“It’s done,” confirmed Portugal’s Finance Minister Mario Centeno,
currently chairman of the Eurogroup. “With our solidarity it was
successful,” said his German colleague Olaf Scholz, and Commission
President Jean-Claude Juncker stated that “Europe should be proud of its
With such collective self-praise the eurozone leaders recently
celebrated the end of their crisis programme for over-indebted Greece
(it ended August 20). In Athens, Greek Prime Minister Alexis Tsipras
even wore exceptionally a special tie to celebrate the “historic event”.
But the staging was all bluff. In truth, there is nothing to celebrate.
On the contrary: Greece is economically ruined
and has no chance of escaping the dictates of its creditors. Against
the warning of the experts in the International Monetary Fund, the terms
forced government spending to be cut by a third in just four years,
thus causing the most severe recession that any country has ever
experienced in peacetime. This left one fifth of the population
unemployed, drove 300,000 Greeks abroad and increased debt to 180
percent of economic output.
But instead of allowing a new start with a debt cut, the lenders have
simply postponed repayment and have committed the Greek state to
generate a revenue surplus of 2.2 percent of economic output for another
42 years – an absurdly unrealistic idea in the opinion of all
Even more serious than the negligence that led to Greece’s
impoverishment is another failure: the governments of the eurozone have
not eliminated the root cause of the crisis. Europe’s monetary union is
still threatened with collapse, and even more so today than when the
crisis began eight years ago.
The reason for this is a fundamental contradiction in the
constitution of the euro: the 19 participating countries share one
currency, but they manage their national budgets separately and each
pursue their respective national economic policies. Moreover, the
European Central Bank does not automatically serve as a “credit or
lender of last resort”, which keeps the state budget liquid in the event
of a crisis, as is customary worldwide. As a result, there is still no
common budget and no common, democratically elected government of the
eurozone. The EU thus is lacking the absolutely necessary institution to
represent the common good of the monetary union as a whole and design a
policy that is shared by the citizens of all the member countries.
At the heart of this misconstruction is Article 125.1 of the EU
Treaty. It says that “The Union is not liable for the obligations of
central governments,” and this also applies to the member states among
themselves. At the same time, the founders of the euro pledged to limit
the national debt to 60 percent and the annual deficit to three percent
of economic output.
Above all, this “non-assistance bailout clause” was intended to
reassure Germany’s conservative voters. There was also the hope that the
common rules would compensate for the lack of a joint government. But
it was this clause that sowed the seed of the now imminent decay. For
the construct creates the harmful illusion among citizens that the
monetary union is feasible without a loss of power for the national
governments, when in reality, the opposite happens.
The counterproductive nature of this is clearly demonstrated by comparing how the US deals with public debt.
The public budgets of the United States are in the red at 105 percent
of the annual economic output. That’s a lot, yet no one fears that the
US government will not honour even one of the issued bonds. Not only
does it have the tax sovereignty to generate the necessary income, the
Federal Reserve also guarantees all payments.
This makes US bonds the epitome of a safe investment – even if the
president is a mess. In contrast the eurozone as a whole is much less
indebted – by 86 percent of its gross domestic product and should not
even have a debt problem. But because euro countries operate on the
capital market individually, banks and funds can speculate against the
more heavily indebted euro countries by pushing up the interest rates
for renewing government bonds so high that the warning about bankruptcy
becomes a self-fulfilling prophecy.
This is exactly what happened in the spring of 2010 in Greece, and
shortly afterwards in Ireland, Portugal and Spain. A default by one of
these countries would have caused Europe’s banks to collapse again, only
two years after the Lehman crash, because they were so heavily invested
in these countries.
That is why the leaders of eurozone countries, led by German
Chancellor Angela Merkel, once again decided to save the banks by
guaranteeing the governments concerned more than 400 billion euros in
emergency loans to pay off the creditors.
But they didn’t admit that to voters.
After all, the first bank bailout had already cost around a trillion
euros of public money. That is why Merkel and her colleagues declared
the bail-out as “solidarity” and “salvation”, and, despite the joint
responsibility of all euro governments, burdened the crisis states alone
with the entire burden of the loans – a fatal mistake.
Without any public consultation, and without even asking the European
Parliament, the eurozone then was yet given a form of government: – the
“Eurogroup” of finance ministers – from the member states of the
But this body is only informal, it is not elected EU-wide and not
accountable to all EU citizens at the same time. There are not even
publicly available minutes of its meetings. Instead, the ministers and
their authorised bureaucrats execute the right of the strongest in a
democracy-free area: the creditors against the debtors and the countries
with an economic surplus against those with a deficit.
