Will the European Union Survive?

News reports this morning indicate that German Chancellor Merkel won an enlargement of the German contribution to the European rescue fund by a wide majority in the Bundestag.

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@georgeob1,

Quote:

German parliamentarians on Thursday approved the planned expansion of the European Financial Stability Facility (EFSF) with 523 voting in favor, 85 against and three abstentions.

The bill's passage is a vital step in euro-zone efforts to increase the fund's lending capacity from its current €250 billion ($338 billion) to €440 billion. Germany's share of guarantees for the fund will rise from €120 billion to €211 billion, though several other euro-zone parliaments must still vote on the expansion.
The result also means that Merkel can breathe a sigh of relief. There had been concern that renegades within her center-right coalition could mean that Merkel would be forced to rely on opposition votes to pass the legislation. Had that come to pass, her power would have been severely curtailed .

In the end, however, 315 parliamentarians from Merkel's conservatives and from her junior coalition partners, the Free Democrats, voted in favor of the EFSF expansion. Fewer than 311 would have limited Merkel's power by making her reliant on opposition votes and indicating that she could no longer rely on the support of her own coalition.

To sweeten the deal, the law passed on Thursday includes a provision which gives the German parliament a say in future EFSF decisions. In a recent verdict, Germany's highest court had demanded greater parliamentary involvement in decisions relating to euro-zone bailouts. And now, a special committee will be established in the Bundestag to ensure parliamentary involvement even in hurried EFSF resolutions.

Source and full report spiegel-online >here<

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@Walter Hinteler,

It certainly appears that the immediate crisis has been significantly abated. Perhaps the real test will be whether or not this will be sufficient for Greece to actually restore its economic productivity and pay back its debts. I believe that aspect of the problem is as yet far from clear. A good case can still be made for default as a more effective way for Greece to recover economically with any hope of being able to sustain itself.

I don't understand the theoretical economic aspects of financial leverage well enough to be sure, but it does appear to me that both the new bond issues by the ECB currently being discussed, and the Euros in circulation, all equally represent obligations on the future tax revenues of the Eurozone members, and that the new debt instruments being created still rest on the same capital base. In short, there may be some illusions here. Such illusions were certainly a major factor in the 2007 financial crisis in this country.

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@georgeob1,

Quote:

It certainly appears that the immediate crisis has been significantly abated

The current agenda is to buy time to work on a solution, nothing that is now being considered addresses the underlying problems.

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I think that Europe will soon catch fire, burn to the foundations, at which point their chemical wastes will catch fire and then explode. Good riddance to bad rubbish, i say.

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@Setanta,

... and being an archipelago, only the Insulae Britannicae will survive. (Especially res publica Hibernia, as a treat for George)

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@Walter Hinteler,

I've been to Hibernia . . . it may not be quite the treat he was looking for . . . has Angela been smoking in bed again?

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@georgeob1,

Indicative of how small a deal this German approval of increased leading is that the American markets have late in the day turned negative. Europe "guaranteeing" another couple hundred Billion euros of their flimsy debt solves little. "We really really cross our hearts promise to pay you back" sounds nice, but I still want to know where the money is coming from. If Europe cant pay then they cant pay, and insisting even now that there is no need for Greece to default is not a confidence builder. I want to here something that sounds like reality out of the one who is in hock up to their necks, and so far we dont hear that out of European leadership.

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@hawkeye10,

Though the details are different, these are issues we share with Europe as well.

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@georgeob1,

georgeob1 wrote:

Though the details are different, these are issues we share with Europe as well.

We certainly share the inability to talk honestly about problems, and to then devise solutions to them by consensus. The difference is that in America this is caused by immaturity where as in Europe it is caused by the Utopia builders trying to evade the will of the people as much as possible so that they can get their project done. We share the undoing by greed though, but we are greedy for different things.

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@hawkeye10,

I don't see much difference in the two things you describe. Both are based on hopes (perhaps illusory) that a potential catastrophe will not occur.

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@georgeob1,

agreed, but it is not clear that we moderns understand risk....we are spoiled by an easy life and we tend to think that we can save any day with some last minute daring -do. The person who does not think it matters how deep a hole he digs for treasure will one day dig a hole that he can not get out of, which he realizes only too late after no one shows up to save him this time.

EDIT: that we ever got into this situation represents the great failure of conservatism.....you boys where supposed to be good evaluating risk, but not peep was ever heard from you as we were digging away at what might become our graves.

