Saturday, 16 April 2011

SOUTHERN EU BLOC: a practical proposal

On my posting of 14 April regarding Spain and the EU debtor-creditor conflict, I need to clarify some points, as I am sure I was rather vague or probably left the wrong impression with some readers. First, the motivation of the article does not stem from any sense of nationalism, as I have never regarded myself as anything but world citizen. This does not mean I am in sympathy with Anarchists, but I just do not feel a sense of identity with any nation-state.

Second, my writings from 1980 to the present have never demonstrated any sense of nationalism for any country that I have covered in books and articles. Scholarly analysis in my view must be above national sympathies if the underlying assumption is social justice. Third, my suggestion in the article posted on 14 April was not that Portugal, Ireland, Greece and Spain "gang up" on Germany and France. That would not be a prudent course of action and it would do as much damage as good. I want to make it very clear that there is a de facto Franco-German financial bloc just as there is a de facto Anglo-French military bloc.

All I am suggesting is that Spain, as the eurzone's fourth largest economy assume the lead in a politically preemptive move to forge a southern European bloc, one that Belgium would probably join, but I am hesitant to say what Italy would do under Silvio Berlusconi. In such a Spanish-led bloc within the EU, there is and should be a great deal of negotiating leverage. Specifically, substantial discounting of debt and reducing interest rates on existing debt. German public and private banking officials are well aware that they will have to go that route in any case. So why shouldn't Spain forge a bloc to gain some leverage? As far as Germany continuing business as usual, the fact is that Merkel is under immense political pressure and losing ground fast to SDP. She is unlikely to win the next election.

The key question is what kind of European Union does Germany want for the future? I believe the Germans are debating among themselves and they are as confused and divided about what is in their short-term v. long-term interest. The conservatives want a US patron-client model of integration, while the Social Democrats want to go back to the inter-dependent model.

The French political and financial elites are even more confused than the Germans. They have been hiding behind rhetoric of pre-monetary union EU model, while in reality they are closer to the conservative German view, for it is their interest to take advantage of this recession to reconfigure the inter-dependent model into a patron-client one.

Those who follow EU political economy know all of this, as do the debtor nations. But debtor nations have been powerless to act thus far because they see the risks outweighing the benefits. Besides, the US, China and IMF are behind France and Germany. My suggestion assumes strong debtor-nations' political leadership that would mobilize business and labor unions behind the southern EU bloc. In the long run, this would help revive the EU economy on sound footing and the stronger countries would benefit even more than the debtor members.

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