A European response to the crisis

The crisis of the euro has been a chilling reminder that money is about far more than coins and a means of exchange. We are now standing on the edge of a precipice, and we Europeans have the choice of shirking responsibility or laying the foundations of a new Europe.  

This article is a shortened version of a speech that Minister Sikorski delivered in November 2011

The crisis of the euro has been a chilling reminder that money is about far more than coins and a means of exchange. They knew this in Yugoslavia, a state with decades of state building, when the Serbs voted to print unauthorised amounts of dinars. That was in 1991, and I was a journalist interviewing the chairman of the Republican Bank of Croatia when the news came through. His response was simple: “This is the end of Yugoslavia”. He knew the link between a currency and the political viability of a state that soon after collapsed into violence and war.

The fate of Yugoslavia reminds us that money, as well as being a technical device, a ‘means of exchange’, symbolises unity – or disunity. Money exists because communities exist. A community in which people live and trade, exchanging freely, creates value. Their money symbolises that value, and rests upon honesty and responsibility. With Poland nearing the end of its presidency after one of the most momentous periods in recent European history, these money-related issues are vital for us all to grasp.

From a Polish perspective it is important to emphasise that the roots of the current crisis do not lie – as some have suggested – in EU enlargement. Enlargement has created growth and wealth all over Europe. For example, Britain’s export to the 10 countries that joined after 2004 rose from €2.2 billion in 1993 to €10 billion last year; France’s from €2.7 billion to €16 billion, and Germany’s from €15 billion to a remarkable €95 billion. The euro itself is also doing fine as a currency in its own right. The real root of the current problem is debt, and the need to deleverage our economies from the crazy heights reached by government overspending, accounting chicanery and irresponsible financial engineering. Of course there is more to it than a simple debt crisis – look at the difference in premiums paid by heavily indebted UK and Japan compared to low debt Spain. The real crisis comes down to confidence and (more precisely) credibility.

In all honesty the markets have a right to doubt Eurozone credibility. After all the Stability and Growth Pact was broken sixty times. The response, therefore, lies in restoring credibility. This is difficult in a Europe with a dominant currency but no single treasury; joint borders without a common migration policy; and a push towards a common foreign policy that is divorced from real power and national imperatives. Goodwill on a European level only lasts in the good times: in crises the default response is the nation state. A euro breakup would be a crisis of apocalyptic proportions, impacting far beyond our financial system, that would even threaten the EU cornerstone of the single market.

The choice that seems to face us is between deeper integration and collapse. The leap to deeper integration has been faced before, for example in the US (especially when dealing with the issue of debts incurred during the Civil War) and in Switzerland (real federation was achieved when rules were established for dealing with debt and transfers between richer and poorer cantons). The US and Switzerland show the importance of a credible system to deal with the challenges of federation, and the need to balance responsibility, solidarity and democracy within a political union.

The two main areas that need addressing to reach such a federation are transparency and discipline over member state finances, and overall convergence between them. The so-called “six pack” which the Polish presidency helped to negotiate was a good beginning on the first of these. The Commission, Council, Court of Justice and the Eurozone countries themselves will play a role in enforcing the necessary discipline, and the European Central Bank will be able to start acting like a true central bank, a lender of last resort that underpins the credibility to the entire Euro zone. The European Commission needs to be stronger, and smaller. The Parliament also needs to stand up for its role and tasks, as the central part of a European polity, a political community in which people place part of their identity and loyalty. As Massimo D’Azeglio said of the newly united Italian kingdom in 19th century, ‘Italy is made, we still have to make Italians’. Our focus needs to be on giving political expression to European public opinion, perhaps with pan-European candidate lists for some EP seats, and a single location for the Parliament itself. We could also combine the presidencies of the European Council and Commission, and maybe even follow Mrs Merkel’s idea of an election for this combined role.

What is crucial is that we maintain coherence between the euro area and the EU as a whole, with community institutions retaining their central role. Our unity will only be hypothetical if countries are barred from participating in decision making unless they join the Eurozone. Separate exclusive meetings and summits are not the answer. Instead we should have meetings for all, with voting restricted to members of the Eurozone. The more power and legitimacy we give to federal institutions, the more secure member states should feel that certain prerogatives (everything to do with national identity, culture, religion, lifestyle, public morals, and rates of income, corporate and VAT taxes) should forever remain in the purview of states. Our unity can survive different working hours or different family law in different countries.

We also need to think about the position of an important member, Britain, especially in the light of the recent summit in Brussels. Britain has given us much – a common language, the brilliant idea of a Single Market, a leading role on defence, a link across the Atlantic. But Britain also has an interest in a successful Europe, and must decide whether it is to contribute to real reform. If not it must not hold the rest of us up.

Polanditself looks to contribute to the solutions facing Europe, especially after our own transformation from an economic basket case to enviable growth rates. Those who helped us – from Germany to Britain to France to the United States – invested wisely and are now benefitting. Germany’s trade with Poland is bigger than with Russian, although you would not always know it from German political discourse. Over the last four years Polish growth has amounted to 15.4%, an achievement based upon painful decisions and sacrifices. Privatisation, pension reform, opening our country to globalisation produced losers as well as winners. We were one of the first countries to introduce a public debt anchor in our constitution. Our reforms are continuing, and, by the end of this parliament, Poland will fulfill the criteria of membership of the euro.

Other countries also need to understand their own role in the system, how they benefit and how they must contribute. Germany, for instance, needs to admit that it is the biggest beneficiary of the current arrangements, with the biggest obligation to make them sustainable. Germany is also not just an innocent victim of the profligacy of others, breaking the Growth and Stability Pact and seeing its banks recklessly buy risky bonds. The implosion of other economies will surely hurt in Dusseldorf and Frankfurt, and the danger of collapse is now greater than the risk of inflation. Germany now has a central role to play in safeguarding Europe from the greatest threat to its peace and democracy: the collapse of the Eurozone. I fear German power less than I am beginning to fear Germany inactivity.

Standing still is not an option for Europe, as the world shifts and new competitors rise. Yet there is nothing inevitable about European decline. Provided we overcome our current malaise, we have sources of excellence and of strength that are the envy of the world.

We are not only by far the world’s biggest economy but the largest area of peace, democracy and human rights. Peoples in our neighbourhood – both East and South – look to us for inspiration. If we get our act together we can become a proper superpower. In an equal partnership with the United States, we can preserve the power, prosperity and leadership of the West.

But we are also standing on the edge of a precipice. This is the scariest moment of my ministerial life but therefore also the most sublime. Future generations will judge us by what we do, or fail to do. Whether we lay the foundations for decades of greatness, or shirk our responsibility and acquiesce in decline. It is time for Europeans to act.

Radoslaw Sikorski is the Polish foreign minister

The European Council on Foreign Relations does not take collective positions. ECFR publications only represent the views of its individual authors.

Author