Now, introduce to that dystopic UK an EU-style recovery fund. Finally, imagine the horror of politicians representing Sussex and Surrey negotiating with their counterparts from Northumberland and Yorkshire on how much money they will transfer to them after the pandemic, even before we know its impact on each region.
The divisions and toxicity of such a process would make Brexit look like a tea party. And yet this divisiveness has been built into the EU recovery fund, complete with country allocations drawn up before we know the effects of the recession on each nation.
It is almost as if the whole thing were designed by a cunning Eurosceptic. Except that the real drivers are not ideological but, rather, the same old oligarchic interests that have obstructed a rational resolution of the euro crisis for more than a decade.
In sickness and in health
Around the same time the recovery fund was being finalised, EU leaders decided, quite sensibly, to defer all decisions regarding vaccine procurement to Ursula von der Leyen’s European Commission. The idea was to prevent beggar-thy-neighbour politics and to ensure that every European country would be guaranteed the same number of vaccines, pro rata, at the same price. Reasonable Europeans, not unreasonably, allowed themselves to hope that a new era of rational coordination and pan-European solidarity was dawning. How wrong they were.
The EU vaccines procurement fiasco is yet further proof that inefficient bureaucracy was never the EU’s true weakness. The roots of the union’s multiple failures can be traced to its origins in a glorified cartel. The rules that have caused so much avoidable pain across the continent, and have guaranteed the oligarchy immunity from anything resembling a democratic process, are embedded in the unwritten corporatist covenant at the centre of the EU – which, lest we forget, began life as a real cartel: the European Coal and Steel Community.
Unlike nation states that emerge as stabilisers of conflicts between social classes and groups, the EU was created as a cartel with a remit to stabilise the profit margins of the large, central European corporations. Seen through this prism, the EU’s stubborn faithfulness to failed practices begins to make sense. We know that cartels are reasonably good at distributing monopoly profits between oligarchs, but terrible at distributing losses. We also know that, unlike proper states, cartels will resist any democratisation of their decision-making, whether it is about debt or vaccines.
In this context, the European Commission’s policy for ordering vaccines was driven by one imperative: to keep the Franco-German axis in balance. Why else did Brussels split the lion’s share of the EU’s vaccine budget straight down the middle between German company BioNTech and French company Sanofi (placing an order for 300 million vaccines from each), while procrastinating for three months over the Brexit-tainted AstraZeneca vaccine? When the French vaccine was significantly delayed in clinical trials, leaving the Commission with a serious vaccine shortage, the panicked reaction came straight out of the euro crisis book of malice. The EU lashed out by threatening to impose a “vaccine border” on the island of Ireland, exposing the mendacity of its professed commitment to the Good Friday Agreement.
It was strikingly reminiscent of the retributions during the euro crisis between EU leaders struggling to shift the blame on to others – an all too familiar game. The Commission is attempting to camouflage bad decisions with even worse ones. A top EU official, Martin Selmayr, tweeted on 31 January that Europe’s vaccination roll-out was faster than Africa’s. On the day the EU’s authorities approved the AstraZeneca vaccine for general use, Macron opined that it was “quasi-ineffective for people over 65”. The German federal health minister said he was open to using the Russian vaccine if it was approved by the appropriate EU authorities.
This will be Merkel’s legacy. She spent her huge political capital to keep intact the Franco-German foundation of an EU that affords Europe’s ruling class the greatest power any oligarchs could possibly enjoy in a technologically advanced society where liberty is guaranteed, but only within a political sphere stripped of all authority. Even when Merkel had to give ground, as in the case of the recovery fund, she endorsed a mechanism that will redistribute wealth from poor German workers (and taxpayers in other EU countries) to Greek and Italian oligarchs, who have a cosy relationship with their countries’ governments.
Together, EU officials and the oligarchs of Europe’s south and north have contrived to rob European peoples, both in sickness and in health, of any capacity to participate in the decision-making process. As a result, 13 years after the 2008 crisis, the pandemic has hardened the reality of Europe as the world’s richest and at once sickest continent. They have done so by turning the EU into a cash cow that must be at once submitted to unquestioningly and blamed by our domestic oligarchies for their failures. Europe’s tragedy, to quote the novelist Arundhati Roy, is “immediate, real, epic and unfolding before our eyes. But it isn’t new. It is the wreckage of a train that has been careening down the track for years.”