Contributed to hellasfrappe By Protesilaos Stavrou
First they set up mechanisms who were destined to prevent the European architecture from collapsing, but where instead putting more pressure on it. Such was the European Financial Stability Facility (EFSF), which is a huge toxic CDO right at the heart of Europe that puts more pressure on the public finances of each state, to fund bailouts to bankrupt states, effectively making everyone worse-off, as even hardly-pressed countries are forced to make their contributions. The EFSF was considered over in the last summit where it was decided that it will be replaced by the permanent European Stability Mechanism (ESM), which is in practical terms identical to the EFSF, only it will put even more pressure on its contributing states, as it will ask for greater amounts of money. It is crystal clear to any objective person, who is not deluded by the mainstream European sirens, that the ESM will not help to solve the crisis and can instead do more harm than good.
Then they came up with policies that can never work in practice. Such was the Private Sector Involvement (PSI) to deal with the restructuring of the Greek debt. A package that asks from Greece to engage in negotiations with its creditors over how to impose on them the “haircuts” that were agreed at the European Council meetings, first on July 21, then on October 26. In practice it is impossible for Greece to reach an agreement with its creditors over how to make them take loses, for one very simple reason: The creditors know that the country will continue to receive the tranches of loans that are envisaged by the bailout memorandum. Given that more than 80% of those funds go directly to pay back old debts (contrary to what many believe that the money is used to fund the Greek “profligate spending”), creditors have absolutely no incentive to reach an agreement any time soon, since by delaying the process, they receive their money in full. They would be irrational to negotiate against their own interests and reach an agreement on the PSI any time soon. In the end, European policy-makers understood the inanity of the PSI approach and said they will never implement it again.
Finally they decided that the way out of the crisis was to sign a new treaty that will transfer considerable powers to unelected institutions of the EU such as the European Commission and the European Court of Justice, to supposedly create a “Fiscal union”, when it is clear that no such fiscal union ever was in the agenda. Apart from the numerous obstacles the proposed treaty will meet, it also managed to add an additional layer to the current systemic crisis of the euro: The competing national-supranational politics that always existed in Europe but were berried for years under the sands of integration, to be brought back to the surface thanks to the reckless handling of the negotiations and the absurdity of many proposals that are supposed to be enshrined in the new treaty. In short the last summit, failed to propose any concrete proposal to address the current crisis, instead contemplating on how to avoid future crises by means of closer fiscal control; while it opened a new front in the disputes that can well jeopardize a series of policies. The impact of this will be evaluated in the near-future and I am convinced it will be unpleasant for those who were quick to say that the UK was “isolated” and the last summit was a “huge success” – nothing could be farther from the truth.
Now less than two weeks before the new year, relative silence has fallen over Europe. The deluded who applauded policy-makers in the last summit, will say that it is thanks to the effective efforts of European leaders that the situation now seems calm. In truth the storm is coming our way and the European riverboat is not equipped to withstand the tsunami that 2012 has in store for us. For now enjoy the silence.