Financial markets rallied after Greek Prime Minister George Papandreou announced he was dropping plans for a referendum on the terms of his country’s bailout.
Bond dealers liked the idea that the government in Athens could soon be headed by Lucas Papademos, a former vice-president of the European Central Bank. German Chancellor Angela Merkel and French President Nicolas Sarkozy think Papademos is the sort of hardline technocrat with whom they can do business.
Italian Prime Minister Silvio Berlusconi’s departure will no doubt be greeted in the same way, particularly if he is replaced by a government of national unity headed by another technocrat, Mario Monti.
A former Brussels commissioner, Monti is seen as someone who could be relied upon to push through the European Union’s austerity programme in the next 12 months, watched over by International Monetary Fund chief Christine Lagarde’s team of officials.
From the perspective of the financial markets, it makes perfect sense. Papandreou could no longer be relied upon and his decision to hold a plebiscite threw Europe into turmoil last week, blighting the Cannes G20 summit. He had to go.
In Italy, Berlusconi was seen as entirely the wrong man to cope with his country’s deepening crisis, with bond yields rising to above 6.5%.
He, too, had to go, in the interests not just of financial and political stability, but to prevent the eurozone from imploding.
The European Union has always had problems with democracy, a messy process that can interfere with the grand designs of people at the top who know best. When Ireland voted no to the Nice Treaty, it was told to come up with the right result in a second ballot. The European Central Bank (ECB) wields immense power, but nobody knows how the unelected members of its governing council vote, because no minutes of meetings are published. That said, the latest phase of Europe’s sovereign debt crisis has exposed the quite flagrant contempt for voters, the people who are going to bear the full weight of the austerity programmes being cooked up by the political elites.
Here’s how things work. The real decisions in Europe are now taken by the Frankfurt Group, an unelected cabal made of up eight people: Lagarde; Merkel; Sarkozy; Mario Draghi, the new president of the ECB; José Manuel Barroso, the president of the European Commission; Jean-Claude Juncker, the chairperson of the Eurogroup; Herman van Rompuy, the president of the European Council; and Olli Rehn, Europe’s economic and monetary affairs commissioner.
The cabal decides whether Greece should be allowed to hold a referendum and if and when Athens should get the next tranche of its bailout cash. What matters to this group is what the financial markets think, not what voters might want.
In the circumstances, it is hardly surprising that electorates have resorted to general strikes and street protests to have their say.
Governments come and go, but the policies remain the same, creating a glaring democratic deficit.
This would be deeply troubling even if it could be shown that the Frankfurt Group’s economic remedies were working, which they are not. Instead, the insistence on ever more austerity is pushing Europe’s weaker countries into an economic death spiral, while their voters are being bypassed. That is a dangerous mixture. —