The EU and Greece

The most recent edition of The Economist had a good amount to say about the future of Greece, the European Union and the Euro. Most of the coverage of Greece and the EU in the United States has been from the usual doom-and-gloom political statements from Republican presidential candidates about excessive government spending. While the charge may be true relative to the large size of the public sector in bailed out Greece, Portugal and Ireland, the crises in Europe requires a deeper and more nuanced review of the Union.

The EU, while united under one currency (The Euro) and a few policy authorities (Council of Ministers and European Council), is still a hodgepodge of countries of various sizes, cultures and political persuasions. From the 1992 Treaty of Maastricht to the current banking crises, many of the EU nations have taken fiscal governing  of such a large body with a less than adequate level of seriousness. That is, rules set out to avoid a crises of this nature took a back seat to the financial interests of some of the larger economies (France, Germany, etc). The article in the Economist highlights this problem with an anecdote about France's view of budget cuts:

 In 2002, Francis Met, newly installed as French Finance Minister dismissed commission requests for budget cuts to comply with the stability and growth pact by saying that "France has other priorities."


The article rightly states that the current finance minister under newly elected French president Francois Hollande would quickly lose his job if he were to dismiss EU fiscal responsibilities in the same manner. While some nations ignored the fiscal pacts of the Union, many still believed that a region united under one currency would facilitate political integration through fiscal unity and stave off a crises. But, as the article points out: They did not foresee that it [financial/political unity] would do so by throwing the continent into crises.

The EU is also facing a crises of democracy. Smaller countries with smaller economies (like Greece) are becoming less relevant in a growing Union. Once a country feels that their electorate and local issues are being ignored in favor of a Union controlled by the larger economies, a sense of resentment grows. When the fiscal crises in Greece came to a head, many in the country protested to the Austerity Measures because they believed that it was a problem that they did not create. Overspending by the Greek government after the conversion to the Euro that led to massive deficits and lack of a voice among bigger economies like Germany and France created a disconnect between the electorate of Greece and the wider Union.

The result of increased austerity measures has been political and financial turmoil. In elections, citizens increasingly voted for extremist candidates who opposed or favored a renegotiation of the terms of the Euro bailouts. In Greece, nearly 7% of the vote went to the ultra-right wing Golden Dawn Party, whose party platforms are anti-immigrant and anti-bailout. Their party symbol resembles the swastika. There was also no consensus candidate, which sent the election to a runoff, taking place on June 17th. In France, the Conservative party under incumbent Nicholas Sarkozy was ousted by the Socialist candidate Francois Hollande.

One major problem remains for the European Union: there is a disconnect between the larger and smaller economies, fostering disillusionment with the Union and individual country's national governments. Germany's chancellor Angela Merkel (Christian Democrats) has shown visible disappointment with the way that Greek government has managed it's finances. She is reluctant to continue using German banks to prop up failing economies. At the same time, voters within Greece have become weary of their technocratic governing coalition and have voted in droves alongside anti-immigrant, nationalistic parties on the right and left. Continued entrenchment by larger economies like Germany will only foster nationalism and hatred towards the Union, leading to a possible exit by Greece. Once this happens, any country with the same sentiment might use that precedent to also leave the Union.

There is a way out of this crises for the EU. Direct election of members of policy making bodies in the EU by member countries can bring more democratic power to smaller states. Currently, the leaders of the European Council and Council of Ministers are appointed by member states. But, the Union must provide an efficient, enforceable method to institute fiscal policies in order to reign in on indebted countries and stave off future crises. In this way, smaller countries get more say in the inner governance of the Union while larger economies prevent having to bail-out smaller economies. But, above all, it keeps the Union intact without having to face the international consequences of a bank run or an exit.

During the debate over the ratification of the U.S. constitution, larger states wanted representation in Congress based on population (Virginia Plan). Smaller southern states proposed equal representation, as they would be less relevant under the Virginia Plan (New Jersey Plan). Congress created a compromise (Connecticut Compromise) that created a bicameral legislature whereby the House of Representatives would be based on population and the Senate would have two members elected from each state.

The EU should take note of this idea, giving equal representation to smaller economies, while redefining their ultimate goal of unified stability and fiscal control.