European Economics, Fantasy and Popular Delusion

“The popular delusion that the fiscal compact is a cure for our economic problems is a fantasy that needs demolishing”

This is a statement by Michael O’Sullivan in an open-ed in the Financial Times last week, and I couldn’t agree more. There is broad and popular perception across Europe that Ireland got into its mess because of reckless fiscal behaviour by governments, despite its origins in the reckless behaviour of rogue banks in private markets. The newly proposed fiscal treaty provides fuel for right-of-centre governments across Europe to continue arguing that austerity is the answer to the Eurozone’s problems when it clearly is not. The source of this policy is a deep ideological commitment to the idea that government = bad, markets = good. It is a popular delusion akin to the fantasy of Stanley Kubricks ‘Space Odyssey’.

The unconditional support by the Irish, Italian and Spanish government for conservative Euro policies will be totally counter-productive in the end, as they will do nothing to solve the crisis. The whole discourse surrounding the fiscal pact (which will be put to a referendum in Ireland at the end of May) provides political cover for the Dutch and German government to continue their aggressive austerity programmes when they clearly do not need to.

In the Netherlands there is a populist argument that effectively argues that because ‘we are doing austerity’ therefore ‘everyone else should too’. In the middle of a Eurozone recession the Dutch government (held hostage by an anti-European far right party) are agressively cutting spending to bring their budget deficit down to 3 percent. This has massive implications for weaker regions of the Eurozone. The more the Dutch and Germans cut back, the harder it is for Spain, Ireland and Italy to recover.

Politicians across Europe are selling the fiscal pact to their electorate as a mechanism to tame the periphery (including business friendly Ireland), by tapping into a populist nationalist discourse. There is almost no recognition that Euroland is a series regions and countries that are locked into a dependent relationship. This data from the EU clearly illustrates the relationship,  structural imbalances and dominance of the German economy within the Eurozone (and the limits of a begger they neighbour nationalistic politics amongst the populist left and right).

The overall impact of the discourse is a totally warped picture of reality. And as Michael O’Sullivan argues “the danger is that it will draw a shroud over the eurozones shortcomings and halt attempts to improve the framework”. The discourse simply reinforces the myth of the prudent core (Germany, Netherlands, Finland and Austria) and the reckless periphery (Ireland, Portugal, Italy, Spain and Greece).

The fiscal compact is legitimising the reckless economic management strategy of coordinated European austerity (that is choking off growth and the potential for recovery in Ireland, Spain, Portugal and Greece). It will serve one purpose only –  the self interested political motives of conservative right-of-centre parties in Germany, Finland, Netherlands.

Furthermore the fiscal pact makes a serious political resolution to the Euro crisis more difficult. Some economists seem to think that the fiscal pact will lead to the issuance of Eurobonds and other neccessary reforms in Euro governance. I would not be so sure. The level of economic conservatism that dominates German, Dutch and Finish policy making (and media) is particularly worrying. But what is more worrying is how far removed it is from reality. It is a post-modern, Baudrillard wet dream, where the distinction between representation and reality has collapsed.

The more the Irish, Spanish and Italian government throw their weight behind this strategy (i.e. to be good pupils in the European Peoples Party) the more their capacity to recover diminishes. Therefore the Irish, Spanish, Italian and Portugese government must change their strategic interaction with the core European actors determining the policy response to crisis. This requires a politics based on truth not popular fantasy.

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