Quiet Riot

Quietly, there seems to be a tiny crisis affecting European politics. For a start, there’s the rocambolesque imbroglio making Belgium a generic cynosure. It would be hard to do better than to point again to Crooked Timber, although it’s worth pointing out that Jean Quatremer is doing a good job too. I especially like the quote from the Flemish prime minister about the 40,000 Flemish hunters (or light infantrymen – the context is missing and the word is the same) who can defend Flanders in the event of civil war; now that’s what I call statesmanlike.

Of course, nothing of the sort is going to happen – in fact, if you wanted my prediction I’d say nothing at all will happen. Belgium may consist only of the King, the army, a football team, some diplomats and taxmen, and the capital, but that’s more than the Austro-Hungarian Empire had in the way of central institutions. In fact the similarities are marked; the overlapping divisions, competing governments, large and permanently different capital city. But whatever happens, the result won’t be the first world war, or for that matter the end of the European Union. Whatever the collectif antiliberale says about it.

Apparently it’s all a neoliberal plot to destroy the EU and socialism, based on this FT thinkpiece. Sadly, Jerome seems to have missed a bit:

the vital importance of a functioning EU to the continent’s stability and prosperity

And another one:

Democratic pragmatists, who support European integration as a means to enhancing national interests rather than as an end in itself, can plausibly argue that their vision of the EU has never been more relevant. If the Flemish and Walloons do unhook from each other, they can quickly hook back into the EU as separate entities bound by common European values. The very existence of the EU allows us to contemplate a resurgence in national sentiment without fear of violence or confrontation. In the context of Europe’s past, that is no small achievement.

No hostile paraphrasing there, eh.

Of course, Robin Shepherd is right – it’s precisely why we need the EU. I would expect that nobody will notice very much difference even if Belgium is abolished; funny little nationalisms are a luxury a continent where borders are meant to be irrelevant can afford.

Meanwhile, a million miles away (well, it feels like it..), Britain may be about to have another spasm of Euro-politics. The European issue in Britain has traditionally swung across the political spectrum, like a cow on a rolling deck, blundering into political parties and sending them flying like skittles. To kick off in the 1940s, Ernest Bevin as Labour Foreign Secretary was keen on the proto-Euroinstitutions, the OEEC, the European Payments Union, and NATO, and the idea of Europe as a “third force”, but was opposed by the Labour Left who thought the “same old gang” were behind the Schuman Plan, trying to get their hands on the nationalised coal industry.

Then in the 50s, there was a split in both parties – the Tories were unenthusiastic until MacMillan, but always had strong European and diehard imperial tendencies. Then, a period of consensus around the three applications to join. Then, in the 70s and early 80s, the Labour Party swung back against, before the 1988 Policy Review espoused “social Europe”. The Conservatives, meanwhile, passed Labour in ’88 going the other way, from ratifying the Single European Act of 1987 to the Eurosceptic wars of 1990-1997. It looks like the issue is about to crash into Labour again, but the ricochets will be widespread.

What has happened? Well, some of the trade unions are keen on holding a referendum on the not-constitutional treaty, and are deploying the same arguments as the Tories for it (it’s really the same thing, Blair promised one on the constitution, &c). But their reasoning is opposite; they are concerned about the bits about free trade from the Treaty of Rome. They’re hoping for a non de gauche, having seen what a triumph this was for their comrades in France. Of course, the problem with the entire argument is that turning down the treaty won’t reverse this, as it’s the status quo.

At the same time, the Conservatives are in favour of a referendum, because they think it’s something even they could win. (Yes, it’s harsh. Harsh, but fair.) And so are the Liberal Democrats; who probably don’t think they could win, but feel that it would be best to support a referendum. Not just any old referendum, though, but an all-out balls-to-the-wall one on British membership of the EU.

Risky, no? Not that anyone’s listening. Even if the only time this was done, the pro-membership side won convincingly, and every government that has been elected since 1970 has been more or less supportive of the EU, this positively frightens me. The upshot? The Prime Minister may be tempted to shoot the fox; more like sweep the whole field with a machine gun. That would be achieved by calling an election with ratification as a manifesto commitment; which may just have become more likely.

Something Worries Me About Peter Bofinger

Really I realise I have been remiss in another important sense. I have long assumed that in fact the decision to reduce deficits was taken due to the coming fiscal pressure from ageing. This certainly was the background to the discussion. However now I look at the details of the SPG this area is not mentioned (as far as I can see) and the other – the free rider and associated – is the principal consideration.

So those who criticize the bureaucratic and infexible nature of the ECB are in the right to this extent. Of course the underlying demographics *should* be part of the pact, but that is another story.