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How often have the borders of countries and unions in Europe moved in the last 10 centuries?
Why should EU last for ever?
27 countries with 23 languages and 300 political parties - don´t seem to have much in common except politicians who tell us that without the EU we would have wars.
47 000 people work in Brussels and move back and forth twice a year - using a lot of gasoline and polluting the air.
It is limited what we are allowed to vote for and if the election goes bad then we just vote again till we vote yes.
Fruit and vegetables had to be perfect and have a certain size. That caused 20% off all fruit and vegetables to be thrown out. Law had to be changed.
Laps who have reindeers cannot get money from EU as they are not concidered acricultural people. The reindeers are not in stables. Don´t know if the law has been changed.
Mercury is dangerous, so now we are going to have it in our bulbs and all other bulbs are going to be forbidden.
I heard some years ago a Swedish politician saying that "If you are not for EU you are a Nazi" Did she not know that the Nazis fought for a united Europe and we should be thankful for that it did not work out at that time.
At least EU was buildt on democratic ideas.

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@georgeob1,

Quote:

Will the European Union Survive?

I dunno, but I hope not.
It approaches too closely to a world government
which inevitably, in time, woud degenerate into a totalitarian despotism.

Competition among rival governments is much healthier.

David

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I don't have any wish to see the EU fail or be broken up. It has so far been a very effective tool for addressing long-standing European political problems and for raising the economic well-being of many people on the continent. Certainly in the wake of the fall of the Soviet Empire, the EU acession standards became the economic template for the beneficial transformation of the formerly authoritarian socialist states of Eastern Europe. That alone was a very significant achievment that was accomplished very quickly and painlessly, at least by historical standards. In any event, the matter is up to the Europeans themselves to decide.

At the same time the EU is itself a model for policies that are both beneficial and others whose adverse side effects outweigh the good in the contemporary world. In that context it is a useful model for our study and observation. I believe the core issue is balancing the integration of political power with financial and economic controls in the union. It is easier to get agreement on many common economic goals and standards, than to surrender national sovereignty to a collective government. The current financial crisis can be said to have arisen in part as a result of the conjunction of a common currency and multiple independent policies with respect to deficits and sovereign debt. When the dust settles on the current crisis, these issues will undoubtedly come to the fore.

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Well, almost a year has passed. The Greek situation is no where closer to resolution, though the recent election provides some hope that Greece will have the stamina to face facts and deal with a situation largely of their own making, and therefore largely theirs to fix.

Now that fears of financial have spread to Spain, and that perhaps illusory hopes that recovery can be accomplished without discomfort and restructuring the social safety nets (as was done several years ago in Germany and some Scandanavian countries) have been stoked by the election of the Socialists in France and apparently growing resistence to reform in Italy, the situation appears to remain both fluid and potentially unstable.

The core issue still remains - whether to increase political unity and accountability for bugdetary policies or to abandon the Euro and loosen the structure of the EU. Both appear possible; one or the other inevitablke.

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@georgeob1,

Quote:

The core issue still remains - whether to increase political unity and accountability for bugdetary policies or to abandon the Euro and loosen the structure of the EU. Both appear possible; one or the other inevitablke.

Reverting back is always more likely. In this case more so because unifying European finances will require approval from the citizens as well as many changes in Constitutions. Does anyone know what the betting line is??? It should be something like 8:1 the EU degenerates. The real question is will this be orderly or will this be be done in crisis reactionary mode??

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@hawkeye10,

Today's decision to move towards centralized EUROZONE supervision of banks and for the donor states to, in company with that, grant capital loans directly to member banks is indeed a move towards consoilidation and survival. There are more obstacles ahead as member states, promionently including italy and France, will be confronted with the contradictions between economic growth and competitiveness and their inflexible labor laws.

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@georgeob1,

Apparently there's a wave of lawsuit against those measures rolling towards the German Constitutional Court. Merkel is way outside her executive authority to do this without support in German law. The question is whether the Constitutional Court will take a stand on principle or not.

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@Thomas,

Well, just as history offers a plethora of "lessons" which contending parties can select for themselves in a self-serving way in any dispute over policy, there are many "principals" out there which can be called upon with ease to rationalize almost any action.

The political struggles in Europe and within the key member states are very interesting on several levels. Germany went through its own mini crisis and recovery over a decade ago as Chancelloe Schroeder (gasp!) championed some restrictions on social welfare payments and relaxation of labor market restrictions to correct then sclerotic economic growth and contain the growth of government expenses. They also got through the enormous costs associated with the wealth transfers after reunification. With that in mind I can readily understand the resistence of many Germans to merely bailing out those who regard the abandonment of unrealistic illusions and life on borrowed money as trials too difficult to bear.

On another level, many EUROZONE states (Italy comes to mind) have failed to grasp the evident fact that the common currency makes it impossible for them to avoid political conflicts through mere devaluation of their currency - new behaviors are required and that requirement comes inescapably with the benefits of the common currency.

Finally the several decades of rather amazing European progress in the creation of first a trade union and then moving on to quasi economic and Political union - all without directly confronting some key sovereignty issues - has likely come to an end. It isn't so much a failure as it is the end of an extended period of defying the odds while moving by unresolved core political issues. The piper must eventually be paid.

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Will the European Union Survive?

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