|
|
In addition to seeing the world from a distorted perspective, officials also care little about deep causes, and focus mostly on technical, legal and institutional aspects. When they defend austerity, they do so from a framework of the European treaties, which tell them in great detail how fiscal adjustment must take place and what happens if it does not. It is not so much that they are in denial over the effect of fiscal austerity on unemployment. Some are, some are not. But it is outside their frame of reference. It is no surprise therefore that the system prescribes the wrong medicine. Instead of rebooting monetary and fiscal policy, everybody is wasting precious time with cynical programmes to deal with youth unemployment – notwithstanding that all the empirical and theoretical evidence tells us that such programmes are a waste of time and money if not supported by macro-economic policy. The problem is thus not a general lack of reaction, but a busybody technocratic response that can be relied upon to miss the point.
It is the same with banking union. European officials now accept what they denied for a long time – that a monetary union cannot function without a joint banking system. But the way they have been doing it was to think up a catchy headline first – banking union – then allocate jobs, and then have a long and tedious debate about the legal and institutional aspects, who does what to whom.
But in all of this, they sidestepped the most important point. There will be no common fiscal backstop. Why even bother with a banking union if you are not prepared to accept any form of joint liability or joint insurance? The €60 billion allocated to the European Stability Mechanism for the purpose of bank recapitalisation is pure deception. As the chief spokesman of the eurozone finance ministers admitted in an interview last week, these funds are a political signal only; in other words, a pot to be seen, not to be used.
Those who keep on saying that the EU has done more than anyone thought possible are ultimately implying the situation has improved and that the worst of the crisis is over. Therein lies the sheer horror of the statement. The economies of Greece, Portugal, Ireland, Cyprus, Spain and Italy have collapsed, and are mostly still contracting. Unemployment is at record levels, and rising. Official forecasters have been pretending for the past four years that the turnround is just around the corner. They have been wrong each year. And they will be wrong again.
Full article (FT subscription required)