By Gideon Rachman
Published: October 18 2010 23:02
Last week, both countries were at it again. In Greece, striking workers blocked access to the Acropolis in protest against job losses and were dispersed by riot police with teargas. Demonstrations in France against efforts to raise the retirement age also gathered momentum, with millions taking to the streets.
The French seem to enjoy strikings. Last week there was a slightly festive air – with flags, drums, torches, chants and even fancy dress on display. There is something faintly ridiculous about schoolchildren striking to protect their pensions, which makes it tempting to dismiss all this as street theatre and to assume that the real decisions will be made elsewhere. But that would be a mistake. The French strikes are causing serious disruption to the economy, with a threat that the country could soon run short of petrol.
The battle for Europe’s future is already taking place at another level. There is the argument in government ministries and the smoke-free conference rooms of Brussels, as politicians and bureaucrats attempt to define new continent-wide rules to ensure Europe does not slip back into a new and debilitating debt crisis. But the future of the European economy and its single currency is more likely to be decided on the streets.
Efforts to rescue Europe from its debt problems through new EU regulations were being fiercely debated in Brussels on Monday. But most of the proposals on the table are unrealistic and likely to fail. Since the EU will not be able to impose fiscal discipline from the centre, it will have to be done country by country.
Naturally, Europe’s leaders do not accept that their efforts to redraft EU rules are doomed to fail. But if you look at the proposals doing the rounds, it is hard to draw any other conclusion. The EU’s original stability and growth pact, which was meant to constrain national budget deficits, disappeared in a puff of smoke in 2003, when it became clear that neither France nor Germany was willing to accept the rule that they should be fined by the EU for running budget deficits larger than 3 per cent of gross domestic product.
And yet, deficit-hawks – in particular in Germany – are now pushing for even harsher sanctions on countries running excessive deficits. Once again, the idea of fines for debtors is being mooted – except this time they should be “automatic”. There will be no wriggling out of this bondage version of the stability and growth pact. The Germans are also keen that countries running deficits much in excess of 3 per cent of GDP should lose their voting rights within the EU. Under current circumstances that would mean most members of the Union would have to sit mutely around the table, unable to have a say in vital decisions. France, currently running a deficit of about 8 per cent of GDP, would definitely lose its vote. Try explaining that to President Nicolas Sarkozy.
The threats of EU fines or the suspension of voting rights, however earnestly made, are essentially empty. But one threat is effective – and seems to work on both the politicians and the public. That is the threat of national bankruptcy.
If countries really hit the bottom – if they discover that the markets will not lend to them anymore – then reality bites and the hard slog of restoring budgetary discipline begins. The EU has been reluctant to test this theory for fear of “contagion” as national crises spread across Europe. But what experience we have suggests market disciplines will be far more effective than new EU rules.
In that respect, the stories of Greece and France – for all their superficial similarities – are actually quite different. The Greeks came perilously close to national default this year. But, in response – and after securing loans from the International Monetary Fund and the rest of the EU – Athens got serious. Over the past year, Greece has halved its budget deficit and formulated plausible plans to head for budget balance. The government has faced down street protests and kept going. The possibility of an eventual partial debt default remains. Even so, Greece has pushed through fiscal and labour market reforms that would have been unthinkable a couple of years ago.
The French people, by contrast, still do not seem to realise the potential gravity of their situation. Their government’s proposal to raise the retirement age from 60 to 62 is an extremely mild reform – certainly compared with the cuts in wages, pensions and services that are being forced through in other debt-stricken European countries such as Greece, Spain, Ireland and even Britain. And yet France’s proposed reforms have brought millions of demonstrators on to the streets.
It may need a genuine fiscal crisis finally to persuade the French that, as Margaret Thatcher once put it: “There is no alternative.”
Copyright The Financial Times Limited 2010.
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