Divided we Stand: the beginning of the end for the EU?

By

Robert Barrett

Sunday 25^th January may have seemed an inconspicuous enough day to you and I, but whilst we were mildly complaining about the cold and looking forward to the end of “Dry January”, Greek voters were setting in motion a chain of events that may well change the status quo of the last sixty years of European politics.

Syriza, the far-Left party which won the Greek elections, have been the spectre haunting Europe (or at least the European Union) for some time: EU leaders fear the pledges made in their manifesto to write off half of Greek debt and reverse austerity measures. This would equate to ripping up the terms of the €240bn bailout imposed by the “troika”: the collective term given to the monolithic combined power of the European Central Bank, the International Monetary Fund and the EU.

EU elites are right to be fearful: Syriza may fall short of an outright majority but in a semi-proportional system such as Greece’s this actually represents a fairly strong mandate from the people. By going into coalition with a small-far Right party, Independent Greeks, Syriza’s leader Alexis Tsipiras has not only found himself a majority in parliament but has also created a broad base of support across the political spectrum for action against the EU. From the moment of Tsipiras’ election then, negotiations were inevitable and the first deadline for a deal between Athens and the troika has been set by the European Central Bank for 28^th February. Yet the question remains: why does this worry the EU elite so much?

This may seem a ridiculous question given the sum of money Greece still has to pay back, but the troika knew almost from the moment of the bailout that the repayment plan would not work: economists from across the political spectrum have ridiculed the EU’s measures – Paul Krugman even termed the approach “fantasy economics.” The austerity measures imposed by Brussels shrank Greece’s GDP by a fifth by 2010, causing the debt burden to completely overwhelm the countries economy: even by 2009 Greece’s debts were equivilant to 127% of GDP, yet due to the “stand your ground” policy taken by the EU, no change was made to the bailout agreement. As of last September, that share is now above 176%. Only the most naïve EU official could possibly still believe that Greece will be able to pay off the entire bailout under the current plan, but if they have already resigned themselves to changing the terms of the agreement, why are the Greek negotiations causing Angela Merkel, the EU’s de facto leader, such concern?

The answer is that if the separatist movement within EU countries is not stopped here, Merkel risks standing witness to the death of the European project. In this respect, Merkel is presented with a paradox: concede to Greece’s demands and risk other struggling nations such as Spain, Italy and Portugal forcing similar renegotiations, as well as enraging northern EU states such as Finland and the Netherlands who opposed even bailing Greece out in the first place, or hold firm and allow Greece to default and exit the Eurozone. Given the numerous insistences the German Chancellor has given over the past few months that there will be no debt renegotiations, the latter situation currently appears more likely, yet either way the EU is in danger.

If Greece does default and exit the EU, the knock on political and economic effects will be colossal: Greece does 46% of its trade with the EU, a figure which is bound to decline if an indebted Greece has to pay EU import tariffs upon leaving, damaging the economies of many major EU countries. Moreover, one of Greece’s largest trading partners is Italy, a country already in dire financial straits.

Needless to say, a “Grexit” would also cause uncertainty of the Euro’s future in the currency markets, inevitably leading to a decline in purchasing power damaging every economy in the Eurozone. One need not go back to 1930s Germany to see how economic collapse causes the rise of nationalist parties, it has been happening across the EU ever since the crash of 2008 even in rich countries such as Britain and France, and the one common characteristic of these nationalist parties is that they all desperately want out of the EU. What is more, with a Greek exit they would have a precedent to do so, as well as evidence to present to the people that they should abandon the dying leviathan before it collapses on top of them. UKIP, the National Front, the Five Star Movement and their ilk across Europe are circling sharks, and Merkel must take care not to bleed.

Furthermore, France, Spain and Italy, all major players in the EU, have expressed support for Greece in its efforts to renegotiate. To abandon the Greeks now would generate significant animosity between these fundamental members and Germany and destroy any remnant of the idea among the public of the EU as some fraternal organisation developed to promote the general good. This situation is not helped by the European Central Bank’s refusal to use quantitative easing to raise inflation of the Euro, which would devalue the currency and allow Greece to pay back their loan more easily.

The renowned economist Thomas Piketty points out that this is precisely how France survived their colossal foreign debts after the Napoleonic wars, yet Germany’s scarring experience with quantitative easing during the 1930s has made the mechanism a taboo with the ECB. This continual refusal to encourage inflation despite the protests of the most afflicted members does little to protect the EU from the accusations of bullying and dictatorial rule which its enemies level at it.

So what if Merkel does renegotiate? Would that secure the future of the EU? Unfortunately for Merkel the short answer is no, although it is perhaps a less risky strategy than allowing a Greek exit. Renegotiating will not only anger the richer EU countries, many of whom already have significant anti-EU movements, but also create further demands for renegotiation from other struggling EU countries.

If some form of renegotiation is agreed, it will almost certainly occur before our election here in Britain. An overly lenient deal for Greece may well contribute to the tide of anger supporting the rise of UKIP and, provided they or the Conservatives end up with some role in government after the election, a referendum on membership at the very least is inevitable.

Electorates across the EU’s richer nations may be displeased with austerity, but they are enraged by the prospect of what they conceive as Greece being “let off the hook.” However, it would not require the exit of these richer nations to fundamentally change the EU. Italy, Spain and Portugal, all of whom are struggling with their debt burdens, may well then demand similar treatment and given the precedent Merkel would then have set, they would be entitled to it. Such a collapse on behalf of the EU’s authority again equates to blood in the water, and the nationalist sharks are circling. Any liberalising of their bailout agreements would involve returning a huge amount of financial power to these respective nations and ruin the EU’s reputation as a safe pair of financial hands. What we would be witnessing would be the reversal of sixty years of gradual centralisation which has come to define the EU.

So is the EU doomed? In the federalist state which many once hoped it would become it certainly is. In one of Paxman’s final Newsnight interviews in 2014 Berlusconi admitted that such a vision of the EU was already passed. Going even further, he warned that unless the EU’s economic policy changed, its future even as a confederacy was in danger.

However, it would be foolish to attempt at this juncture to predict the future, particularly as in an institution with as many veto players as the EU, any move away from the status quo is still unlikely. We may find that as the time draws near, EU negotiators as well as nationalist segments of members’ electorates are more willing to compromise than their current stand off would suggest.

What can be said with certainty though is that 2015 will be the greatest test the EU has faced to date and Greek renegotiations are only the first stumbling block. Referendums on membership, the rise of the far-Right across Europe and aggression from Russia all look to be coming to a head this year, and it remains to be seen whether the EU has the strength to cope with these combined pressures. If the EU is to collapse anytime soon, its fate will be decided in 2015.

Robert Barrett

Robert Barrett is a student of Politics and Philosophy at the London School of Economics and currently President of the LSE SU Philosophy Society. He enjoys analysing national and international politics on both scientific and ethical levels and is interested in the constantly evolving nature of politics across the globe.