Wednesday, 8 February 2012

Maastricht 20 years down the line

Yesterday was the 20th anniversary of the Maastricht Treaty. On 7th February 1992 the European Economic Community laid the foundations for becoming the bureaucratic beast it is today. Common Foreign and Security Policy was adopted, as well as the creation of Justice and Home Affairs. The EEC now extended into military and judicial cooperation. But perhaps most ironically, Maastricht also led to the creation of the currency of Europe.

A mere two decades later, the Eurozone is on the brink of collapse. How timely that next month the clock ticks down on Greece to address its public finances. Twenty years to the exact day the treaty creating the Euro was signed, Greek leaders have been told they must enforce austerity measures or risk losing a new bail out which could prevent the country from defaulting on March 20th when the current loan matures.

Greece must now demonstrate they will satisfy terms laid down by the EU, European Central Bank and International Monetary Fund, known collectively as the troika, ironically a Russian word once used to describe the supreme officials of Communist states. Yet it is becoming increasingly difficult for Greece to enforce spending cuts, leading to job losses and slashed budgets, with full democratic acquiescence from both Parliament in Athens and the Greek public.

In effect, EU chiefs are edging Greece towards the exit door. They are willing to risk a default and then eject Greece from the euro if Athens refuses to comply with demands insisting that the eurozone is now strong enough to fight against the risk of contagion. Both Merkel and Sarkozy are talking to the press about "time running out" and the French President has even argued that the South Mediterranean member state would get "no community money" without reform.

It seems to me that Greece is being made a scapegoat and enabling the two big economies to flex their muscles. Of course, the Greek crisis was spawn of irrationally high unsustainable public spending under a new currency where vast sums could be borrowed at such low interest. But who set those rates, and who benefited from them? Germany of course. Then when the house of cards came crashing down after the credit crunch struck in 2008, all fingers pointed towards Greece and their woeful borrowing track record. Nobody seemed to comment on the fact that a single currency spread across such diverse economies without fiscal integration and with one common interest rate could not in essence actually work.

NowGovernments across the EU are struggling to assimilate into domestic law savage measures dictated by Brussels; measures that, in effect, will soon be underscored by the new fiscal compact signed last month by 25 member states which essentially criminalises budgetary indiscipline as determined by the European Court of Justice. Finally the Euro members are building fiscal integration, but are essentially closing the stable door after the horse has bolted. As a result, Greece, who indeed was reckless with spending in the boom years, will effectively be left in tatters and expected to pick up the mess.

It is now widely held that Europe cannot cut and grow. Thus far austerity measures have led to deepening recession. Focus on growth is needed to pull southern European states back into competition, yet ironically the stranglehold on trade and working flexibility imposed by EU competition rules and social policy written twenty years ago prevent growth-enhancing investment taking hold.

Twenty years ago the UK negotiated opt outs which could be argued as having prevented us from becoming like Greece ourselves. As a nation we run quite a high structural deficit, that is, we spend far more on public services than we can logically afford. However the pound is strong, enabling us to borrow at rates that we can pay back. As a result, the Labour Government ran up incredible debt, leaving the mess to be sorted out today, but because we were not a euro member the tidy up is not one hundred per cent dictated by Brussels and we did not collapse when Ireland went down. Equally opt outs in social policy mean that we can in some areas be more flexible if we decide to "work our way" out of recession. Despite strikes over pensions and wage freezes, we are not witnessing the sort of uprising that has taken place in Athens. Then again, our austerity measures are not being drawn up by essentially an entente of foreign governments and supra national powers. We are also not part of this new compact, which although by law cannot be an EU treaty following the UK veto at Christmas, in all but title, is. Essentially when we said before Christmas "no" to EU law criminalising cerrtain percentage budget deficit, due to a lack of unanimity, the law could not be passed. Instead what has happened is 25 out of the 27 member states, that is, everyone bar us and the Czech Republic, have clubbed together to forge a treaty that will be governed by the European Court of Justice and whose negotiations and administration will take place within EU buildings. In essence, they went ahead and made the treaty anyway, calling into question the legality of its operation. But what are we to do? The highest court of appeal on such issues IS the ECJ. Are we to approach the Court of Justice and ask them to examine how lawful they are? What about when decisions made between the 25 members of the entente have an impact on Britain, via the single market, or through financial services reform? We are in a highly precarious situation that will at some point in the future rear its ugly head again.

This week Greece has been forced to accept an additional 15,000 public sector job cuts, which still fail to satisfy the demands of the troika. It has been reported that the Greek Finance Ministry is now examining the economic consequences of leaving the Euro, following on from the not so discreet rhetoric being issues from France and Germany.

Unsurprising then that this milestone anniversary for the EU has been kept so quiet

1 comment:

  1. Yes, it was a dark day when we joined Maastricht - I fear the Eurocrats will find a way to cling onto power for a long time, we cannot bank on the EU collapsing from within, so I support UKIPs stance to leave the EU.