What does the future hold for the euro zone after the abyss of a “Grexit”? Many have predicted the euro “experiment” will end and the era of national currencies will return. But that is not going to happen. Aside from the immediate financial chaos that would ensue as states battled each other and global financial markets, to dictate the value of their own currencies, the longer-term outcome would be the same as it is today.
Germany would continue its economic dominance of Europe – this time through the policy of the Bundesbank – only without the mechanisms of co-operation which, though deeply flawed, already exist. The current situation, however, is just as intolerable. The failed policy of austerity is being imposed on Greece, while Ireland has been forced to bear the illegitimate and crushing debts of failed banks.
So, we may not be going backwards to the time before the euro, but our forward march with the euro does not look appealing either.
This situation is deeply frustrating. Even the International Monetary Fund and the most hated man in Europe, German finance minister Wolfgang Schäuble, agree debt forgiveness and new policies aimed at growth across Europe are desperately needed. So why are we not getting them? The simple answer is a lack of trust.
Trust deficit
Debtor states do not want their citizens to pay for the losses of their banks. Creditor states do not trust debtor states to develop coherent economic and fiscal policies that will sustain economic growth and bring them back to their pre-crisis standard of living. Furthermore no one trusts the Greeks not to ratchet up their debt again on wasteful spending, should they be given debt forgiveness.
It would appear the acquiescence of Greece to German demands for austerity has only compounded this lack of trust among eurogroup members. Another view is it has created the potential for a much-needed push towards closer political union, ultimately the key to resolving the problems of the euro zone. Until now Chancellor Angela Merkel has been unable to sell any political compromise on economic policy, as a deeply hostile German electorate perceived it to be bailing out “lazy” Greeks. The deal with Greece has changed this situation.
While it is supported by German public opinion as being sufficiently stringent, it has forced the Germans to look at themselves and question the efficacy of their dominance in Europe. Even the normally hardline Bild tabloid has acknowledged the damage to Germany's global standing caused by the crisis, warning their country is "der Buhmann" or bogeyman of the world economy.
These are the two challenges facing the euro: how to restore the trust among eurogroup members needed to change economic policy and how to control Germany and give democratic legitimacy to this policy. Why not resolve both of these? Why not create a parliament of the euro zone? Far from adding to the complexity of European integration, a euro zone parliament would bring the executive authority needed.
Missing connection
Making it a parliament provides a political arena for alliances, whether ideologically or state-based, to form and agreements to be made on economic policy. Sending national parliamentarians to represent the different states provides the missing connection between citizens and euro zone economic policy.
Such a body could replace the secretive, informal and ineffective eurogroup. It could elect a president of the euro zone to act as a de facto euro zone finance minister to implement and enforce policy.
Expansionary economic policies could be financed through the launch of sovereign debt or eurobonds, to be doled out to those states that adhere to the laws passed by the parliament. Finally, it would have the authority to hold the European Central Bank to account for its actions and outline the treaty changes required for it to expand its mandate to include economic growth and unemployment.
The Five Presidents Report contains all the technical changes needed to resolve the euro crisis. There was, however, only a cursory reference to democratic accountability. EU leaders have to realise their legitimacy to make economic decisions for the euro zone has taken a major hit. Euroscepticism is on the rise as citizens wonder what the point of the euro is, if all it brings is unemployment and national humiliation by Germany.
By bringing democratic accountability to the single currency through a euro zone parliament, public support for the euro can be reinvigorated, trust restored between states, and the policy changes to bring growth back to Europe can finally be implemented.
Dr John Fitzgibbon is senior lecturer in politics and international relations at the school of psychology, politics and sociology at Canterbury Christ Church University