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Published on November 7th, 2011 | by Seamus Macleod
Image © [caption id="attachment_5303" align="alignleft" width="300" caption="Where? John Ager (C)"][/caption]

Many are the straws that threaten to break the eurozone's back. Economic disparities between the rich and competitive northern Member States and their profligate southern counterparts, a shared monetary policy without fiscal integration, liquidity crises, and Greek insolvency all weigh heavy upon the single currency. The past two weeks have seen a new threat take centre-stage. Two eurozone heads of state have managed a media presence normally reserved for Angela Merkel and Nicolas Sarkozy. Last week it was the ever entertaining and often quite terrifying Silvio Berlusconi. Mentions of Mr Berlusconi outside of criminal accusations, sex scandals, or both are rare but his apparent failure to pass the austerity measures required to save Italy from financial contagion brought him into the spotlight in a less sordid fashion than is typical. It was reported that Mr Berlusconi "was subjected to a roasting at the hands of... European leaders." This rough treatment was brought on by the spiralling of Italy's borrowing costs which are nearing the levels of Ireland and Portugal in the weeks preceding their bailouts. Panic and recriminations were not unjustified. Whilst approaching the virtually solid levels of financial liquidity that spelled disaster for Ireland and Portugal, Italy's expulsion from international financial markets is so far unique in that - whilst all eurozone nations have until recently been considered too big to fail - it is the first to be too big to bail out. Even the newly expanded - at least in a nominal sense - European Financial Stability Facility could not afford to service Italy's debts if the markets were to outright refuse to lend to the beleaguered Mediterranean state.

The Italian Prime Minister's time in the uncomfortably warm sun was short-lived, however, when Greek Premier George Papandreou greeted the announcement that his country's debt to private creditors would be reduced by 50% in exchange for further reform and austerity with revelation that any such deal would be put before the Greek people in a referendum. Mr Papandreou may not have attended any "bunga bunga parties" but his decision to defer to direct democracy scandalised eurozone leaders and technocrats more than any "dancer" ever could. In the markets a brief period of increased confidence - lasting the time in between the announcement of the new euro deal and the subsequent announcement that said deal would require the support of those it consigned to austerity - was swiftly followed by a delirious dive and  the world's media once again deployed their best cooking metaphors to describe what awaited Mr Papandreou when he was dragged before Merkel and Sarkozy once more.

During each of these rounds of recriminations, regime change was widely discussed and both men were seen to be fighting for their political lives. Although their fall seems to have been averted - Mr Papandreou has just won a vote of confidence and will seek to form a government of national unity - these two related leadership incidents highlight one of the central - but outside of eurosceptic tirades, often neglected - components of the continuing crisis in the eurozone. There exists what is known as a democratic deficit within the supranational bodies that govern the relationships between the Member States of the eurozone. Budget deficits have come to be the defining terms of our economic discourse in recent years but this more ephemeral gap should not be ignored.

Earlier in the year, Mr Berlusconi's government did pass a programme of significant cuts and labour market reforms but delayed their implementation until after Italy's 2012 elections. No politician wants to enter a campaign having cut spending with only the promise of further pain to come from another term in office. One could certainly argue that Mr Berlusconi was more prudent than profligate. Though still in office, Mr Berlusconi returns from the Cannes summit with officials from the IMF in tow. These foreign civil servants are to scrutinise Italy's fiscal policy from within. This intrusion is present in triplicate for Greece. The Troika - the European Commission, the IMF, and the European Central Bank - have presided over the programme of austerity that has seen Athens's Syntagma Square burn with the fires of protest for most of the year. Though Papandreou's referendum has been abandoned no one is under any illusion as to what the result would have been. And it is no longer UKIP's likeable lunatic that is commenting on this democratic dislocation. Paul Mason, Newsnight's economics editor, earned himself a rebuke from France's president for bringing up this very question at the summit in Cannes.

All eyes are on movements towards fiscal integration as the only solution to the financial woes of the eurozone. Whilst this is almost certainly the only path out of our current predicament that does not lead to further global economic disaster, one must also be cognisant of the importance of democratic legitimacy. Not only as a normative value or worth in and of itself but also as the artifice that for so long in the West has avoided widespread civil violence and instability. To avoid depression it would seem that the eurozone must move towards sharing a treasury. If it is to avoid mutiny on that voyage this must be accompanied by some form of shared, democratically elected, governing body.