This imbalance in power is also the source of the determination of
the entire monetary union to follow an unsustainable economic model –
one in which all member states should follow the German model of lower
wages, increased exports and reduced government spending. But that only
worked in Germany’s crisis years because the other euro states did not
adopt this model, and – supported by loans from Germany – fuelled the
German economy with their imports.
Applied to the entire Union, however, this leads to a race to the
bottom and forces weaker countries into stagnation due to a lack of
demand. At the same time, the German government has already received
more than 100 billion euros only in interest savings as a result of
capital flight from the Mediterranean countries and interest income from
emergency loans. An end to this destructive development is not in
sight. Instead of bringing the “peoples of Europe” together in an “ever
closer union” as agreed, monetary union in its present form divides its
members into winners and losers.
This makes Italy in particular is a political time bomb for the euro.
For ten years, interrupted for only the two years after the banking
crisis, the government stuck rigidly to the deficit rule. But this led
to a lack of funds for much-needed investment in education, technology
and infrastructure, without which the country is falling further and
further behind – and the EU is unable to offer effective aid due to a
lack of a sufficient budget. No wonder then, that the citizens rebelled
against the perceived dictate from Berlin and elected the unpredictable
rebels of the five-star movement and the right-wing radical Lega Party
The sociologist and mentor of European integration, Jürgen Habermas,
recognises in this the pattern for the whole of Europe. “The tangible
disappointment is that the EU, in its current state, lacks the capacity
to act to counteract the growing social inequality within and between
member states that is the underlying cause of political regression,” he
“Right-wing populism” is “primarily due to the widespread perception
that the EU lacks the political will to become capable of action.”
But the way back is blocked. The single currency has already pushed economic integration too far.
Thousands of companies can only deliver across borders because there
is – no currency risk. To this end, millions of cross-border contracts
based on payment in euros have been agreed. This is accompanied by
claims on banks and funds in trillions. Their value would, in one fell
swoop, be in dispute if the debtors suddenly wanted to pay in another
“A dissolution of the monetary union would indeed lead Europe into an
economic war,” predicts the Austrian economist Stephan Schulmeister. No
one would win, everyone would become poorer together, and that would
“release an anger that would be directed above all against Germany”.
A “Euro Union capable of action would be the only conceivable force
against further destruction of our much-cited social model,” warns
Habermas. For this the EU must be “equipped with skills and budget
resources for intervention against the further divergence of the member
states,” he demanded. Only in this way could “the economically and
politically strongest members redeem the broken promise of the common
currency for convergent economic developments.”
And for a few months last year, it looked like this vision might come
true. With Emmanuel Macron in France, a president stepped onto the
European stage as had never happened before. For the first time, a
leading EU politician acknowledged that the lack of democracy and the
lack of an effective central authority threatened the European project.
Many citizens had turned away from European unification “because they
were not heard,” he said. Therefore, “Europeans must have the courage to
rediscover the path of democracy” and “not with technocrats”
negotiating contracts “secretly in the back room”.
Like Habermas, he called for a Eurozone budget of “several percent of
economic output,” a multiple of the current EU budget, so that it can
counter future economic crises on its own. This would require a European
Finance Minister and a Parliament of the eurozone “to establish
democratic accountability,” he said, confessing with revolutionary
honesty the anti-democratic nature of the current Euro regime.
But as captivating as Macron’s campaign was for “the re-founding” of
Europe, so as narrow-minded were German Chancellor Merkel and her Social
Democratic co-regents, who rejected all his plans so as in order not to
deprive their voters of the poisonous illusion of national
self-determination that in reality no longer exists.
They only want to support an additional budget for investments of a
symbolic size. Worse still, at the latest EU summit, Merkel and her
supporters even insisted that the euro area’s crisis management should
continue to be the responsibility of the unelected technocrats of the
Euro-loan Fund ESM, which who are not accountable to any parliament.
Nothing is to change in the constitution of the Euro.
“The continuation of the status quo is synonymous with the
dissolution of the euro within ten years,” warned Macron in January
As things currently stand, it looks like he may well be right.
This article has been translated from the original German version which was published in Der Tagesspiegel: Warum die Griechenland-Rettung den Euro nicht gerettet hat