Letter From Paris

The Slow Melting of Eurofudge

Twin crises and rising populism threaten the European Union.

By From the September 2011 issue

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Skies are dark with chickens coming home to roost as the European Union faces its worst existential crisis since its founding. But EU officialdom has other creatures than chickens on its mind, namely, hamsters. Not just any hamster, but none other than the Great Hamster of Alsace. After thorough investigation and due deliberation the Union's highest court, the European Court of Justice in Luxembourg, has solemnly threatened France with $24.6 million in fines if it does not better ensure the wee, timorous beastie's favorite diet of grass and alfalfa.

Thus goes "Europe" -- the quotation marks distinguish the artificial creation from the real thing -- today. The Eurocrats' 20th-century dream was to force Europe's vastly diverse nations, each with its own proud history, culture, language, and currency, into a single politico-economic mold -- an early example of cookie-cutter globalization. Today's 21st-century reality is something else: a surreal multinational botch run by a Brussels-based oligarchy. Busily fiddling while Rome burns, it spouts Eurospeak and produces a Eurofudge of questionable statistics, fake achievements (it claims to have singlehandedly brought peace to the Continent), and intrusive, pettifogging regulations.

The Eurocrats' two most radical measures for forging "Europe" were the 1992 Maastricht treaty creating a monetary union with the euro single currency, and the 1985 Schengen accord abolishing borders between the 17 EU member states that adopted it. With the euro and passport-free travel, the official propaganda went, Europeans would celebrate their newfound brotherhood, merrily mingling freely. Everybody would feel more "European." Initially these were the EU's most popular innovations, seemingly greasing the wheels of integration and making life easier. The irony is that today's twin European crises are precisely the result of 1) a rigid, unworkable monetary union and 2) a borderless area open to uncontrolled population movements.

Now Europeans are rebelling from Madrid's Puerta del Sol, where tens of thousands of Spanish indignados this summer chanted their refusal to pay for the Eurocrats' errors, to Athens's Syntagma Square, where outraged Greek aganaktismenoi rioted in clouds of tear gas against punishing austerity measures imposed to save the endangered euro. Anger is also boiling in Ireland and Portugal, where economies have gone bust due to soaring consumer prices and disastrous credit bubbles created by the artificially low interest rates of an easy-money euro.

The revolt has caught the Eurocracy by surprise. It shouldn't have. After all, the Common Market/European Community/European Union, or whatever it will be called next year, was never put to a Europe-wide popular vote. This oversight is delicately described in Eurospeak as "the democratic deficit." But on the few occasions when Europeans have had the chance to express their opinion in national referendums, they have shown contempt born of clear-sighted common sense. The Danes voted against the Maastricht treaty; the French and Dutch both tried to shoot down the new EU constitution. The Eurocracy's reaction was to order them to vote again (and again, and again, if necessary) until they got it right. When a majority of British and French citizens dared tell pollsters life had actually gotten worse under the EU, the oligarchy dismissed them as "nostalgic and insecure."

Postwar Europe's leaders were blinded by their vaulting ambition to create an ever bigger "Europe" as fast as possible before anyone noticed its flaws. It was, they explained, like riding a bicycle: you had to keep moving or you would fall. Or, as one European Commission president, the French Socialist Jacques Delors, baldly put it in the 1980s, "We don't know where we're going, but we're on our way."

Otherwise they would have realized the folly of a politically motivated monetary union, with fixed, one-size-fits-all interest rates and no possibility of individual member-states devaluing in times of -crisis. It should have been obvious that it was impossible to combine strong economies like Germany and France with weaker "periphery" countries like Greece and Portugal. American free-market economists like Milton Friedman early questioned the validity of the euro, a currency based on utopian dreams instead of economic reality. But they reckoned without the European practice of arranging facts to obtain the desired result. Thus countries applying to join the eurozone were allowed to qualify by cooking the books, using off-budget accounting, getting special waivers, and other typical Eurofudge.

IN THE CASE of Greece, epicenter of the current euro crisis, the fudge was particularly thick. To start with, Greece flagrantly failed to meet the required fiscal criteria for membership when the eurozone was set up in 1999. Not to worry. In 2001, Brussels turned a blind eye to Athens' phony budget numbers and admitted Greece. Monetary union marched triumphantly on. With that, Greece was eligible to borrow at much better interest rates than it could have with the lowly drachma as its national currency. Thanks to abundant cheap money, the Greek economy, rife with chronic corruption, cronyism and tax evasion, suddenly boomed. The Greeks knew they were living high on credit. They also knew that, when the crunch came, the hardworking Germans would bail them out to save the euro, for which they reluctantly had sacrificed their cherished deutsche mark.

When Greece's inevitable debt crisis hit last year, the solution was more Eurofudge: in breach of the Maastricht treaty, which forbids financial aid to a member state that gets into fiscal trouble, Brussels put together a $158 billion bailout. When that wasn't enough, it kicked the can further down the road last June with a $17.4 billion loan to keep the government running through summer. And that loan was just to tide Greece over until the EU, after a series of embarrassingly futile summit meetings, could deliver still another billion-dollar rescue package. In return for continuing life support, the Greek parliament went through the motions of passing an emergency austerity package of spending cuts to public services, tax increases, and the sale of state-owned assets like the ports of Piraeus and Salonika. (And if you believe those deeply unpopular measures will ever be applied, thereby increasing unemployment and prolonging the recession, I have a tower in Paris I'd like to sell you.)

