SODOM & GOMORRAH: Angela Merkel’s panel of economic advisors have criticized the German Chancellor’s efforts at expanding the European Commission’s control over member-state budgets. Calling it politically improbable, the group claims that Merkel’s efforts have no hope of realization. Perhaps that’s the point.
I mentioned this in June: the European Union has two choices going forward. Either the EU tightens its grip on member-states or it dissolves. In the current crisis, there is no middle ground.
Individual interests are too varied for consolidation. The financial crisis is simply too large for any of the Eurozone leaders to sort through, much less understand. Each member-state has an immediate interest in saving itself from the crisis, and these efforts usually involve relying on a larger, more stable country to bail them out. As the bad debt changes hands, the risks compound and everyone is damaged.
Up to this point, much of the bailing out has been done by Germany, the country most conscious of the moral hazard involved with bailouts. Germany has also been under pressure by several outside forces to do more to promote jobs and economic growth – in other words, adopt an inflationary policy, which they have been firmly opposed to.
And now Angela Merkel’s incredible proposition: allow the European Commission to veto individual member-state budgets when they get out of line. Several countries immediately turned their nose at the idea; bailouts are fine, but the whole point of a bailout is to avoid accountability. If an alliance comprised of Germany and other influential European countries could enter at any time and impose austerity measures, that would be, in the words of Merkel’s advisors, politically improbable. In a word, it would be a disaster. Individual politicians would be thrown out of office for surrendering their sovereignty to outside powers who would force strict austerity measures on any country seeking a bailout.
Angela Merkel is bluffing. She wants to force the issue now so that the EU either strengthens to the point that she could take draconian measures on irresponsible members, or so that the organization stops pressuring her country into bailing everyone else out. It is, in short, a brilliant move.