Eurozone: The High Cost of [Corporatist] Complacency

An interesting article from the Economists’ Voice (Éloi Laurent "Eurozone: The High Cost of Complacency", January 2009) argues that while the Euro is politically and economically attractive to a host of collapsing smaller economies, the Eurozone itself "is inert".

"How to make sense of this seeming contradiction?" asks Laurent. "It is tempting to blame America for Europe’s recession, but... Actually, if we view the last decade as a whole, we see that European passivity has cost it dearly and there lies the key to the Eurozone’s still unfulfilled promise."

Laurent's view of the Eurozone's failures reads like a description of what has happened in Ireland.

"...The ten years between 1999 and 2008 have been a golden era. There probably was not a better time in contemporary history to launch a monetary union and, learning by doing, to build efficient and resilient economic policy institutions to ensure its prosperity and sustainability. Yet, the decade was largely lost by Europeans in vain doctrinal debates and sterile blame game sessions. ...The reason [that technocratic debate] absorbs so much time and energy [of the European leadership] is that, absent a true democracy, economic doctrine has become over the years the justification of political power in Europe."

Laurent is only partially correct. Indeed, the technocratic economic doctrine debates have been a marker for European political landscape since 1999, but the debates became so central to the EU functioning because of the dogmatic pursuit of social consensus as the only benchmark for policy success. In other words, absent real democracy, the EU had to devise a deus ex machina replica of legitimizing democratic institutions. This is what social consensus - or corporatism, as it became known in Europe in the 1930s and 1940s - predicated upon.

The problem is that social consensus fails when ti comes to the need to formulate potentially unpopular and decisive policies. "With virtually the whole planet booming over the past decade, the Eurozone has, since its creation in 1999, displayed the worse performance in terms of growth and unemployment of the developed world, barely ahead of a depressed Japan."

What was the EU response to this crisis of insufficient growth? "One might conclude from [international comparisons] that the value added of the Euro is so far, at best, dubious and wonder why. But the European Commission did not, and recommended instead more of the same economic policies, stressing the importance of “budgetary surveillance” for the future and dismissing calls for improving economic cooperation and coordination among member states. [Thus] the ECB made in 2008 the exact same mistake as in 2001 by resisting a necessary cut in interest rates (actually, it increased interest rates in July 2008), waiting for the worst to be certain instead of trying to prevent it."

Laurent omits to mention the laughably naive EU Commission road maps and 'agendas' - the Lisbon I and Lisbon II frameworks for economic growth, the Barroso's Social Economy lunacy, and lastly the idea that geopolitical enlargement will resolve economic growth and political legitimacy deficits. For their claim that European Unification is predicated on a deeply historical rooting of European people, this Commission is failing a primary school lesson in history: the same strategies for legitimization have marked the Ottoman and Austro-Hungarian Empires, as well as a bag full of unsavory regimes in the early 20th century Europe.

But, getting back to the economy: few probably remember today the 1970s. Back then, it took European countries more than double the length of time it took the US to come out of the crises, despite the fact that Europe had at the time much lower dependency on imported oil than the US. Why? That European disease of not willing to take the necessary economic policy adjustments. The same sclerosis is present within the Eurozone today. "After the 2001 recession, [thanks to the Fed active intervention] it took a year for the US to go from negative to vigorous growth. In the Eurozone, it took five years to fully recover. As for fiscal policy, ...a true European stimulus is still nowhere in sight, even as the economic outcome worsens by the day."

Taking real policy decisions and implementing new policies is something that is clearly not en vogue in Brussels. "Facts speak for themselves in this regard: the financial and banking crisis started to receive an adequate response after an improvised meeting of head of states and governments of the Eurozone last October, a standing body that does not even exist in
European treaties. As [Jean-Paul] Fitoussi observed: “the structure of power is such in Europe that those institutions who have the instruments to react have not the legitimacy to do so while those which have the legitimacy no longer have the instruments. Hence the passivity of European policy reaction.”

This is a sweeping (and absolutely apt) description of the entire political illegitimacy of the current EU power structures. But it is also an apt description of the Irish governance disease.

Just as an unelected and unaccountable EU Commission (and its Directorates) has no capacity to legitimize its rule, except via an elitist consensus bought by providing a guarantee of access to the feeding troughs of Brussels, so the elected European Parliament has no capacity to exercise its democratic mandate. Just as an unelected and unaccountable Social Partnership in Ireland has no capacity to rule except by bribing its way through all and any changes in economic environment, the elected Dail has been reduced to a nearly irrelevant student debating society. In both cases, corporatism has won and society has lost.

In 1934, Eoin O'Duffy - an Irish corporatist - stated: "We must lead the people always; nationally, socially and economically. We must clear up the economic mess and right the glaring social injustices of to-day by the corporative organization of Irish life; but before everything we must give a national lead to our people... The first essential is national unity. We can only have that when the Corporative system is accepted."

Am I the only one who sees clear parallels between this historical statement and our Government's (and EU's) active suppression of any dissent and the pursuit of a social-consensus model of policy formulation?