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In recent months Portugal has been the third country to effectively request a bailout from the Eurozone and the International Monetary Fund (IMF) – this after the former government’s “austerity” proposals had come up against a brick wall in the form of the Portuguese Parliament. With outside intervention now inevitable, the new government’s hands will be tied in any case.
Meanwhile, at the other end of the continent, the Finns have announced their apparent opposition to continually bailing out their
Southern partners. The impressive showing of the True Finns party means that it will now likely sit as the main opposition in the Parliament and raises serious questions about the political will in the Member States when it comes to propping up failing economies.
Moreover, talks of Greece “restructuring” its debt are hardly reassuring to Eurozone ears. And if Spain were to join the debtors, it would really put the Eurozone in a downward spiral.
That’s for the euro – but there are wider concerns within the EU which are causing the 27 nation bloc to strain at the edges.
The EU’s budget is being called into question by the net contributors, including the UK and France, who are arguing for “austerity” to be transferred from the national to the EU level and reject any significant increase.
In the opposite corner is a larger group of countries, many of whom are net recipients of EU funds for their regions which lag behind the EU average – and the European Commission.
The battle for the budget has been a perennial highlight of Brussels, but with the current economic and financial context and voters disenchanted, the stakes are higher.
Meanwhile at the EU’s southern fringes there continues to be concern about a supposed flood of immigrants from North Africa following the region’s “Arab Spring”. Once again, the EU’s solidarity is being called into question, with Franc unilaterally closing its border with Italy to prevent what it sees as a possible influx of French-speaking migrants making their way northwards.
Further north, Denmark also decided to reinstall border controls, ostensibly to reduce crime, but in practice to appease the Danish People’s Party, an anti-immigrant party which the government relies on for support.
Previously EU crises had either been bound up in Treaty reform (e.g. the failed Constitution referenda) or in the EU’s lack of competitiveness on the world stage.
Today, the EU seems to be tearing itself up from the inside. Paradoxically, the deeper you integrate, the more likely fissures will open up (e.g. Schengen and the Eurozone). The test for the EU will be whether it can withstand the tensions raging from within, rather than without.
Walking round Porto, Portugal’s second city, over a long weekend, one is struck by how little the country’s near bankrupt economy is affecting daily life on the street.
Restaurants on the riverfront overflow with visitors from all four corners of Europe, two shiny new cable cars ply their way up the steep hills leading off from the river, and a slick new metro whisks commuters from their homes in the outlying suburbs to the hustle and bustle of the business district.
Even the May Day parades, whilst as noisy as ever, seemed to fail to rouse much excitement on a sleepy Sunday morning.
And yet this is a country that has gone cap in hand to its fellow Eurozone members and the International Monetary Fund (IMF), with a bailout plan likely to total in the region of €80 billion.
Always one of Western Europe’s poorest countries, Portuguese citizens will very soon be hit with paying back a loan to their richer neighbours which they can probably ill-afford.
Whilst German taxpayers can therefore rest easy, the old and the soon-to-be old in the poorer districts of Porto must start to scrimp and save already as pensions look set to shrivel like the sardines on the tourists’ plates.
Meanwhile Porto’s lively student fraternity must fear for their future employment just as their local drinking holes must fear for their business.
New elections will be held in early June after the incumbent centre left government resigned its post following its failure to push its austerity package through Parliament. Any incoming government will therefore face significant pressure not to introduce cuts – and yet further delay will only deepen Portugal’s troubles.
Is default a distinct possibility? And who will be next? Perhaps Belgium, the home of the EU institutions and currently without a government for a world record 11 months?
With countries seeming to fall like dominoes, it must be asked how long the Eurozone can continue to bail out ailing Member States without permanently damaging the Euro’s image both at home and abroad. Perhaps it is already too late. Certainly political will in Europe seems to be at breaking point already, and the end is not yet in sight.
Whatever happens, it is likely that the May Day parades on Portugal’s streets will be bigger and noisier next year.
Historians may look back at this moment and consider it the end-game of the current Euro-crisis- the three countries that were always going to ask for a bail-out did, but that was the end of it.
Spain suffered but survived. Italy hung on. And Belgium finally got its act together.
This is the best-case scenario, but what actually does happen next is anyone’s guess. In the short-term, will the bailouts be successful? In the long-term – well, just who would want to join the Eurozone now?
As they say in the US, “all politics is local”, but this looks like one of the few trends which will successfully span the transatlantic divide.
At the end of the day, Chancellor Merkel is not elected by Portuguese citizens, and her shocking defeat in the Baden-Württemberg elections a few weeks back will focus Christian Democrat minds, meaning that Portugal can expect few favours from Europe’s paymaster in the weeks and months ahead.
Germany will pay, but it will get its money’s worth. It has to. Make no mistake.
Further ahead, the question needs to be asked: will the Eurozone ever agree on a common fiscal policy?
The current crisis has demonstrated the folly of a “one size fits all” approach when it comes to a single monetary policy, stretching as it does from Finland to Faro, whilst fiscal policy remains a national comptetence.
It was worth a try, but the carrot hasn’t worked, so the stick needs to make a comeback. Hence, if Spain is to be brought back on an even keel, the Eurozone needs to act now or risk being terminally stunted by its members on the periphery.
It won’t go down well in Stuttgart or Salerno, but the time has come for the Eurozone to put its money where its collective mouths are!