Europe Must Change in Order Not to Implode

French Title: L’Europe Doit Changer Pour Ne Pas Imploser

Another European summit is to take place on May 10th. Confronted with the risk of a crash, the need for a drastic overhaul of the European construction is becoming clearer and clearer. The European Central Bank must come to the rescue of Greece. Our paper’s petition is very favourably received.

Dithering and Division

Dithering and division still prevail, despite the EU’s decision to summon a new summit on May 10th in order to finalize its rescue package for Greece.

The dithering is clear enough in view of the number of meetings that have already been held while Greece is still waiting for a final resolution. Despite the vital urgency. The Greek Treasury is supposed to meet a 9-bn-euro term on May 19th and is likely to default on it, and thus to find itself in a situation of bankruptcy. No doubt, the UE yesterday declared that its current negotiations with the European Central Bank, the IMF, and the Greek government would be making “fast progress”; still, the presidents of the two international monetary institutions had to go all the way to Berlin in order to persuade the German leaders. As for the division, that also is clear if only in consideration of Germany’s reluctance. The date set for the summit itself is significant enough, the 10th of May being the day after a regional election the governmental coalition is afraid of losing.

The dithering and division are compounded with panic and speculation. Panic on the Stock Exchanges, which have suffered a fall. Speculation on the bond markets, where investors have launched their attacks following the announcement of the fall in Standard and Poor’s ratings of the Greek and Portuguese long-term debts … By midday yesterday the interest rate for Greek bonds stood at 11,214% (to 9,730 on the previous night) and the interest rate for short-term, two-year loans at 18% (to 15%). The interest rates for Portugal’s, Spain’s, and Ireland’s public debts were also on the rise. In addition to this, the euro fell to its lowest rate to the dollar for one year, namely 1,32.

Political leaders themselves try to sound reassuring, as they fear the fire might spread. Several governmental statements in Germany, Italy, Spain and France have been issued to that effect. In France, the Socialist party announced that its deputies would vote for the loan to Greece that the government will submit to Parliament next week, despite the 5% interest rate that they find excessive, and the Socialist Party did not mention the drastic conditions imposed on the Greek people that are attached to the so-called rescue loan.

The governmental leaders’ and the markets’ behaviour is actually deeply influenced by the popular resistance that has begun to rear its head against the austerity plans implemented almost everywhere in Europe. The president of IFO, a German economic institute, thus declared that “Greece will not be in a position to carry out the necessary austerity measures,” and will therefore never pay Germany’s loans back.

The Need for an Alternative Policy Is Gaining Ground

Fear of a massive rejection of this regressive policy is haunting governments and Directors’ Boards. The need for an alternative policy is thus actually asserting itself. The Greek people must be rescued but the rescue package that is considered imposes high interest rates and has unacceptable anti-social strings attached to it. It simply is not true that this is the only way to ward off the implosion of the European construction. Three kinds of measures might on the contrary boost growth, employment, and finance public expenditure or even ensure its development.

In the first place, the European Central Bank must use its monetary power to finance the public expenditure of euro-zone States at very low interest rates. Can we accept that it bails out banks with loans at 1% and that the banks can “load up” by lending to Greece at 11 or 18%? Besides, the ECB’s loans should have no austerity plans attached to them, but rather measures in favour of human development, growth, and employment. Secondly, the Greek public debt should be re-structured, payment deferred over longer periods. This would somewhat relieve the Greek public finances and shift the onus on the banks and funds that speculated at the expense of the Greek people. In the third place, if the IMF is to intervene, it cannot simply bare its teeth. It can support the ECB’s bail-out plan by allocating to it its own currency (special draft(ing) rights): this would give the European institution an important and additional capacity for financing useful public expenditure in more favourable conditions. Europe must change in order not to implode.

Translated by Isabelle Metral and Reviewed by Henry Crapo.