Tony Sobrado asks whether politics or economics are at the heart of discussions about the Euro and Greece’s future
Since its inception in 1999, the Euro has always been a polemic issue for both the European Union and the politicians scattered across Europe. Some specified financial integration leading to pan European economic growth and stability whilst others implied that the Euro was simply a precursor to a super European State.
In the UK the issues of political and economic sovereignty often seemed to blur into one. With the then Chancellor, Gordon Brown, specifying monetary independence and economic sovereignty that allowed the UK, and its central Bank, to set its own interest and exchange rates. Simultaneously, however, this was often read as an agenda that surpassed economics, one relating to political sovereignty and self governance: that Britain did not want any further submission under the domain of the EU.
It all seemed to work in the early parts of the 21st century with what commonly became known as the Eurozone and the UK both enjoying year on year growth and monetary and fiscal policies striking the right balance between economic expansion and inflation.
Regardless of Euro integration or UK independence, international collectivity or the British economic lone ranger, none of this mattered when the banking crisis hit. The American mortgage lending crisis dragged the rest of the world into the clutches of a dramatic downturn. What then became apparent, like never before, was how the global economy has an overarching effect on national economies and currencies, whether it was the Euro employed in the Eurozone, Sterling in the United Kingdom or the Yen in Japan. However although European Nations, whether in or out of the Euro, were similarly effected by the Banking crisis, thus negating the differences between Eurozone and British monetary policies, what became most prominent within the Eurozone itself was the differences in fiscal policy.
No where was this more evident than in Portugal and Greece where public expenditure exceeded tax revenue to the point that it made Brown and Darling look like typical scrooges. Yet fiscal discipline is so important that those behind the bailout have written it in as a conditional clause for the bailouts. Ireland lost its freedom in fiscal policy development and implementation and currently the Greek State has no choice but to adopt austerity measures in order to qualify for a bailout.
These are clearly economic issues. However the second proposed Greek bailout proves more ominous. The path between the Euro being a political or economic tool once again takes an ambiguous twist. The economic arguments against intervention take the form that European countries should not have to once again spend billions funding the bailout. The flipside is that if Greece defaults on its debt, the knock-on effect across Europe will be so catastrophic that in both the short and long term the bailout will cost each country involved significantly less than the perils that will be unleashed if the bailout is not implemented.
At the same time these arguments are also political ones. This is noted by the fact that one of Europe’s leading politicians last week said “Greece will never be allowed to go bankrupt”. This would have been partially interesting had it come from an economic analyst or a political pundit but the fact that it comes from the head of European Commission, Jose Manuel Barosso, smacks somewhat of political overture.
There has always been a vigorous alignment between politics and the economy. Throughout history many of the greatest political thinkers were also great economists. Where there is an economy there lies political opportunity or political unrest. Political systems and societies cannot function without the engagement with commerce and exchange embedded within these social systems and this framework is put into overdrive in a globalised world. In fact this reciprocity is all around. For instance a long-standing reputation of the Conservative Political Party is its ability in Economic matters. In the U.S, the Republicans insistence of Tax cuts for the Wealthiest and the Democrats emphasis on Tax increases to fund welfare are more to do with political ideals rather than efficient fiscal management. Politics and economics are so intertwined that one could look at a political issue and describe it as economic oneor vice versa; hence the discipline of Political Economy. When these two worlds converge it is often very hard to delineate what exactly is going on.
Amidst the uncertainty encompassing the second proposed Greek bailout these perplexities fail to produce any clarity, only a cauldron of enigma in which no one can pin point the underlying causal motivations. George Soros this week said that he did not expect Countries to leave the Euro – although according to Soros it would make good economic sense. This highlights the political roots of the Euro that keep the single currency firmly attached to a political agenda devoid of economic rationale. This kind of logic would also explain why the German economy, so much more dominant in all economic indicators than other Eurozone countries still operates with the same currency and has to utlise their own surplus in order to fund other countries that have relinquished theirs.
One thing may only be certain at this stage and that is that even after the probable Greek bailout is executed no one will really be any clearer as whether the Euro and the Bailout is a political or economic matter.