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The Euro Endgame

At last, the voters

Aug 1, 2011, Vol. 16, No. 43 • By ANDREW STUTTAFORD
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Those who have found themselves feeding PIIGS are unhappy too, nowhere more so than in Germany, the country that is effectively underwriting the euro, a currency that—true to Brussels form—its electorate was never truly asked to endorse. As for the risks, they were barely discussed with voters, and when they were discussed, they were denied. German taxpayers would not be on the hook for anyone else, oh no. But that’s not how it has turned out for them, and they are not well pleased. 

This has put German chancellor Angela Merkel in a spot. Without German support for the eurozone’s crumbling periphery, decidedly unselective defaults will trigger the financial contagion that policymakers are trying to avoid. For all her disapproval of PIIGS sty failings, the pragmatic Merkel understands this perfectly well, but her power to force through another round of assistance is not what it was. She still commands a comfortable majority in the Bundestag, but, in part thanks to the controversy over German participation in earlier bailouts, she has lost her grip over her country’s upper house. There may be worse to come. Polls taken before the announcement of the latest rescue plan showed that over 60 percent of Germans opposed extending further money to Greece, and this discontent is penetrating her governing coalition. 

And opposition to bailouts has been mounting amongst voters elsewhere in the eurozone’s richer north for quite some time. That’s ominous. The new Greek package, and the changes to the European Financial Stability Facility that accompany it, require the approval of every member of the coalition of the unwilling that is meant to be providing the funds. Earlier bailouts have already riled voters in Austria, divided the ruling Dutch coalition, and helped propel the True Finns, a once-small populist party, to third place in April’s Finnish general election with 19 percent of the vote. Under the circumstances the notion that the Greek rescue plan will sail smoothly through all the national parliaments involved looks like fantasy.

The politics will be rough, and they will get rougher. Neither this bailout, nor the expanded European Financial Stability Facility, nor its successor, will be enough to unwind the imbalances now ravaging the eurozone’s periphery. The best chance of achieving that will be to move on to a quasi-federal budgetary, fiscal, and “transfer” union. That will be a hard sell to electorates in those countries that will be footing the bill (probably in excess of an annual $150 billion), and after the fiascos of the last year or so it will be politically too dangerous to try, once again, to bypass them.

Voters may well start to count after all.

Andrew Stuttaford works in the international financial markets and writes frequently about cultural and political issues.

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