Democratizing The Eurozone
Yanis Varoufakis
Like Macbeth, policymakers tend to
commit new sins to cover up their old misdemeanors. And political
systems prove their worth by how quickly they put an end to their
officials’ serial, mutually reinforcing, policy mistakes. Judged by this
standard, the eurozone, comprising 19 established democracies, lags
behind the largest non-democratic economy in the world.
Following the onset of the recession
that followed the 2008 global financial crisis,
China’s policymakers
spent seven years replacing waning demand for their country’s net
exports with a homegrown investment bubble, inflated by local
governments’ aggressive land sales. And when the moment of reckoning
came this summer, China’s leaders spent $200 billion of hard-earned
foreign reserves to play King Canute trying to hold back the tide of a
stock-market rout.
Compared to the European Union, however,
the Chinese government’s effort to correct its errors – by eventually
allowing interest rates and stock values to slide – seems like a paragon
of speed and efficiency. Indeed, the failed Greek “fiscal consolidation
and reform program,” and the way the EU’s leaders have clung to it
despite five years of evidence that the program cannot possibly succeed,
is symptomatic of a broader European governance failure, one with deep
historical roots.
In the early 1990s, the traumatic
breakdown of the European Exchange Rate Mechanism only strengthened the
resolve of EU leaders to prop it up. The more the scheme was exposed as
unsustainable, the more doggedly officials clung to it – and the more
optimistic their narratives. The Greek “program” is just another
incarnation of Europe’s rose-tinted policy inertia.
The last five years of economic
policymaking in the eurozone have been a remarkable comedy of errors.
The list of policy mistakes is almost endless: interest-rate hikes by
the European Central Bank in July 2008 and again in April 2011; imposing
the harshest austerity on the economies facing the worst slump;
authoritative treatises advocating beggar-thy-neighbor competitive
internal devaluations; and a banking union that lacks an appropriate
deposit-insurance scheme.
How can European policymakers get away
with it? After all, their political impunity stands in sharp contrast
not only to the United States, where officials are at least accountable
to Congress, but also to China, where one might be excused for thinking
that officials are less accountable than their European counterparts.
The answer lies in the fragmented and deliberately informal nature of
Europe’s monetary union.
Chinese officials may not be answerable
to a democratically elected parliament or congress; but government
officials do have a unitary body – the seven-member standing committee
of the Politburo – to which they must account for their failures.
The
eurozone, on the other hand, is governed by the officially unofficial
Eurogroup, which comprises the member states’ finance ministers plus
representatives of the ECB and, when discussing “economic programs in
which it is involved,” the International Monetary Fund.
Only very recently, as a result of the
Greek government’s intense negotiations with its creditors, did Europe’s
citizens realize that the world’s largest economy, the eurozone, is run
by a body that lacks written rules of procedure, debates crucial
matters “confidentially” (and without minutes being taken), and is not
obliged to answer to any elected body, not even the European Parliament.
It would be a mistake to think of the
standoff between the Greek government and the Eurogroup as a clash
between Greece’s left and Europe’s conservative mainstream. Our “Athens
Spring” was about something more profound: the right of a small European
country to challenge a failed policy that was wrecking the prospects of
a generation (or two), not only in Greece, but elsewhere in Europe as
well.
The Athens Spring was crushed for
reasons that had nothing to do with the Greek government’s left-wing
politics. Time after time, the EU rejected and denigrated common-sense
policies.
Exhibit A is the two sides’ positions on
tax policy. As Greece’s finance minister, I proposed a rate reduction
for sales tax, income tax, and corporation tax, in order to broaden the
tax base, increase revenues, and give Greece’s broken economy a boost.
No follower of Ronald Reagan would quarrel with my plan. The EU, on the
other hand, demanded – and imposed – increases in all three tax rates.
So, if Greece’s tussle with its European
creditors was not a left-right standoff, what was it? The American
economist Clarence Ayres once wrote, as if describing EU officials:
“They pay reality the compliment of imputing it to ceremonial status,
but they do so for the purpose of validating status, not that of
achieving technological efficiency.” And they get away with it because
the eurozone’s decision-makers are not obliged to
answer to any
sovereign body.
It is incumbent upon those of us who
wish to improve Europe’s efficiency, and lessen its gross injustices, to
work toward re-politicizing the eurozone as a first step toward
democratizing it. After all, doesn’t Europe deserve a government that is
at least more accountable than that of communist China?
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