World

War over Europe's economic future heats up

Ian Traynor

Resentment is growing over German chancellor Angela Merkel's leadership and fiscal austerity measures.

Greek riot police clashed with protesters in Athens on January 8 during ceremonies marking Greece's official takover of the six-month European Union presidency. (AFP)

Greece kicked off six months of being in charge of the European Union this week by declaring that the imposition of austerity measures, spending cuts and tough fiscal policy by Berlin and Brussels could no longer be tolerated.

Coinciding with a growing backlash across the EU against the austerity policies mainly scripted in Berlin, the start of Greece's EU presidency reinforced the isolation of the German chancellor, Angela Merkel, who has dominated the policy response to the EU crisis.

Following four years at the sharpest end of Europe's debt and ­currency crisis and €250-billion in bailout funds, the Greek government declared enough was enough.

"Greece does not want to have any more fiscal conditionality," the finance minister, Yannis Stournaras, said this week. "It is out of the question because it is already too tough."

The cry of exhaustion from a country that went broke, sank into years of slump and mass unemployment, slashed labour costs, and saw incomes collapse by more than a third is finding an echo not only across southern Europe but also in the prosperous north, as leaders fear for their career prospects.

They have had enough of austerity, leaving Merkel, the main architect of spending cuts as the cure to Europe's malaise, isolated as seldom before in what is becoming less of a financial crisis and more of a political battle for Europe's future direction.

Political crises
"The acute phase of the financial crisis is now over," United States financier George Soros said last week. "Future crises will be political in origin."

He foresaw a bleak period of Japanese-style stagnation worsened by constant bickering between EU national leaders.

"What was meant to be a voluntary association of equal states has now been transformed by the euro crisis into a relationship between creditor and debtor countries that is neither voluntary nor equal. Indeed, the euro could destroy the EU altogether."

The political frictions are visible, with leaders using vivid language to try to sway one another and win the argument. Merkel recently likened the situation to that of 1914, complaining of complacency and speaking of sleepwalking European ­leaders who led the continent into World War I.

Describing the mood among most EU national leaders, a senior policymaker in Brussels said: "We've had enough of discipline, enough of sanctions. We're sufficiently unpopular already. The worst is over, so let's stop now."

Merkel, whose steering of the euro crisis propelled her to soaring popularity at home and a third term, has become increasingly resented among elites in other EU capitals.

"The problem in Europe is that there is a government headed by one person," a West European ambassador said in reference to Merkel. "All decisions are taken by one leader. This is what is happening now."

Lonely at the top
If that has been a big part of the narrative for the past few years, however, the story went into reverse just before Christmas in the first week of Merkel's new term. She went to a Brussels EU summit determined to push a new policy of compelling structural reforms on the economies of the eurozone. But she found herself supported by not one single other national leader – she was opposed not only by her foes, but also by her friends such as the Dutch, Austrians and Finns.

"It was really a strange discussion," said the policymaker, "difficult from the start, full of prejudice, ideology and fear." Merkel was said to be disappointed. That much is clear from her private remarks to fellow leaders at the summit. A transcript of the exchange, obtained by French daily paper Le Monde, highlighted her frustration: "Sooner or later the currency will explode without the necessary cohesion. If everyone behaves as they could under communism, then we are lost."

Merkel's plan was to empower the European Commission in Brussels to police structural reforms in eurozone countries and to sweeten the pain of the changes by partially subsidising them. She denied that she was dictating anything, but said it was better to spend €3-billion on the changes now than €10-billion later.

She was supported by three European presidents, José Manuel Barroso of the commission, Herman van Rompuy, who chaired the summit, and Mario Draghi at the European Central Bank. All the other elected leaders were against and the plan was shelved.

Extreme outcomes
One prime minister warned that the years of austerity had given rise to increasing populism. In Athens on Wednesday, the deputy Greek prime minister, Evangelos Venizelos, spoke of the growing appeal of neo-Nazis, racists and xenophobes. "In most of the EU we see a new wave of euroscepticism."

Soros went so far as to blame the German chancellor for this. "Merkel's policies are giving rise to extremist movements in the rest of Europe."

The strength of the new anti-European movements on the far right and the hard left will be tested in the elections for the European Parliament in May when they are expected to make gains at the expense of the centre and possibly win the poll outright in countries such as Britain, France, the Netherlands and Greece.

Fear of the impact of more extreme politics helps to explain the current aversion in most of Europe to the crisis solutions scripted in Berlin. – © Guardian News & Media 2014

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