More Power to Brussels Crisis Forces Europe to Unite on Financial Reform

The euro crisis scared European Union members enough that they have finally put aside national interests to push through Europe-wide financial reforms. In doing so, they are handing more power over to Brussels.

By in Brussels

A euro-themed statue outside the European Parliament in Brussels: European Union leaders have finally put aside national interests to push through Europe-wide financial reforms.
AP

A euro-themed statue outside the European Parliament in Brussels: European Union leaders have finally put aside national interests to push through Europe-wide financial reforms.


Austrian Finance Minister Josef Pröll felt tired but jubilant when he returned to his hotel on Place Jourdan in Brussels late last Monday evening. For hours on end, he and his European counterparts had been given a detailed presentation by European Council President Herman Van Rompuy and his task force on how the shaky monetary union could be stabilized and crisis-ridden Europe could be put back into shape.

The finance ministers listened attentively before going on to discuss the issue. But instead of rushing headlong into the usual squabbling session, a cozy feeling of harmony spread through the conference room.

German Finance Minister Wolfgang Schäuble found words of praise for his new "highly constructive" British counterpart, Chancellor of the Exchequer George Osborne. Osborne, who has a reputation as a euroskeptic, in turn described Brussels' plans, which London had until then rigorously opposed, as "not bad."

Afterwards, over a glass of red wine at the hotel bar, Austria's Pröll, who has always been somewhat critical of Brussels, enthusiastically said that the EU is more or less implementing "what we have been discussing for years." He said that the European Union was about to take a "quantum leap" that will "fundamentally change Europe."

Relinquishing Power

The politicians appear to be determined to make up for what they have neglected in the past. A monetary union cannot succeed in the long term if every member state simply pursues the economic policies that suit its own interests. This is something that economists have always known, but it has never been politically feasible: Euro-zone member states were not prepared to relinquish more power to Brussels.

That has changed since the euro crisis shook the monetary union and the realization sank in that things cannot continue as they are. Suddenly there is talk of an "economic union" and even the necessity of an "economic government," yet there is no sign of the usual outcry.

At the meeting last Monday, finance ministers said again and again that "more Europe" is needed -- and for the first time, most of those present apparently meant it.

The next day, the finance ministers launched a series of ambitious initiatives. They decided to establish a trio of agencies to regulate European banking and stock markets and to initiate a joint financial policy. On Thursday of this week, European heads of state and government will meet in the Belgian capital to discuss the next steps. Furthermore, before they gather for their subsequent summit meeting in late October, EU leaders intend to put together a complete program to make the European Union stable and secure for the future.

Regulatory Zeal

The proposals that Rompuy's task force and the experts from the European Commission have already compiled are listed in a confidential document drawn up for an EU prime minister. They consist of 10 pages, jam-packed with additional procedures, new regulations and severe threats of penalties. Measures range from tightening up the Stability Pact and reducing "excessive inequalities" in Europe's economies, to controlling and taxing the banking sector and monitoring national budgets.

According to the usual political reflexes, such regulatory excesses by Brussels' eurocrats would normally immediately lead to trouble. There's not much indication of that this time around, though -- in fact, the report's "conclusions" state that in Europe's capital cities there is a feeling of belonging to "a community that shares a common destiny." It goes on to say that those who distance themselves from this new sense of public spirit will find themselves "increasingly isolated."

Berlin is also striking a similar -- and equally unusual -- tone these days. Suddenly the government is sounding self-critical. "A common currency places greater demands on us than we had originally thought," said an official in the Finance Ministry. Up until now, no matter who was in power, whether it was Gerhard Schröder or Angela Merkel, the Germans have preferred to keep the core areas of their financial and economic policies out of the hands of the EU.

Sheer Fear

The EU has come further over the past few months "than over the past 10 years," says a delighted Jean-Claude Juncker, prime minister of Luxembourg. Indeed, European Commission President José Manuel Barroso is already rhapsodizing that the monetary union is now underpinned "by a genuine economic union."

