During the summer of 2012, it was all
too easy, especially for financial analysts (whose expertise is on finance
rather than politics), to summarily conclude that the E.U. was not capable of
keeping the states of Greece and Spain from default. Perhaps the human brain
has an innate proclivity to think in bipolar terms in the sense that something
(or someone) is presumed either “good” or “bad.” Empirically, social
organization, which includes politics and finance, is typically more gray than
“black and white.” This is undoubtedly the case concerning the political risk
analysis that goes into assessments of systemic risk, especially where
uncertainty is salient. In general terms, I would say that as of 2012 the
anticipated demise of the euro (and even the E.U.) was much exaggerated.
Somehow or other, European policy-makers were able to hold the federal
ship-of-state together in spite of its vulnerabilities.
For example, by the end of October 2012,
it had become clear that Angela Merkel’s governing coalition would put up only
limited resistance to an expanding the E.U.’s bailout to Greece and giving that
state two years “breathing room” by easing the “onerous timetable of Greece’s
austerity program.” In spite of it being the third bailout for Greece since
2010, the overriding concern was that Greece not default and that it be kept in
the “eurozone.” One of the state lawmakers in Germany, Hans Michelbach, said
the governing coalition is willing to give Greece two extra years to cuts its
budget deficit and extra financing to keep the state afloat.
To be sure, the political need to keep
the lid on the “crisis” until after the German elections in the fall of 2013
was no doubt a factor in the conservatives’ willingness to pay out more and
relax the conditions of austerity. The recent replacement of Sarkozy by
Hollande in France was also no doubt on the German politicians’ minds. According
to one political scientist in Bonn, “nobody wants to endanger the current calm
in financial markets.”
The state governments play a major role at the federal level in the E.U. Source: mapperyworldpress.com
It makes for a leaky boat at best for
the E.U. to have to rely on the vicissitudes of state politics to keep a state
from bankruptcy (and in the “eurozone”). A financial analyst could easily
extrapolate out a scenario of demise from this patch-work arrangement. However,
it was also evident that Angela Merkel and others in power had decided during
the summer of 2012 that they would do what it takes to keep Greece afloat.
Moreover, there was a sense after the Greek and Dutch state elections that the
E.U. was on a threshold—whether to walk back the integration or take another
step closer—and that the decision was to go ahead with a more integrated track.
Countervailing political forces, such as
the increasing influence of the Finns Party, whose platform includes taking
Finland of the euro, can be viewed relative to the overall determination of major state-level governors to “do what
it takes.” Even in terms of Finland, the National Coalition Party and Social
Democratic Party, both of which support the euro, had a combined 40.7% in the
polls even as the Finns Party had risen to 15.6% (polled for municipal
elections in October 2012) from 5.4% in 2008. That is to say, the rise in
anti-euro sentiment should be put in perspective even within a given state.
In conclusion, the sub-optimal reliance
on state leaders to craft E.U.-level policy on the debt crisis—a reliance for
which Europe itself can be blamed—sadly meant that coalition politics in the
state of Germany had become crucial to the fiscal viability of the euro and the
financial markets at the E.U. level.
Nevertheless, enough cohesion had been built around the problem by the
power-brokers in the big states to withstand countervailing political and even
economic forces. This informal consensus
can easily be dismissed by financial analysts who are limited by their
financial expertise to assess the political aspect of the systemic risk
according to the structural attributes
(feebleness) of the E.U., which include the over-reliance on the governments of
the big states.
Sources:
Mary Lane, “German
Lawmakers Shift Toward Extending Greek Aid,” The Wall Street Journal, October 27,
2012.
Denise Wall, “Finnish
Nationalists’ Pre-Vote Surge Sets Stage for Debate Over Euro,” The Wall Street Journal, October
25, 2012.
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