A general principle of the Age of Enlightenment is that people shall chose those who govern them through a democratic process. Franklin D Roosevelt, the greatest US president after Lincoln, summarized this principle:
Let us never forget that government is ourselves and not an alien power over us. The ultimate rulers of our democracy are not a President and senators and congressmen and government officials, but the voters of this country. [Speech at Marietta, Ohio, 8 July 1938]
As appealing as this principle may appear to most of us, the Chancellor of Germany proposes what she considers to be far better: granting unelected officials in the European Commission the power to veto the economic policies of democratically elected national legislatures. This is no more than a generalization of her policy towards Greece, Spain, Italy and Portugal.
In my last column (“Pact of Folly”) I treated the economics of the so-called Fiscal Pact, but only after the Chancellor’s proposal for cancelling democratic decision making has the “penny dropped” (as the British would say). Now, the implications of the “Treaty on Stability, Coordination and Governance in the Economic and Monetary Union” strike me with full force.
The Fiscal Pact mandates that all national governments in the European Union should achieve a “structural deficit” of no more than 0.5 percent of gross domestic product. I shall not again demonstrate that this concept is nonsense and, even were it not, 0.5 percent would be absurd, implying continuously deflationary fiscal policy. If the Pact is foolish, combining it with a “fiscal czar” (Merkel’s term, not mine) is authoritarian madness. It would abandon the pretense of electoral democracy within the European Union. According to Yahoo! News, “German Chancellor Angela Merkel… demanded stronger authority for the executive European Commission to veto national budgets” (18 October 2012).
To quote the source, the Chancellor told the Bundestag:
We have made good progress on strengthening fiscal discipline with the fiscal pact but we are of the opinion, and I speak for the whole German government on this, that we could go a step further by giving Europe [sic! the European Commission] real rights of intervention in national budgets” (same source). It must be stressed that no additional powers for the European Parliament accompanied this proposal for “real rights of intervention in national budgets”.
It is a fair inference that the Chancellor proposes intervention by the European Commission within the existing rules of oversight of that institution. I can accurately characterize the degree of democratic oversight of the European Commission as virtually nil in practice. The minor role of the European Parliament in the disastrous policies to (mis)manage national debt and deficit crises demonstrates this clearly. A year ago an article in the European Voice described this role:
MEPs have so far had little input into decisions on bail-outs for Greece, Ireland and Portugal or the creation of the European Financial Stability Facility (EFSF) and its permanent successor, the European Stability Mechanism (ESM).Wolf Klinz, a German Liberal MEP who chaired a special Parliament committee on the financial crisis, said that the intergovernmental approach taken by member states had completely sidelined MEPs. “The Parliament has not been involved to the extent it should have been,” he said.
If the Parliament has had little influence on major economic decisions of the Commission for the last three years, it is unlikely that it would exert any over the “real rights of intervention” the Chancellor would award her euro “fiscal czar”. The extraordinary nature of such a measure is indicated by pointing out that even the US federal government does not hold such power over state budgets, nor do the states have such power over counties and municipalities that raise their own revenue. The only remotely comparable central government power was that exercised by the Thatcher government in Britain in the 1980s and 1990s setting local council expenditure limits. This policy was as unpopular as it was undemocratic.
The Merkel proposal should not be interpreted as a step towards a “federal Europe”. On the contrary, it represents a proposal for a centralized Europe in which fiscal policy passes from national democratic processes to an unaccountable and non-responsible central authority. It should not escape our attention that the Chancellor lived for the first 36 years of her life in a dictatorship. Her proposal for “real rights of intervention” by a non-elected European Commissioner suggests the possibility that her opposition to dictatorship in the Democratic Republic of Germany focused more on its ideological orientation than its suppression of democracy.
Imagine for a moment what might have transpired had the Chancellor’s proposal been adopted in 2000 along with the introduction of the euro. Going to the OECD website we can find statistics on the “structural deficits” of the twelve members of the euro zone during the six years prior to the financial crisis. Using the same technically absurd definition as the EU (only calling it “cyclically adjusted balances”), the statistics suggest that the “fiscal czar” would have been an extremely busy functionary.
The cross country average for breaches of the 0.5 percent was over four years out of the six (www.oecd.org). Only one country would have denied the Czar opportunity for intervention (frugal Finland), one more offering but one year (Luxembourg), and again just one providing two years suitable for budget veto (Belgium). Of the other nine countries, every one broke the one-half percent solution in a majority of years: Netherlands and Spain (four of the six years), Ireland (five years), and six feckless members in every year bar none (Austria, France, Germany, Greece, Italy and Portugal).
This information on euro zone fiscal balances in the prosperous first half of the 2000s indicates how radically reactionary the Merkel proposal would be in practice. An unelected official or officials insulated from democratic oversight would have the power to enforce a degree of fiscal repression on member states that would be more than unprecedented. It would contradict the practice of all governments, including that of Germany, except for a few of the smallest members. It is hardly surprising that dictatorial powers must be granted to the Czar. No one elected, national or regional, would implement such a policy and stay in office.
The important issue is not the numerical specification of some bone-headed faux-indicator of fiscal performance. The overriding challenge of the Merkelite proposal is stark: democracy or dictatorship. If the salvation of the euro zone requires an economic dictator in Brussels, don’t save it.