The EU’s fiscal compact - the most boring suicide note in history?

Photo credit:   TPCOM

February 1, 2012 // By: James Meadway

There’s no other way to describe it. Strip away the eurojargon, and the EU’s fiscal compact is a despairing embrace of terminal decline. Austerity will now carry the force of law. Forget democracy, as Angela Merkel sternly warns, the European Court of Justice will now determine economic policies, and “Never will you be able to change them through a parliamentary majority.”

Southern Europe is being torn apart by the austerity programmes. There are simply no realistic prospects for recovery while the cuts are being applied. A fatal mechanism is at work: cuts reduce demand. Falling demand means firms selling less. Firms selling less means falling wages and rising unemployment, further reducing demand. This is the vicious circle Europe is locking itself into.

Elsewhere, FT columnist Wolfgang Munchau – no bleeding-heart Keynesian – has described the treaty as “quite mad”. He’s too generous: it is wholly lunatic, economic folly on a grand, continent-wide scale. Austerity is driving Europe into a state of permanent stagnation. The crisis was not provoked by public spending, but by the collapse of the banking system and persistent trade imbalances. And yet the whole argument, at least for Europe’s elites, is framed around the need for sharper and sharper spending cuts. The diagnosis is wrong, and the prescription actively dangerous. Voluntarily agreeing to it, as the 25 treaty signatories have, is suicidal.

The crisis, meanwhile, worsens. Eurozone unemployment hits a new high. Negotiations over the Greek debt write-down continue, as the country’s private-sector bondholders struggle to cling on to what little value might be left in their loans. The European Central Bank showing all the compassion and solidarity for which it is noted, has ruled itself out of any voluntary haircuts – insisting the full value of its loans to Greece are repaid. And after months spent perfecting their doormat impersonations, the German demands for direct oversight of Greek public spending have provoked even Athens’ supine political class into indignant squeaks.

The august gathering in Brussels has no real prospect of acting against the crisis. It is too fissiparous, and compromised by its entanglement with finance and the failed project of the euro. It has fallen back on its own path of least resistance – pay the bankers, screw society. The necessary steps are too far beyond the EU leaders’ reach: a creditor-led, sovereign default for Greece and other indebted euro members; a halt to austerity; and the democratisation of financial systems, compelling banks to act in the public interest.

The deal is deadly poison. The question is how best to neutralise it. Yesterday Belgian workers were striking against cuts. Millions elsewhere across Europe have protested and demonstrated. It is from this that a movement against austerity can be formed.

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Macroeconomics

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