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The European debt crisis: Is maybe time for a Maastricht Treaty II?

Monday, September 5, 2011

This blog is not political but exceptionally I write a comment on issues outside the scope of the blog when these issues are of great importance. The current European Union debt crisis is such an issue indeed.
I watched the other days a TV interview of the old Dutch politician and ex-EU commissioner Frits Bolkestein. Bolkestein argues that the solution to the Greek debt crisis will be that Greece should voluntary withdraw from the Euro zone, go back to the drachma as a national currency and solve its debt problems itself. Bolkestein recognizes that there is no mechanism provided in the EU for such a step, so a country who will do that must take the initiative itself. He also said in the interview that the entry of Greece in the Euro zone was the result of a compromise despite the fact that Greece did not need at that time the Maastricht treaty criteria; according to Bolkestein neither Italy met the criteria at that time but since Italy was allowed in the Euro zone Greece was not possible to be refused.
Bolkestein is in line with other politicians and ex-politicians in Europe, mostly from the ultra- right side of the political spectrum, who have made similar suggestions in the past. These views are however not shared by most mainstream politicians and the financial world due to the fact that that such an act will create a precedent that could lead in the end to the Euro zone and maybe of the union itself. What is true in his argumentys is that the EU does not have any mechanisms in place to deal with such situations and that  Greece seems not to be able to meet the targets set by the EU and the IMF / WB with regard to increase of public revenue and decrease expenditure in combination with a rigorous privatization program. However this is something one should normally expect considering the fact that Greece is at this moment in the middle of a worsening recession, with unemployment in levels unknown before and dealing with the effects of the global financial crisis that started back in 2008. Dealing with the rampant tax evasion, making the Greek economy more competitive by opening the “closed” professions and trying to privatize public organizations are on the other hand are time consuming issues that face also a lot of resistance: from corrupted officials and public servants who profit from corrupted practices, from a disillusioned and not well informed public and also from employees of privatization candidates semi-public organizations who will lose some of their privileges, life-long employment being the most important one.

With the crisis sentiment now expanding to Spain and Italy (look to the financial market results of today 5 September) the suspicion that Greece was just a test case of speculators many are wondering how this crisis will be managed. It seems that the European Monetary System suffers from a structural weakness that in the time of the 1992 Maastricht Treaty that set the foundation of the Euro was overlooked. This is a mechanism that guarantees that the Euro zone countries meet the treaty criteria without exceptions all the time and also lacks a mechanism that in case of serious disruptions like the ones we face at the moment with Greece and possibly with more countries would interfere automatically, i.e. without the political bargaining we see at this moment, and correct the situation swiftly and in a way convincing the markets.

The only way the European Union can deal with the situation today and secure its future is to stop the spasmodic and gutless approaches we see since the Greek crisis begun; this approaches failed to convince anyone, bringing more uncertainty to the financial markets and fuel speculation. I think it is time ( almost 20 years later) to deal with the problem head on with a Maastricht Treaty II.

I wonder however any of the present EU leaders has the guts to put the subject at the table, ignoring the usual voices about a federalist Europe that will surface again putting every time the whole discussion on hold. If the EU is serious about maintaining the Euro as common currency and even prevent itself from falling apart this step is inevitable. A Maastricht Treaty II repairing the flaws of the Maastricht Treaty I will be the only way out of the crisis and the only guarantee that the Euro will survive as the common EU currency. The European politicians must take their responsibilities seriously, stop using the issue for internal consumption and political gains and do their best to correct a mistake their counterparts did back in 1991: creating a monetary union without controlling and support mechanisms that would prevent a crisis like the one we experience at the moment.
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