Austerity reigns supreme across Europe, but speculation against government bonds hasn’t stopped and the financial markets are getting weaker and more volatile.
Europe has been struggling like this for too long, even after the weakest members followed directions and made difficult domestic adjustments.
Greece has been in a full-blown recession for three years now and things are looking grim. Spain is having trouble bringing its regional budgets under control, although it is now headed in the right direction. Italy has been moving towards a balanced budget as fast as possible, but even then it wont reach that goal for another year.
All necessary measures, but the result has been a deep recession with glaring negative growth figures in the outlying European states, and even Germany is hovering just above zero despite growing exports.
The bottom line is that the countries which had to reign in spending have done so, but those that were tasked with pushing growth are refusing to step up to the task, though there have been some substantial attitude changes in Germany. The German financial community is beginning to understand that the role their country seeks to play on the global stage can be made possible only if there is a strong European industrial complex. Germany could be the linchpin, but all of the nations on the continent need to work together if they are to rival the massive industrial district that is being built between China, Japan, and South Korea. Otherwise, the race is over before the start.
It isn’t always easy to make a solid decision based on a simplified list of the facts. Germany still thinks they can do it alone, ignoring the fact that their prosperity is directly related to that of their neighbors. Rather than forming a common front, the other members of the union argue over who is doing a better job or worry about their spread, while their performance in general plummets. The finger pointing between Italy and Spain has been particularly damaging. While we fought over who was in worse shape, American banks were short selling our government bonds, as can be starkly seen on their balance sheets.
Not only Italy and Spain, but all of the outlying European states, including France, are in the same boat. If one of them were to fall, the others would go down with it, and based on this premise there needs to be a change in policy, a change that cannot happen without France. So far, France has carried out a unilateral dialogue with Germany, but there has been no French alternative to German decisions.
The time has come for France to work more closely with Italy and Spain, as we all share common interests. We all need a recovery, not only to fight hardship and unemployment, but also to repair our balance sheets and defend ourselves from speculation. The point is not to oppose Germany, but to give it the guarantees it needs and make it understand, with the right kind of convincing, that you come out of a recession by making the right changes together, and not by making it worse.
Spain and Italy should begin to develop this policy in anticipation of presenting it to the next French president. Such a policy would be easier to propose to a new president, but I am convinced that even Sarkozy, after countless bilateral meetings from which he was never able to gain anything of substance, must be realizing that French interests would be better served by a common policy with Italy, Spain, and other European countries.
There’s no sense in skirting the issue: we cannot defend the assault on our sovereign debt by simply making cuts. It’s time for a great common effort towards European infrastructure investments (as suggested by the president of the World Bank), time to get regional funding to the areas most in need, and time to increase the involvement of the European Investment Bank to prepare the last defense of the Euro through the introduction of Eurobonds and strengthening the European Central Bank.
Italy has a fundamental role in making these changes, first by working together with Spain and the other countries beset by speculative attacks, and then by putting together a multilateral plan to propose to the next French president, starting on his first day in office.
In these last few months, Mario Monti has restored the dignity and place of Italy in Europe. Now he needs to take advantage of these results to promote a policy that can bring us back towards growth. Reaching this goal means working with Spain to convince France of the great role it can, and must, play to put Europe back on the right track.