Germany must make its choice

Angela Merkel has two choices: either forge a new transfer union or allow countries to leave the eurozone.

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Germany is fast approaching decision day. It has two choices: to forge a new European transfer union with inexorable fiscal shifts from northern Europe to the south; or to allow some countries to leave the eurozone, to devalue, and possibly default.

Both options are the political equivalent of jumping off a cliff for Chancellor Angela Merkel. However, the current policy of short-term bail-outs and inadequate firewalls, coupled with crippling austerity, will not work. For decades, the foundations of the Greek economy have been sliding into the abyss. The building cannot be repaired with a lick of paint. German policy is greatly misguided if it believes it can turn Greeks into Germans overnight.

It is becoming increasingly clear that the European Commission, and the International Monetary Fund (IMF), want Germany to take the first option and put its money where its mouth is. But it is also increasingly clear that German taxpayers are not prepared to prop up countries that have failed to undertake the structural reforms that have seen German industry remain competitive. I have a great deal of sympathy for them.

Perhaps more concerning is the political price that financial recipients are being asked to pay by the troika of the Commission, IMF and European Central Bank. Already, this crisis has effectively seen Keynesian economic policies made illegal by the fiscal compact treaty. As a fiscal conservative I could not be happier, but as a democrat I believe it should be the right of voters to make a bad choice in elections.

How long can we go on treating proud European countries like children who must be supervised and only handed an allowance when they do as they’re told? Since EU intervention, growth forecasts in Greece and Portugal have been revised further and further downwards. So why should their people believe the troika is acting in their interests?

Economic deficits cannot be resolved by widening the EU’s democratic deficit with the voters.

So, if the German, Finnish, Dutch, and French taxpayers are not prepared to pay, and if Greek, Portuguese and Italian voters are unprepared to cede their economic sovereignty to Brussels and Berlin, surely the only alternative is for some eurozone members to be allowed to leave and price themselves back into the market?

So far, this option has been dismissed. Anybody who suggests it is immediately labelled as ‘anti-European’, or worse. However, I fear that this kind of dogma is the very root of the problem that Europe faces today.

I do not want to see the euro collapse. I also do not want to see any country default in a disorderly manner. However, I believe that the hope-over-experience attitude being adopted by the troika will cause a disorderly default. When we see the Commission’s growth forecasts significantly downgraded between the autumn and the spring, is it any wonder that people are cynical when the EU bases its second bail-out of Greece on an eight-year best-case calculation? We are turning into casino-goers pouring money we do not have into the slot machines, praying our number comes up.

Would the departure of Greece – and maybe Portugal – from the eurozone be extremely difficult? Yes. Would it take years for them to return to competitive growth? Probably. Are we putting off the inevitable in order to preserve the political project? I believe so. If Germany is not willing to pay, then there is only one answer in the long term: release some countries from the straitjacket and allow them to determine their own economic destiny. That will be very hard for our banks, and it will be even harder for our politicians. But I see no other realistic option.

I am reminded of a scene from the classic 1968 film “The lion in winter”, when the sons of England’s King Henry are awaiting their fate, death or imprisonment. Prince Geoffrey suggests his brother Richard’s pride is folly. “As if the way one fell down mattered,” he says. To which Prince Richard replies, “When the fall is all there is, it matters.”

Martin Callanan is the leader of the European Conservatives and Reformists group in the European Parliament.