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David Miles

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Europe's Democratic Crisis

Posted: 12/21/11 03:51 PM ET

In 1794, President George Washington set off for Pennsylvania with thousands of troops to quell a whisky taxation rebellion which was threatening the existence of the nascent American republic. As a president democratically elected by one people, one country and one nation, Washington was charged with enforcing the tax collection laws passed by Congress and his legitimacy in suppressing the rebellion was never in doubt. Fast forward to the euro zone debt crisis of 2011 and witness German Chancellor Angela Merkel's attempt to bring the modern day European whisky rebels into line -- the PIGS states of Portugal, Italy, Greece and Spain.

The German solution to the European debt crisis is for more budgetary oversight power to be wielded by the EU over recalcitrant southern European countries in the guise of closer fiscal integration. Yet this attempt to solve the debt crisis is doomed because it is actually not so much about integration as control. Unlike George Washington's attempt to pacify the whisky rebels -- a domestic difficulty, the German plan is really an attempt by one group of powerful European countries to dominate a weaker dependent group of states. By trying to rescue the euro in this way, European leaders may end up, as London Mayor Boris Johnson fears, "saving the cancer, not the patient."

There are still tremendous economic cleavages within Europe between the output-driven northern countries and states such as Portugal, Italy, Spain, and, of course, Greece. Such an eclectic mix of countries adopting the same currency rang alarm bells from the very beginning. But the technocrats and visionaries guiding the European project in the 1990s maintained that the frameworks and agreements governing monetary union, specifically the Stability and Growth Pact (SGP), allowed for this 'variable geometry' between the countries of Europe initially until these economies ultimately converged in some future monetary paradise. During good economic times when the risk free status of sovereign debt was never doubted, investors in government bonds were content to overlook this highly variable geometry. Now the penny has finally dropped with the bond markets that a common currency with no common tax and spend policy just won't fly.

The likely outcome of more intrusive budgetary controls by Brussels, as agreed at the latest European crisis summit of December 9th, is only likely to fuel the sense of grievance felt by the peoples of the PIGS states over the severity of the austerity measures needed to keep them in the euro. The proposals say nothing about growth and are simply a one-German-size-fits-all prescription for the rest of the euro zone -- a union of governments, not of peoples. This plan is little more than a punishment heavy Teutonic version of the SGP, which promised balanced budgets and fines for transgressors but which has been violated 60 times, and not just by the 'profligate' PIGS states but France and Germany as well.

What makes Merkel's medicine even harder to swallow is that most European countries never consulted their electorates in the 1990s regarding whether the euro should be adopted. The reason was that many were against it and in the case of Germany, not one opinion poll recorded a majority in favour of giving up the deutschmark. Given the current economic chaos, one might imagine that the European political class which did so much to contribute to the crisis might take stock, reassess the current path to closer European integration and listen a little more to the peoples of Europe. However, under the fast track proposals being considered it is suggested that treaty amendments could be made without resort to "ratification by parliaments or national referendums."

As Chancellor Merkel takes aim at today's whisky rebels in southern Europe and attempts to craft new mechanisms to make the spendthrift live within their means, the fault lines in the European edifice have never seemed clearer. The different nations which comprise the euro zone are just that -- separate peoples who have never been consulted properly on these fundamental economic issues which threaten their financial existence. In their last desperate attempts to save the euro from collapse, Europe's leaders are illustrating just how disconnected from their publics and reality they have become.