0

Democracy, now?

Where? John Ager (C)

Many are the straws that threaten to break the eurozone’s back. Economic disparities between the rich and competitive northern Member States and their profligate southern counterparts, a shared monetary policy without fiscal integration, liquidity crises, and Greek insolvency all weigh heavy upon the single currency. The past two weeks have seen a new threat take centre-stage. Two eurozone heads of state have managed a media presence normally reserved for Angela Merkel and Nicolas Sarkozy. Last week it was the ever entertaining and often quite terrifying Silvio Berlusconi. Mentions of Mr Berlusconi outside of criminal accusations, sex scandals, or both are rare but his apparent failure to pass the austerity measures required to save Italy from financial contagion brought him into the spotlight in a less sordid fashion than is typical. It was reported that Mr Berlusconi “was subjected to a roasting at the hands of… European leaders.” This rough treatment was brought on by the spiralling of Italy’s borrowing costs which are nearing the levels of Ireland and Portugal in the weeks preceding their bailouts. Panic and recriminations were not unjustified. Whilst approaching the virtually solid levels of financial liquidity that spelled disaster for Ireland and Portugal, Italy’s expulsion from international financial markets is so far unique in that – whilst all eurozone nations have until recently been considered too big to fail – it is the first to be too big to bail out. Even the newly expanded - at least in a nominal sense - European Financial Stability Facility could not afford to service Italy’s debts if the markets were to outright refuse to lend to the beleaguered Mediterranean state.

The Italian Prime Minister’s time in the uncomfortably warm sun was short-lived, however, when Greek Premier George Papandreou greeted the announcement that his country’s debt to private creditors would be reduced by 50% in exchange for further reform and austerity with revelation that any such deal would be put before the Greek people in a referendum. Mr Papandreou may not have attended any “bunga bunga parties” but his decision to defer to direct democracy scandalised eurozone leaders and technocrats more than any “dancer” ever could. In the markets a brief period of increased confidence – lasting the time in between the announcement of the new euro deal and the subsequent announcement that said deal would require the support of those it consigned to austerity – was swiftly followed by a delirious dive and  the world’s media once again deployed their best cooking metaphors to describe what awaited Mr Papandreou when he was dragged before Merkel and Sarkozy once more.

During each of these rounds of recriminations, regime change was widely discussed and both men were seen to be fighting for their political lives. Although their fall seems to have been averted – Mr Papandreou has just won a vote of confidence and will seek to form a government of national unity – these two related leadership incidents highlight one of the central – but outside of eurosceptic tirades, often neglected – components of the continuing crisis in the eurozone. There exists what is known as a democratic deficit within the supranational bodies that govern the relationships between the Member States of the eurozone. Budget deficits have come to be the defining terms of our economic discourse in recent years but this more ephemeral gap should not be ignored.

Earlier in the year, Mr Berlusconi’s government did pass a programme of significant cuts and labour market reforms but delayed their implementation until after Italy’s 2012 elections. No politician wants to enter a campaign having cut spending with only the promise of further pain to come from another term in office. One could certainly argue that Mr Berlusconi was more prudent than profligate. Though still in office, Mr Berlusconi returns from the Cannes summit with officials from the IMF in tow. These foreign civil servants are to scrutinise Italy’s fiscal policy from within. This intrusion is present in triplicate for Greece. The Troika – the European Commission, the IMF, and the European Central Bank – have presided over the programme of austerity that has seen Athens’s Syntagma Square burn with the fires of protest for most of the year. Though Papandreou’s referendum has been abandoned no one is under any illusion as to what the result would have been. And it is no longer UKIP‘s likeable lunatic that is commenting on this democratic dislocation. Paul Mason, Newsnight’s economics editor, earned himself a rebuke from France’s president for bringing up this very question at the summit in Cannes.

All eyes are on movements towards fiscal integration as the only solution to the financial woes of the eurozone. Whilst this is almost certainly the only path out of our current predicament that does not lead to further global economic disaster, one must also be cognisant of the importance of democratic legitimacy. Not only as a normative value or worth in and of itself but also as the artifice that for so long in the West has avoided widespread civil violence and instability. To avoid depression it would seem that the eurozone must move towards sharing a treasury. If it is to avoid mutiny on that voyage this must be accompanied by some form of shared, democratically elected, governing body.

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