Bill Emmott - International Author & Adviser

Article

Europe´s two crises
L´Espresso - May 8, 2015

Fasten your safety belts. Europe is heading for not just one crisis but two, both of which could lead to disaster, disintegration and the collapse of the whole European Union.

 

Those are apocalyptic words, perhaps not what you would expect from a normally sober and phlegmatic Englishman. Have I been drinking? Might I be being just a bit too pessimistic? It is true that during its nearly 60 years of history since the 1957 Treaty of Rome, Europe has often overcome crises and has even emerged stronger as a result. I very much hope that happens this time too. I just fear that this time could be different.

 

The two crises that are about to hit Europe are very familiar ones, so familiar in fact that most people by now find them boring. Out of boredom, or simple infuriation, comes complacency. And complacency is dangerous.

 

As you may have guessed, the two crises arise from Athens and London, and concern the default by Greece on its public debts and consequent exit from the euro, and the slide by Britain towards a referendum on whether to leave the European Union altogether.

 

Every day that passes makes Greek default likelier. And Britain’s general election on May 7th will, by the time you are reading this edition of Espresso, have produced such a deadlocked, stalemated, unstable result that a referendum will soon come to look unavoidable.

 

These would count as big crises at any time. Yet the reason they are so dangerous now is that European politics, and indeed European society, are in a particularly fragile state. With 23 million unemployed in the European Union, anger and frustration are everywhere. Meanwhile our neighbour to the east, Ukraine, has been invaded, and our neighbours to the south, in North Africa, are in such a state that tens of thousands of migrants are heading our way.

 

Such threats, far from uniting the European Union, have simply shown up our divisions and our loss of confidence in collective, collaborative solutions. Every time there is a general election in an EU member country – Greece in January, Britain in May, Spain in December, most crucially France in 2017 – the chance of a populist, anti-EU party gaining political leverage or even power hangs over the future of Europe like a dark shadow.

 

The importance of the Greek and British crises is that they are likely to make that shadow darker still. Fear of such an outcome explains why the former Espresso correspondent Annalisa Piras and I have named our new creative documentary, which will have its first Italian broadcast on Sky Cinema on May 8th, “The Great European Disaster Movie”. It is intended as a wake-up call, to provoke a better awareness of what is at stake.  

 

The Greek and British crises would bring different sorts of disaster, but sadly with many of the same results. Indeed, there are similarities now between these two crises, even though they are arising for different reasons. One similarity is that both the new leftwing Greek government of Alexis Tsipras’s Syriza that has been in power since January, and the outgoing centre-right British government led by David Cameron’s Conservative Party, have made the same big mistake. In their negotiations with other European governments they have defined their countries as exceptions requiring special treatment, and have therefore isolated themselves, alienating even their natural allies.

 

But another, more important, similarity is that out of exasperation many European leaders, including most crucially in the governments of Germany and France, have come to believe that although the exit of Greece or Britain would be regrettable, the consequences would be containable. Che sera, sera, as Doris Day sang.

 

Perhaps that will turn out to be true. But in both cases, to take this view is to take a huge risk with the future of our continent.

 

Let’s think first about Greece. Its new Syriza government has behaved badly in its negotiations with its euro partners this year, and has made Greece’s economic situation get even worse. The small economic recovery Greece was seeing at the end of 2014 has come to an end. Depositors have been withdrawing funds from Greek banks.

 

Thanks to that, instead of the fall in Greece’s public debt burden that the European Commission forecast as recently as February would happen this year (from 176% of GDP to 170%), the Commission now forecasts the debt burden will rise to 180% by December. The Greek government is hunting desperately for cash to pay pensions and public-sector salaries.

 

Yet the Syriza government has not provided its creditors with what they consider to be a serious plan for economic reforms. Instead it has thrown around accusations about German war-time reparations debts. So the temptation is to teach it a lesson, rather than meekly providing new bail-out funds.

 

This is exactly the sort of view that was held in September 2008 in the United States Treasury as they contemplated the potential bankruptcy of the Lehman Brothers investment bank. They had organized rescues or takeovers for previous collapses that year, including Bear Stearns, but decided to let Lehman fall in order to bring discipline back into the market. The result was an uncontainable collapse in the international financial system, and the worst western recession since the 1930s.

 

Mario Draghi and the European Central Bank are the guardians believed to be standing in the way of a collapse in the euro, or in European banks, if Greece leaves the euro. They will certainly do “whatever it takes”, to borrow Draghi’s famous words, at least whatever is allowed by European laws and the German constitution.

 

But will it be enough? I wouldn’t be too sure. Our best hope is that Germany and other governments are preparing a big, confidence-boosting economic plan to counteract the damage done by a Greek exit: a massive programme of public investment, combined with a new push to build Europe’s single market, including in services and digital commerce, and a true energy union.

 

If it happens, this could have the dramatic impact that the American Marshall Plan had in reviving Europe after 1945. We can call it the Merkel Plan.

 

Let’s hope. But no such plan could rescue Europe from the consequences of a British departure from the European Union, since those consequences would be largely political rather than economic.

 

Will this really happen? David Cameron promises to hold a referendum on British membership by 2017, if he forms the new government after this week’s election. He might not succeed in forming that government, and his leftwing Labour opponents who are the alternative core of a coalition government say they are against holding a referendum.

 

But any new Labour-led coalition is likely to be weak and unstable. Any new leader of the Conservative Party, after Mr Cameron, is likely to lobby hard against Europe and immigration, in order to win back votes from the anti-EU UK Independence Party. So the chances are that a referendum will still happen, sooner or later. And Britain will remain a troublesome, destabilizing partner in the European Union.

 

Nothing new about that. Ever since we joined in 1973, we have been troublesome. Yes, but our trouble-making has never before taken place against such a fragile background in the EU.

 

Think about 2017. A British referendum. The French presidential election. Marine Le Pen of the extremist anti-EU Front National succeeds in getting through to the second round of voting. Would you now bet against her becoming French president? Yes, and you would be right to. But imagine that between now and 2017 there has been a new crisis in the euro prompted by Greece’s exit, and that Britain is banging on the exit door.

 

Now, are you quite so sure of your bet against President Le Pen?


END.



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