Tuesday, 3 July 2012

Euro Crisis, Causes and Solutions

Tom McDonnell: Despite the developments at last week's EU summit we remain a long, long way from a successful resolution of the Euro crisis. My own thoughts on what should be done are in this TASC discussion paper.

I welcome any comments or feedback.


Paul Hunt said...

@Tom McDonnell,

I see where you're coming from, but it strikes me that it includes a lot of wishful thinking. The EU summit last Friday come up with a method that might reduce the burden on selected sovereigns of resolving the baning crises they had largely created and facilitated. The question that has to be asked is why did some member-states succumb to this lunacy and not others.

In addition, the types of growth-promoting solution advanced:
"..aggressively tackling tax avoidance and tax evasion; maximising the revenue potential from the most growth friendly taxes20; dramatically increasing the resources of the European Investment Bank and accelerating plans for project bonds using unused EU resources to support infrastructure investments in areas such as telecommunications and green energy."

are likely to be too small in scale or ineffective or be a continuation of the kind of policies that contributed to this mess. (For example, in Ireland the ESB is applying some of the proceeds of the 'financing tax' the CER levies on all consumers on its behalf to finance investment, create jobs and boost economic activity outside of Ireland. Where is the sense in that?)

In addition the 'quid pro quo' for some creditor nations' concessions on bank resolution burdens is that debtor nations take full responsibility for their fiscal incontinence and apply meaningful structural reforms to counteract the necessary fiscal adjustment.

But, of course, it's always someone else's problem. Copious use of the 'briathar saor': some one, somewhere should do something. Very little focus on what Ireland can do to kelp itself.

This crisis has revealed a profound crisis of democratic governance in Ireland that is more severe than any problems encoutnered in other member-state and that starts in the polling booth.

The problems include (1) voters being offered a choice of prospective TDs to act as mini-ombudspersons and constituency advocates who subsequently will elect a government but will fail to subject it to sufficient scrutiny, restraint or accountability, (2) voters being offered a choice of prospective local councillors who probably command the least amount of power and resources to decide on local matters of any of their counterparts in the EU, (3) voters being offered a choice of MEPs who do not elect the European Commission – the effective government of the EU in collaboration with the Council and (4) voters being required to decide in referendums on matters on which their TDs are unable or unwilling to decide (despite legitimately exercising the delegated ultimate authority of the people between general elections).

It may be that Irish voters are perfectly happy with the choices being offered to them in the polling booths. But there seems to be sufficient evidence that an increasing number are not. In so far as they might give these issues some consideration, I suspect it would be difficult for many to come up with better alternatives. But that should not be their primary responsibility. They elect and pay politicians to provide democratic governance and they pay academics and researchers in matters of politics and goverance to educate, inform and enlighten them.

It is a disgrace to observe the citizens of a country and an economy in a time of crisis being failed so dismally by their elected politicians and their public intellectuals.

Tom McDonnell said...

Hi Paul,

Thanks for that. I share your disillusionment with the quality of strategic thought and policymaking in Ireland.

Compromises and sacrifices have to be made by all sides if the Euro project is to survive. I agree it may be wishful thinking to believe the different governments will willingly support any steps they 'perceive' as contrary to their individual short term interests. Experience has sadly shown us that there is virtually no solidarity between the 17 governments.

But we have to think about this strategically. What does a viable Eurozone consistent with social justice and high employment look like, and how do we get there in terms of policy? I do think it is at least worth trying to answer these questions.

Certainly the steps agreed at the most recent summit do not come remotely close to ending the crisis.

Paul Hunt said...

I fear that thinking strategically and trying to answer the questions you pose won't make a blind bit of difference because economic policy is controlled totally by the Standing Committee of the Politburo (aka the Economic Managment Cttee) comprised of the Taoiseach, the Tanaiste, Ministers Noonan and Howling, their SPADs and a handful of senior officials. Nothing, absolutely nothing, happens without their say so. Unless any critique of policy or presentation of policy options in some way penetrates their thinking it hasn’t a snowball’s chamce in hell of having any impact.

Everything else is simply shouting from the ditch, unless it captures and channels a surge in popular disgust and anger. The comparison and contrast with Britain is informative. A large number of citizens for a long time either ignored or suppressed their growing unease about the behaviour of the media, their dereliction of their ‘fourth estate’ duties and their suborning of various institutions of the state. It took a single brutal and tragic event - the rape and murder of a school girl - and the reprehensible behavour of a section of the media in the way it became involved in this case that provoked the fury of the British people. The outcome was the partial evisceration of the evil Murdoch empire and a full-blown, wide-ranging, judge-led inquiry.

Currently, the public disgust, resentment and anger is mounting at the reprehensible behaviour of the bankers - and that of major energy energy market players (which could very easily extend to include all utility service providers who are ripping off their customers).

It will be interesting to see if this will have any ‘demonstration effect’ in Ireland. The grounds for public disgust, resentment and anger at the machinations of Official Ireland are even stronger than they are for the growing public sentiment in Britain.

There are some indications that the pay of the SPADs is becoming the focus of public attention, but this is small beer - though it could prove to be a significant turning point. One wonders how long Official Ireland will be able to keep a lid on things.