A brief history of the euro zone
The introduction of the Euro in 2002 was a necessary decision in the pursuit of further European integration. The Euro was launched as an unfinished project, whose final purpose remained undefined. There was tension between monetarist / neoliberal ideas based on competition between Euro countries, particularly supported by the German government (and the Bundesbank) and the desire to use the common currency as a means of enforcing a common economic policy/government. It has always been an open secret that without further integration of economic and financial policies, the Euro stands on one leg only, waiting to be re-constructed as soon as the next economic crisis hit.
The time for adjustments came with the outbreak of the financial crisis of 2008, which turned the debts of private banks into public debts of the states. The banks that had just been rescued seized this sudden and sharp rise of public debt as an opportunity to speculate against individual Euro countries. This endangered the alignment of interest rates for government bonds, which is indispensable for a functioning Euro system.
Missed opportunity: Euro Bonds as a defence mechanism against speculators
The introduction of Euro bonds could have set limits for speculators by ensuring a uniform interest rate on purchases of Euro-denominated bonds while allowing for internal interest variations for different Euro countries. This would have enabled Greece and other South European countries to continue refinancing their existing debt at sustainable interest rates and the current crisis would never have arisen.
However, Germany refused this logical next step in the process of European unification in the assumption that speculation against Greek government bonds could enforce fiscal discipline. But, the interest rates of Greek bonds rose so rapidly that not even rigorous fiscal countermeasures could have stopped this process.
Only when the Euro system was about to collapse in May 2010, was the German government willing to compromise. As Greece was unable to refinance its existing debt on the private financial markets at a sustainable interest rate, a troika consisting of the ECB, IMF and the EU Commission was established as an intermediary guarantor between the financial markets and the Greek Ministry of Finance. In the German media this intermediary role of the Troika was often wrongly interpreted as actual financial assistance, i.e. donations from the German budget, when in fact, the majority of these loans just replaced expiring debts with new loans. This concept of "revolving debt" is not only a well-established process, but is supported and frequently used by all industrialized countries, including Germany.
Necessary reforms
By assuming an intermediary position, the troika had already fulfilled its main mission to stabilize the Euro system. Its power could have easily been used to facilitate necessary reforms. To reduce the Greek budget deficit, it would have sufficed to reform the inefficient and inequitable tax system and to counter the alternating ruling parties' culture of clientelism with a transparent and efficient administration.
However, the troika demanded the enforcement of massive wage and pension cuts and drastic cuts in social and educational budgets. In simple neo-liberal tradition, this was justified with the argument that austerity was the only way to recover competitiveness as a prerequisite for growth. Recurring warnings by renowned economists that such drastic austerity measures would not lead to growth but to economic collapse were ignored. Five years on, the consequences are well known: Economic performance has fallen by 25 per cent while unemployment has increased dramatically. Although wages have already plummeted so much that no competitive disadvantage remains, further wage cuts are demanded.
When the left-wing Syriza party was elected to govern in January 2015, it questioned the austerity measures that the German dominated Euro zone had committed to. However, all other proposals were blocked. Alternatives to austerity were considered a sacrilege - mainly by the German Government. A search for alternatives would have exposed the faulty policies of the last five years. But it has become increasingly clear that the example of Greece is used as a warning to keep other states in the austerity community without protesting.
Permanent competition instead of social Europe
The monetarist-neoliberal fraction within the Euro zone wants to prevent the urgently needed further fiscal integration, which would require balancing economic and social transfers. Instead, they want to expand competition between Euro countries to maintain permanent fiscal pressure on parliaments. The deregulated financial markets that allow speculation against individual government bonds do not only provide additional earning opportunities but are also intended to discipline the spending of parliaments. A particularly absurd situation arose after the Lehman Brothers collapse. Failures of deregulated financial markets have been used to further disempower national parliaments by massively burdening public finances with costly bank bailouts and thereby restricting their ability to act.
Clinging to the vision of permanent current account surpluses means running permanent austerity policies which contradict the promise of a social Europe for all. Against this backdrop, there is no hope for a democratic, social and just Europe.
A democratically legitimate economic policy
Europe should abandon the competition ideology of 'everyone against everyone'. This causes suffering for most people in the economically weaker countries and for many in the stronger ones.
The EU must and can settle internal deficits and surpluses, as long as these remain within the euro zone. Therefore, a better integration of economic and fiscal policies and a significant increase in economic transfers within the euro zone are needed.
The EU should focus on productivity-oriented growth for internal demand. This could be done through the targeted expansion of social services, increased spending on education and by investing in renewable energies. The list of necessary investments in Europe is long and the implementation of such investments would allow for new perspectives of a unified Europe. This would require power shifts to the European level. The primacy of democracy requires that, once a national parliament relinquishes regulatory powers, these must be fully transferred to the European Parliament as the next democratically legitimized authority. National parliaments must not be disempowered in favour of a post-democratic EU austerity-commissariat.