With Greek bonds downgraded to junk status by rating agencies, few believed the country could avoid default. (The agencies, like Moody's and Standard & Poor's, were American and therefore biased against Europe, sniffed the Eurocrats, attacking the messenger who brings bad news). Default by one member could put the entire eurozone in danger of domino-like contagion--Portugal's bonds are already junk grade, and there are doubts about Spain and Italy--and catastrophic financial failure, a Lehman Brothers disaster on a Europe-wide scale. As the economic journalist Robert Samuelson says, "It has come to this. A year after rescuing Greece from default, Europe is staring into the abyss. There is no easy escape."

HAD IT NOT been in such a hurry to achieve its fait accompli, the Eurocracy also might have foreseen the inevitable problems caused by its other grand projet, a passport-free Union. After their initial enthusiasm for leaving passports at home when heading for Mediterranean beaches, Europeans began to realize that free movement within the 25-nation Schengen area meant just that: once accepted in any member country after a cursory procedure, a new arrival from anywhere on the planet can roam freely and eventually settle in next door. He may not speak the language, he may not have a job, but he is eligible for free medical care and other generous social benefits paid for by local taxes.

This is now running head-on into the instinct for self-preservation and enduring nationalism of ordinary Europeans, especially now that public opinion is being increasingly influenced by right-wing parties from France to Finland, Austria to Italy. One telling sign can be found in the usually liberal Netherlands. From the creation of "Europe" half a century ago, the Dutch have been stalwart promoters of greater integration.

No more. Now Dutch leaders are warning Eurocrats to heed the growing populist anger. "The most stupid thing is to neglect this and tell these people they are behind the curve, that they don't understand what's going on in the world," says Ben Knapen, the Dutch EU affairs minister. Pushed by the right-wing, anti-EU Freedom Party, the Dutch government is considering expelling EU migrants who have been unemployed for more than three months, and cutting benefits for those who fail a Dutch language test. As one Dutch parliamentarian puts it, "We don't want jobless Poles, Romanian beggars and people from North Africa or Turkey."

In Denmark, the populist Danish People's Party, a coalition partner in the government, recently forced the reopening of Denmark's long-closed border checkpoints and customs houses. This direct challenge to the Schengen treaty--and the trend it represents--creates painful angst among EU faithful and draws frowns from the Eurocracy. "Stopping free movement endangers solidarity among Europeans and jeopardizes the European project," lectures José Manuel Barroso, a former Maoist and now, most appropriately, president of the unelected, unaccountable, Politburo-like European Commission in Brussels. "Nationalists in every country will get the same idea," warns a foreign ministry official in Berlin. "They will model themselves on Denmark." How true. Denmark's new policy on border checks was hardly announced when France's National Front, led by the charismatic Marine Le Pen, began putting up posters with the slogan, "Denmark patrols its borders. Why not us?"

The campaign resonates in a country like France, struggling to accommodate tens of thousands of refugees fleeing the chaos of the Arab Spring. At last count some 40,000 Tunisians and Libyans had reached the Italian island of Lampedusa just 70 miles off the African coast. Silvio Berlusconi threw up his hands and freely distributed "temporary" residence permits to all comers, opening the door to the rest of Europe. The French-speaking Tunisians have made a beeline for France, where many have friends or family. When Nicolas Sarkozy asked Brussels to put the Schengen open borders rules on hold so France could stanch the flow, the Eurocracy reacted with the usual fudge: "temporary" border controls could be set up, it agreed with a wink, undermining one of its own favorite measures.

EUROFUDGE is melting under the heat of a threatened euro, failing immigration policy, and rising populist parties. You can, after all, fudge some of the facts some of the time, but not all of the facts all the time. Poland, the biggest and most important in geopolitical terms of the EU's new Eastern European members, senses this. Rather than rushing to join the eurozone as expected, it is warily demanding better fiscal rules and crisis management before giving up its zloty and groszy for the dubious charms of the single currency.

The question is whether this is only a temporary crisis or whether the crumbling foundations of "Europe" signal the beginning of the end of the European Dream. Even the Eurocracy itself is beginning to have its doubts. A recent survey of European Commission staff in Brussels revealed that 43 percent thought European integration had "evolved negatively" over the past 10 years, while a convincing 63 percent said "the European model has entered into a lasting crisis."

What is certain is that, with Nicolas Sarkozy and Angela Merkel more interested in their own political problems and upcoming elections, no major European leader today is energetically promoting integration the way French and German heads of state did from the 1960s to the 1990s. As the Financial Times suggests, "We may be witnessing a generational change in European political dynamics. Traditional left-right divisions have narrowed.… It may spell a new, unprecedented challenge to the European project."

Right now "Europe" is bobbing and weaving and playing for time. José Manuel Barroso, a president with no real power over anything, implores EU heads of state to resist what he calls the "populist temptation" created by rising regionalism, nationalism, and anti-globalism. But, while suffering what looks like the slow-motion collapse of the European Union in its present form, the real challenge to Eurocrats may be to salvage the things they do best. Like saving hamsters. 

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About the Author

Joseph A. Harriss is The American Spectator's Paris correspondent. His latest book, An American Spectator in Paris, was released this fall.