The new enthusiasm for European solutions arises from sheer fear. "We have seen the abyss, and it has changed us," says Austrian Finance Minister Pröll. He says that no head of government or finance minister can forget the weekend of May 7-9 this year. Greece stood at the brink of bankruptcy and other countries were starting to teeter. A bankruptcy would have dragged down other countries and possibly torn apart the monetary union. Hundreds of billions of euros had to be scraped together overnight to prevent a continental meltdown. "During these hours," says Pröll, "a new European community was born."

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Norberto_Tyr 09/14/2010
1. The EU goes counter to the evolution of technology
Computer systems are becoming loosely coupled thanks to Internet protocols and web services while the EU is enforcing a tightly coupled proprietary system linking disparaging operation systems (cultures and languages). Lets validate the analogy between computer and nation networks: nation’s governments, viewed from the outside, are atomic like CPUs, possess specific modus operandi (political, juridical, financial and economic) as Windows and UNIX, have memory (some more than others), there is a common and rather simple primitive and unsophisticated language like XML (English), and they attempt to work together despite that the printers run out of toner, stall, some countries need rebooting (Greece), others run out of memory or catch viruses (Sarrazin, Wilders), backups are lost and disaster recovery systems do not work. The advantage of a loosely coupled system is fundamentally reliability, if one component of the network goes down the others are not affected, apart from the specific functionality provided by the node at fault. For instance, if Spain provides tourism services to the region and it momentarily goes down for some domestic reason, then people from northern countries can switch to say, Greece, without problems, on the other hand, if Brussels gets flooded then the whole system is paralyzed. There is an extra catch, if a small group of people (ie. bureaucrats) takes control of Brussels they can bleed the whole Europe with impunity. In order to analyze the problem from the opposite side we can say that tightly coupled systems are, at least in theory, more efficient (when they work) in terms of speed. Thus, we must decide what is more important from nations perspective: reliability and resilience vs performance. Lets compare with China, China is in reality a hyper tightly coupled system of nations, therefore, she will always be far more efficient than the tightest tightly coupled EU. Europe, in this regard is absolutely no match for China. To a lesser extent India is a tightly coupled system; and this is an interesting point, the reason why India is less efficient than China in this aspect resides in her political system. We can say that India resembles a western representative democracy closer than China, and this is a good point, ‘democratic representative’ political systems are not very well suited for tightly coupled nation networks, another EU's essential inconsistency. Therefore, Europe is trying to square the circle, a contradiction in terms since if Europe wants a tightly coupled system that works, necessarily needs to change the political system of its members, if Europe wishes to maintain it, then a loosely coupled system is mandatory, a solution in between will end like the EADS project, loosing a huge amount of money and time. Despite that in theory Europe epitomizes progress (whatever that might mean), Europe is lagging behind more advanced nation networks, or I must say, ‘regional networks’. Regional networks are the system of the future; loosely coupled neighbor networks tolerating diverse political systems between its members based on only two principles: 1- sovereignty, and 2- jurisdiction. South America, Middle East, South East Asia, eventually Africa will be structured in this way, and after a few botched experiments ‘a la Italiana’ even Western Europe will become regional since it is the natural evolution. Now, ‘globalization’ stands against ‘regionalization’ but ‘regionalization’ is a natural and spontaneous process while globalization is artificial; its implementation requires one or more universal policemen (USA, UK, Soviets) enforcing ‘universal jurisdiction’ which in fact is equivalent to no jurisdiction at all (except within the policeman nation, of course), this is expensive to run if the policemen, instead of the customers, bear the costs as it is happening now. Countries that are the consequence and dependent on globalization for their survival are attempting to delay the natural and inevitable evolution of international relationships towards tolerance and respect for thy neighbors. For instance, USA has an utter dysfunctional relationship with Mexico plus a self-abrogated task of universal policing violating both ‘regionalization’ principles at a massive cost. If my theory is correct we must deduce the following corollaries: 1- new political systems better adapted to nations’ demographic and cultural characteristics will be developed; 2- the preeminence of representative democratic systems tightly coupled with mass media will drastically decline; 3- loosely coupled relationships will encourage tolerance between neighbors; 4- regions will overcome superpowers; 5- Europe will be regionalized based on the two ‘regionalization’ principles; 6- countries dependant on external support (universal jurisdiction) for survival will regionalize or perish. Norberto
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