I find myself in a tricky situation, since I am deeply sceptical that the euro can work, and now after the French vote even more so, but since it has been set in motion, the best thing is obviously to try and make it work (even while doubting). So I am thinking about all this. Obviously I should try and write a longer post making this clearer.

The SGP was adopted at the Amsterdam Council 1997. A history of the implementation of the pact, and a summary of the debate over the new pact can be found here. The Stability and Growth Pact was designed as a framework to prevent inflationary processes at the national level. For this purpose it obliges national governments to follow the simple rule of a balanced budget or a slight surplus.

Now if we go back to the origins of the pact, to the communication of the European Commission on 3 September 2004, you will find the following:

“As regards the debt criterion, the revised Stability and Growth Pact could clarify the basis for assessing the “satisfactory pace” of debt reduction provided for in Article 104(2)(b) of the Treaty. In defining this “satisfactory pace”, account should be taken of the need to bring debt levels back down to prudent levels before demographic ageing has an impact on economic and social developments in Member States. Member States’ initial debt levels and their potential growth levels should also be considered. Annual assessments could be made relative to this reference pace of reduction, taking into account country-specific growth conditions.”

Now curiously I have found nothing in Bofingers argument which seems even to vaguely recognise this background.

A good starting point for this topic would be the conference “Economic and Budgetary Implications of Global Ageing held by the Commission in March 2003.

The European Council in Stockholm of March 2001
agreed that ?the Council should regularly review the
long-term sustainability of public finances, including the
expected strains caused by the demographic changes
ahead. This should be done both under the guidelines
(BEPGs) and in the context of the stability and
convergence programmes.?

This document on the history of EU thinking on ageing and sustainability is incredible.
Continue reading

Change in Germany

John Kornblum, former US Ambassador in Berlin, knows a thing or two about Germany from his forty years’ acquaintance with the country.

In a nation traumatized by violent upheavals, voters seem to demand an emotional insurance policy before accepting change. This insurance must promise that new methods will not undermine the social and economic stability, which is so important to their special postwar sense of self.

New ideas must be sold as not really changing anything. Change must be seen as a method of strengthening stability, not as a new way of doing things. German politicians have become adept at making new ideas sound like old ones. In the words of Konrad Adenauer: ?No experiments.?

A current example of this phenomenon is the tone of political and economic writing in Germany. With a few notable exceptions, authors focus on the inevitability of collapse. Germany?s economy is destined to decline, the Chinese will rule the world, and America is finished as a great power.

There are few grand visions for a new future. Instead, readers are warned that if they do not move quickly, their comfortable world will collapse around them. Motivation is negative rather than positive.

However strange this discussion may sound to outsiders, it seems to be serving an important purpose within Germany. Belief in the old stability is wearing away. As 2004 comes to an end, the most important question is not whether there is going to be change, but how it will come and which direction it will take.

The whole essay is here. I think the part about undertaking significant change while maintaining the whole time that nothing is changing is particularly accurate.

When I was doing more transatlantic bridge-building, I used a sports metaphor.
Continue reading

ECB: German Plea Falls On Deaf Ears

When this is all over, and we come to look back at the when and the where, maybe we will remember today’s decision as just one more of those missed opportunities. Certainly not much notice seems to have been taken of Gerard Schroeders request for a helping hand on the interest rate front. Is there any significance in the fact that on the day the ECB decided to stand firm, German unemployment turned upward again to 10.3%, while it was also revealed that German factory orders fell unexpectedly by 2% in January: just for good measure I suppose.
Continue reading

The Minister for Weblogs

So the Dutch Finance Minister – Gerrit Zalm – has a weblog. Not understanding too much Dutch it’s hard to make a very thorough assesment, although it does look rather austere. However, unlike Howard Dean and Wes Clark, it does appear that he is posting himself. But it is not for the fact that he has a weblog that Finance Minister Zalm is making headlines at the moment. Rather it is for some of his statements on the French government and the stability pact. According to Frans he announced last week “that he gave up trying to get the European Commission to act against France’s repeated breaching of the rules”. Now Frans understandably is scratching his head trying to determine what this might mean.
Continue reading

Off the Hook Again

Now since nothing in life ever comes entirely free, a post to balance my last one (as we say in Spain: one hot one and one cold one). The French are to be given an extra year to get their fiscal act together. This is more a sign of impotence than a seal of approval. In the end I agree with this approach, there is really nothing – except ridicule – to be gained from imposing a symobolic fine. But the point is that this should not be necessary. Everything here seems to be calculated. But still Austria, the Netherlands and Finland don’t seem too happy. So how fine is the calculation? How often can you take advantage of the impotence of the other before a limit is reached? I have no answer to this, but I know the answer is out there somewhere. I guess we’d better all just hope the EU Commission growth provisions are fulfilled, and that we aren’t going to see an even worse re-run of this next year.
Continue reading