A week in the €urozone Crisis – Bailout funds, Referendums and Italy in trouble

It is said that a week is a long time in politics, but when it comes to an attempted rescue of the euro, a week must feel like an eternity.

Saturday 22rd October – Meeting of EU Finance Ministers – Brussels

After more than 10 hours of negotiations, EU finance ministers reached a partial deal in resolving the Greek debt crisis. They agreed to force EU banks to raise €100bn in capital to help Greece’s debt should a wider deal be reached to prevent the worsening of Greece’s situation. This was celebrated by George Osborne, Chancellor of the Exchequer as ‘real progress’. Real progress, I’m not sure. There are still many rifts to settle and many deals needed to save Greece and ultimately, the single currency. Osborne admits “We’ve had enough of short-term measures, sticking plaster that just gets us through the next few weeks … the crisis of the eurozone is a real danger to all of Europe’s economies, including Britain.”

The main area of friction between nations revolves around how much they should be prepared to pay for any bailout. Most economists and governments view a bailout as necessary to preserve jobs in an interdependent economy but each government knows that their taxpayers will ultimately be footing the bill. Thus, each government will not pay more than what is absolutely necessary to give themselves a chance of being re-elected. For example, with an election scheduled for 2013 and with her CDU party floundering in the polls, Angela Merkel has promised to not contribute more than €211bn to any bailout fund (the popular perception in Germany is put well in a headline of the Bild tabloid – ‘A Greek, an Italian and a Portuguese go into a bar and order some drinks. Who pays? The Germans of course!’) Despite this difficult situation, Germany has taken the principled move in blocking France’s proposal of turning the EFSF (European Financial Stability Facility – the ‘bailout fund’ into a bank so it could borrow from the European Central Bank on the grounds that it would threaten the ECB’s impartiality. This left many key decisions for the meeting on Wednesday but, in the mean time, there was a meeting of EU leaders where President Sarkozy attacked David Cameron, saying that “You don’t like the euro so why do you want to be in our meetings?” Also, Britain’s future in the EU was being debated …

Monday 24th October – House of Commons

In his 17 months in office, one of the laws that the coalition has enacted was that if at least 100,000 people had signed an e-petition, it would be debated in parliament. The first example of this came on Monday with the motion as follows ‘That this House calls upon the government to introduce a Bill in the next session of Parliament to provide for the holding of a national referendum on whether the United Kingdom should (a) remain a member of the European Union on the current terms; (b) leave the European Union; or (c) re-negotiate the terms of its membership in order to create a new relationship based on trade and co-operation.’ Of the 27 nations in the EU, Britain is probably the most Eurosceptic.  There seems to be the view that unelected bureaucrats from Brussels decide on unpopular and unnecessary laws which undermines British sovereignty and independence, whilst the British taxpayer is footing the bill at an alarming rate. Of course, there are more issues at hand than Britain’s future in Europe. A Guardian/ICM poll showed that 70% of Britons wanted a referendum and politicians not granting one would make it look as though they are out of touch with the people. Foreign Secretary William Hague defended a three-line whip and a no vote by saying that a referendum ‘would not anyone looking for a job’.

Although referendums are an example of direct democracy which is to be encouraged, the example of the AV vote does not exactly inspire confidence in a referendum. Then, we had the no campaign winning because their half-truths were more convincing than the yes campaign’s. It is inevitable that we will have government and business on the “in” side and tabloid newspapers such as the Sun, Mail and Express on the “out” side with both sides’ campaigns running high on emotion. This can only result in the propagation of misinformation on both sides. We have recently rejected the preferential voting system and it would be highly possible that the winner would have less than 50% of the vote. Other reasons for not having a referendum include the economic turmoil which is the likely result of the EU’s 3rd largest economy threatening to leave at such an uncertain time or the replacement of the thousands of jobs lost. People are rightfully angry when their democracy is undermined by EU regulation. The referendum lock of any further powers handed over the Brussels is a most welcome step. They argue that Britain has too large an economy to sit on the sidelines like Switzerland and its national interest is not served by weakening its hand at the negotiation table by threatening to leave altogether. However, it is also not served by remaining tied to the EU when countries in it are failing. It is entirely plausible for Britain to prosper outside of the EU. Being outside of the EU does not necessarily mean isolationism. After all, free trade with the EU could still happen if we negotiated an agreement with them. The motion as it was failed by 483 votes to 111. A referendum on our future in the EU is in theory a good step. But the referendum question posed was the wrong one. Even if it were the right one and we embark on a referendum, we need to ensure that the populace know enough information to make an informed choice one way or the other.

Wednesday 26th October – Meeting of EU Leaders– Brussels

The leaders of the EU countries again met to attempt to find a solution to the debt crisis which is engulfing Europe. They agreed to recapitalise struggling European banks through national governments or the EFSF. David Cameron lauded this as “progress” that has “not been watered down”. Progress seems to be the buzzword when it comes to politicians talking about solving problems. It is the kind of reassurance that we are nearer to a solution than we were when we started, not that we are near to the solution.

After Greece, it was Italy who looks like the country on the verge of default. Leader Silvio Berlusconi sent a letter to the summit. In it, he promised to enact a range of reforms from raising the retirement age to 67 in 2026, raise €5bn from asset sales and have a plan for growth ready in three weeks. He also met European Council president Herman van Rompuy and head of the EU Commission José Manuel Barroso to discuss methods to boost the Italian economy and to reduce its deficit. But no-one trusts Berlusconi. From his position of control of the Italian media, he has led a country mired in corruption and on the brink of financial meltdown. He is generally considered to be a figure a ridicule; his reputation not helped by a series of sex scandals. At Sunday’s talks, Merkel and Sarkozy were caught smirking during his speech at the press conference. He has to appease his more radical Northern League coalition partners so he didn’t go far to reform pensions. Opposition parties mocked his proposals as a “book of dreams” and contain “nothing serious”. Catastrophic mismanagement has got Italy into this crisis and, as a guarantor of EFSF; this mismanagement has put any rescue passage in a perilous position.

On the same day, Germany’s parliament agreed to raise the bailout fund to €1tn. There is still disagreement about if and where they will get the money from but on Thursday, China agreed to contribute to the EFSF. As enough money is unlikely to come from other sources, that can be seen as a welcome and necessary intervention. But China is likely to want political concessions which will only strengthen its position; a worrying sign for the rest of the world, especially given it already holds $1tn of US overseas debt.

Over a month ago, Chancellor George Osborne claimed there was only six weeks left to save the euro. These six weeks elapses at the G-20 meeting of major economies at Cannes this Tuesday and Wednesday, although this was never meant as a meeting specifically concerned with the single currency. It looks like a plan is already in place though, which means financial Armageddon has been temporarily averted, but there is no guarantee of permanent stability yet.

3 Weeks later

The Italian debt crisis has escalated further leading to a vote on austerity measures in their parliament. This passed, paving the way for the resignation of Silvio Berlusconi. An interim administration led by economist Mario Monti has replaced Berlusconi’s government.

Contributed by Oliver Garner