The Greeks Bet on Europe, and You Should Too
Amid the daily forecasts of Europe’s impending death and warnings of chaos and calamity to come, there are good reasons to be bullish about the future of the European Union.
Admittedly, these can be hard to make out, as citizens rebel against the EU as a producer of austerity and a consumer of their national identities, while pundits dismiss the very idea that national governments would cede more sovereignty to underpin the euro.
Paradoxically, Greece’s near-suicide may renew the solidarity needed for the EU to work. A large majority of European citizens still believes that however bad the EU and its single currency may be, there’s nothing better to replace either. Greek voters reached the same conclusion on Sunday, when they backed the conservative New Democracy party to form a new government in the hope it will enable them to stay in the euro area.
The vote was close, but the mandate is nonetheless clear: 71 percent of Greeks favor keeping the euro, according to a recent public opinion poll. Most, if not all, of Greece’s EU partners, including the German government, agree. The Greek vote confirms a trend: Despite the many incumbents removed from power in Europe since the financial crisis struck, no populist majority has emerged as a credible alternative to the mainstream parties. For the 27 EU members, life without or outside the union has long ceased to be an option with wide appeal.
There are more immediate causes for optimism, too. Spain’s banks have now been offered a substantial line of credit that gives them the liquidity they need to survive, while the government in Madrid enforces a historically ambitious program of reforms; Italy is still on the brink of insolvency, but its leadership shows a resolve and inspires a confidence that was previously lacking; and France is better positioned to influence its partners and balance the twin needs of austerity and growth. The worst of the euro crisis may be falling behind us.
Emerging from the euro trap into which the EU fell over the past 10 years will not be easy. The risk of accidents -- such as an irrational bank run in one of the euro-area economies -- remains high. But over the past three years, the states of Europe have agreed on an impressive array of initiatives that give significant new authority to the EU and make it probable that economic union will be completed much before the end of this decade. As has repeatedly been the case for the EU in the past, the current crisis may be the catalyst for a leap forward. There is a renewed consensus among governments for “more Europe,” not less, meaning an expansion of the currency union to a fiscal union and even -- “above all” says German Chancellor Angela Merkel -- a political union.
The sense of urgency now shared by most EU states, in or out of the euro area, as well as by their partners across or beyond the Atlantic, is also good news. President Barack Obama’s speech last week reflected that urgency, when he spoke as if the U.S. were an informal EU member. So too did the standby posture that leaders of the Group of 20 advanced economies adopted in Mexico, as the Greek votes were being counted, and the feverish preparations made by the European Central Bank and others prior to the Greek vote.
The euro states will now have to achieve a quick agreement to calm the markets and enable the EU to re-emerge from the grave into which it was prematurely buried. In this context, Germany’s willingness to consider a redemption fund worth almost $3 trillion that would rely on joint bonds to cover the excess debt accumulated by the euro-area countries is telling.
Many obstacles remain, of course. There is too much policy coming out of Brussels, while too much politics is generated in the national capitals. The so-called democratic deficit, between what the EU needs and what its members want, is growing wider. No less significantly, the states of Europe and their union are at the mercy of global events over which they have no control, but which could significantly influence prospects for recovery. To take one example, a war in the Middle East is still a real possibility for later this year or next.
A more optimistic scenario is equally possible. The very fact that the global economy is on hold pending confirmation that the European crisis has been checked suggests a potential virtuous cycle, whereby better news from Europe and elsewhere would be mutually reinforcing. Some economic conditions are already moving the EU’s way at last. The fall of the euro, which had been overvalued, against the dollar and other major currencies helps. In May 2011, the euro stood at $1.48, and for the entire year its average exchange rate was almost $1.40. Now, the euro will probably stay below $1.30 for all of 2012. That may still be 10 percent to 15 percent too high, but a better stimulant for euro-area exports nonetheless. (A 10 percent fall in the exchange rate is estimated to be worth as much as 1 percentage point of additional gross domestic product growth).
There are also encouraging signs of a rise in German domestic consumption, aided by rising wages and government spending. When Germans consume more, they buy more goods from other European economies. In addition, there are indications of improved efficacy in tax collection in Italy and even, despite a recent panic-induced dip in receipts before Sunday’s elections, in Greece.
Betting against Europe remains unwise: The world will probably do what it takes to prevent the continent’s economic collapse. That isn’t because what’s good for Europe is good for the West and the rest, but because what is bad for Europe will surely be bad for everyone.
(Simon Serfaty is a senior fellow at the German Marshall Fund of the United States, and a former director of the Europe Program at the Center for Strategic & International Studies in Washington, D.C.; Alexis Serfaty is a fellow with the Transatlantic Policy Network, and the former policy director at the European-American Business Council, also in Washington. The opinions expressed are their own.)
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