European news has been roughly the same for three years. An agreement is reached between a group of bland looking national leaders, and then one of them disappears from the scene. There’s been an election or a series of protests that led to a resignation, nevermind the reason why. When the cast changes, the old agreement is tossed aside and negotiations begin again.
Why can’t Europe get its act together? Why is it so dependent on personalities?
That gets us to the chief personality of them all, German Chancellor Angela Merkel. She has been the one who, with her conservative Christian Democratic Party, has insisted on “austerity”, the tightening of budgets and paying of bills even as the economy crashes. And now Merkel stands completely alone. Does this mark the end of austerity for Europe?
To understand the change of leadership we have to start at the beginning. The Euro brought prosperity through most of the 2000s because sales of goods and services no longer required currency exchange from Francs to Deutschmarks to Lira. Everyone who did business across Europe had to keep a little bit in reserve in case the various exchange rates shifted suddenly. With one currency, all that extra reserve was no longer needed. It saved everyone a bundle and freed up a capital everywhere.
The key to success was a rock solid, reliable Euro. The European Central Bank (ECB) was set up to make that a reality – and absolutely nothing else. Their mission is narrowly defined at making sure that the value of this relatively new thing is unquestioned and constant not just in the Eurozone but around the world.
So far, so good. The capital freed up was invested throughout Europe in all kinds of great new projects, the economy boomed, and people were happy. Technocratically oriented conservative or center-right governments, like Merkel’s, were elected across the continent. They kept the budgets in balance as ordained by the agreements that set up the Euro. Since no one could simply print Drachmas or Pesetas anymore, everything had to stay carefully in check.
Think of Eurozone nations as something more like US states in that sense, with limited tools at their disposal to spend their way out of a jam.
This all started to change in 2008, as it did everywhere. Nations found tax revenues were down and deficits started to pop up. They were told to tighten their belts and keep at it. Greece, however, was forced to admit something that was an open secret across Europe –their supposedly balanced budget had been fudged for years. When times were good everyone looked the other way because, after all, what harm could tiny little Greece do? But many bond traders who were not in on the secret were burned badly by the threat of default and Europe suddenly looked sick.
Since 2009 tax revenue has withered across Europe as economic growth slowed to nothing. The old budget requirements started to look like a straightjacket, and were quickly labeled “austerity” by the opposition. Calls for a bit of spending to spur growth in contrast to the old regime has defined politics across Europe since.
This debate may seem strange to observers in the US because we have never had it. Our conservatives have never favored austerity, especially not through the spendy Bush years – as Vice President Cheney famously said, “Reagan proved that deficits don’t matter.” The closest we have come to austerity was the negotiation over the debt ceiling last August. That process spooked everyone so badly that the net result was a tacit agreement to never talk about it again. Even the “Super Committee” that was supposed to fashion a budget agreement quietly failed with no repercussions at all.
But not in Europe. As this debate has moved through the streets, the media, and into the palaces of power leaders have fallen and agreements are renegotiated again and again. The once dynamic duo of conservative austerity, Sarkozy and Merkel, is reduced to Merkel standing alone – and a state election showed that the people of Germany are not as strongly behind her.
To create a “dimension of growth”, which French President Hollande campaigned on, there may well be new “Eurobonds” backed by the member states and a release of new funds to shore up governments across the continent as they spend their way towards more growth.
It’s worked so well in the US so far, yes? No, not so much? Well, that’s exactly what Chancellor Merkel is worried about. But the situation has slowly slipped out of her hands. Austerity may be dead and the Euro may flood the world the way the US Dollar has. What exactly that means depends entirely on how successful the new agreements are at propping everything up – and actually creating growth.