[If] Europe is serious about yesterday’s trillion-dollar package and it comes together as announced. Which brings us back to the question of political commitment. It’s clearly not there from the UK, which has loudly opted out from the whole shebang. Is it there from the rest of Europe?
I have my doubts. Unfortunately, the politics of this are terrible in Europe. This starts with the fact that the politics of “bailouts” in general are terrible. Add in the fact that people start to act irrational when foreigners enter the picture, especially when there’s a convenient “lazy and irresponsible southern Europeans” narrative available that’s both self-flattering and ties in to existing stereotypes. Substantively, Angela Merkel’s policy in the face of this crisis has been too weak and too hesitant, but her party got slammed in local elections in Germany’s biggest state (and “local elections” in Germany aren’t purely local, this will cost her coalition control of the German version of the Senate) and the narrative is developing that it was too many bailouts that hit her.
What’s more, the elites in northern Europe seem to me to have done a terrible job communicating to the mass public why it is that a wave of defaults in Southern Europe would be bad for French people, Germans, the Dutch, etc. Consequently, it seems to me that we’re likely to see recurring crises, possibly for years, as Europe’s leaders consistently get it together at the last minute but then start drifting aimlessly again. And the risk is that if your policy counts on successfully dodging a half-dozen near-misses, the odds are actually pretty good that you’ll get hit in the face. Wolfgang Munchau says Europe needs “the introduction of a single European bond, an agenda to co-ordinate economic reforms with specific relevance for the monetary union, policies to reduce economic imbalances, much tighter supervision of fiscal policies that kick in well before budgets have already been announced, and, in my view also a kernel of a fiscal union” all of which is, as he says, relatively unlikely to happen.