Why the EU is so clueless about the Euro crisis

The slide of the Euro on the money markets signals the possibility that the European Union may not survive its sovereign-debt contagion in its present form. However, European policymakers refuse to acknowledge their own responsibility for this problem and are reluctant to take any decisive action to contain it.

Policymakers often indulge in what is called responsibility-avoidance. EU functionaries have perfected the practice of responsibility-avoidance; in fact they have transformed it into an artform.

In recent years, whenever I talked to insiders in the Brussels beltway, they often lectured me about Britain’s annoying and disappointing Euro-sceptics. In the months following the first stage of the Euro-crisis, their disappointment shifted its attentions to Germany. All of a sudden, German unilateralism became the spectre haunting the EU political class. At times, one even heard it suggested that the Germans were deliberately trying to transform Europe’s little economic difficulty into a major crisis in order to extend and consolidate their influence over the continent.

That was then. In recent weeks, after the downgrading of Portugal’s sovereign debt to junk status, EU groupspeak has mutated into a frenzy of invective against the big three American credit-rating agencies: Moody’s, Standard & Poor’s and Fitch. All of a sudden these agencies stand accused of malevolently conspiring to destroy Europe. The president of the European Commission, Jose Manuel Durrao Barroso, swiftly assumed leadership of this depressing blame game, condemning Moody’s for being responsible for Portugal’s economic predicament. He denounced the company’s analysis of Portugal’s financial crisis as biased and speculative.

Barroso’s refusal to confront Europe’s financial crisis head-on is shared by a significant section of the EU political establishment. However, they rarely put forward their alternative analysis, their blame game, with any conviction. Indeed, in recent weeks the impression I got when talking to people in Brussels is that they sense that Greece is only the beginning and that what is at stake is not only the Euro but the whole EU project. I have visited Brussels regularly during the past five years, but this is the first time that my interlocutors revealed their fears that the Euro crisis is more than a financial one. It might also represent the end of an era, they suggest.

Since my visit to Brussels last week, the Euro has slid even further on the money markets and now Italy shows every sign of becoming the new Portugal, if not the new Greece. However, what’s really fascinating about recent developments is not the financial crisis but the political paralysis afflicting EU policymakers. Typically, politicians are pointing the finger of blame at each other. Italian president Silvio Berlusconi has openly clashed with his finance minister, Giulio Tremonti, though no doubt they agree that an American credit-rating agency is to blame for exposing the mess that the Italian economy is in.

The rhetoric of responsibility aversion amongst EU policymakers is underpinned by the realisation that their institution lacks the authority and the political resources to deal with the current crisis. It is important to remember that the EU is a technocratic institution that has always responded to challenges by cobbling together deals behind closed doors. From its inception, the EU was an elitist managerial project that was able to construct and promote its agenda without having to respond directly to popular pressure. Decisions are never arrived at through public debate, and the majority of EU laws are formulated by the hundreds of secret working groups set up by the Council of the EU. Most of the sessions of the Council of Ministers are held in private, and the EU’s unelected European Commission has the sole right to put forward legislation.

The most distinctive feature of the EU’s governance is that it is systematically pursued through insulated decision-making. For decades the EU political establishment has self-consciously constructed institutions that could insulate it from the necessity of having to respond to the type of public pressure faced by a democratic parliament. This invisible decision-making allowed a variety of political actors in Brussels, and in Europe’s national capitals, to avoid taking responsibility for unpopular decisions. In effect, policymakers were insulated from having to account for the consequences of their decisions.

While insulated decision-making was an excellent way to avoid responsibility, it also eroded the EU’s capacity to respond decisively to unfolding events. The slowness with which EU ministers responded to the eruption of a volcano in Iceland last year exposed a serious failure of responsible decision-making. The unnecessary shutting down of European airspace was an act of a political establishment estranged from the ethos of leadership. Insulated from the populace, how could this institution ever learn what true leadership and real political initiative are all about?

But this all pales into insignificance in comparison with the present financial crisis. The prerequisite for dealing with the decline of the Euro is crisis management exercised through political leadership. It requires that political leaders actually tell it like it is and go out and win support for the painful measures required to restore economic stability.

Political leadership is not simply a desirable thing. It is essential. For without winning over a significant section of the European electorate, it will prove extremely difficult for European institutions to restore financial order in Europe. Regrettably, the EU establishment lacks the capacity to offer such leadership. Policymakers who are used to behind-the-scenes manoeuvring are rarely able to reinvent themselves as persuasive leaders.

It is ironic that even today there are many EU apologists who refuse to acknowledge the negative consequences of the EU’s democratic deficit. Amartya Sen, the Harvard University professor and a Nobel prize-winning economist, recently accused the credit-rating agencies of undermining legitimate governments and also blamed them for the marginalisation of the democratic tradition of Europe. He takes strong exception to the unopposed power of rating agencies and their power to issue unilateral commands. Typically, he is oblivious to the unilateral commands of Brussels.

No doubt the rating agencies do have their own agenda, and they are certainly no more democratic than the European Commission. But good on them for forcing the EU to face the real world.

Frank Furedi’s On Tolerance: A Defence of Moral Independence is published by Continuum. (Order this book from Amazon(UK).) Visit his personal website here. This article was first published in the Australian on 16 July 2011.