The European Council on Foreign Relations

Madrid view: Totem and taboo

Date: 3rd July 2012  |  Author: Jose Ignacio Torreblanca,

Categories: Madrid view,
Tags: banking, eu, euco, euro, euro crisis

Twenty-four summits after the crisis began, the EU machinery is back in motion for a day, generating such a degree of uncertainty that observers differ as to whether Europe is on the edge of the abyss, or about to reach the promised land of political union.

For some, we are looking at the moment of truth, when the euro will start to self-destruct if immediate decisions are not made. In support of this view they cite the fragility of Spain and Italy and the fact that, with the present design of the rescue funds, there will not be sufficient resources to bankroll them if they enter into bailout programs such as those in Greece, Ireland and Portugal. They point out that Spanish leader Rajoy’s credibility is exhausted, and can only deteriorate day by day, as it is found that austerity measures not only fail to achieve growth and employment but cannot even keep the deficit under control. Then, in Italy the star of Monti is declining, as his program of reforms comes up against the political parties. The pincer formed by these two systemic risks, the Spanish property bubble and the Italian political system, is about to close on the euro.

Others, more optimistic, point out that we have never been closer to overcoming the myopia and short-term views that have prevailed throughout the crisis. They cite the ensemble of proposals on fiscal and banking union drawn up with a view to tracing a road map toward a higher degree of integration, between now and December. These are ambitious proposals which, if carried out, will in effect take us into an economic federation, transferring regulation and supervision of national banks to the European ambit, while imposing guidelines on fiscal and economic policy so strict as to leave national governments without room for maneuver. In this scheme, the European Central Bank (ECB) would guarantee savers’ deposits, but in exchange could intervene directly in any national bank, recapitalize it and put it up for sale, imposing losses on the shareholders. In the same way an EU super-minister of finance could reject or modify budgets prepared by a national government, dictating what combination of taxes would be optimal.

The problem is that all these proposals to save the euro are founded on efficacy, but involve questions as to their democratic legitimacy and even, in some states, their constitutionality. Be it, then, the short-term recourse to rescue funds to purchase the debt of beleaguered states, or the reinforcement of powers of control and supervision by institutions such as the ECB and the European Commission — the leaders know they have to think carefully before accepting a solution that would involve giving yet more power to bodies whose legitimacy is technical and not political.

This explains the proliferation of references to political union, now viewed as a precondition for accepting a new, massive and definitive transfer of powers to the European Union. But in the terms in which it is being proposed, this political union is so weak conceptually and so vague on content, that it can hardly serve as the keystone of the vault of an effective banking, fiscal and economic union. Behind this vagueness lies a reality that the EU leaders do not care to confront: the fact that their ideas on what a political union is, and on how to attain it, are so divergent that they are unlikely to reach agreement, especially in a context such as the present one. Meanwhile it is hoped that the mere talk of political union will have a balm-like effect on the markets and the debt. In the EU religion, debt has become the taboo, the sin, and political union the totem from which we expect salvation. The advantage of the magical thought system is that it enables you to believe in miracles.

The article first appeared in El Pais.