EU To Bang Shut The Stable Door

By: Dr. Mike Campbell

The Eurozone is a members only club that has strict rules for entry which were designed to ensure economic convergence between those wishing to be admitted to the club and those already a part of it. One of the most important of these rules was that a government’s deficit was not allowed to be above 3% of its gross domestic product. When Greece joined the club, she fibbed about the extent of her then deficit, playing it down in much the same way as a lady of a certain age might forget to count the odd birthday she’d had – you know how these things are. However, in the depths of the world’s greatest economic recession in 80 years, and a near meltdown of key financial institutions around the globe, the truth emerged that her deficit was more than four times the permitted level.

As Greece struggled to restore some economic credibility, borrow money to service her debts and put together an ambitious austerity plan to get her deficit back in order, the clouds of doubt were gathering and Europe was plunged into the sovereign debt crisis. The sovereign debt crisis was due to doubts about individual Eurozone member’s abilities to honour their debts, but it brought the whole club into disrepute and caused a substantial devaluation of the Euro against the other major currencies.

In the time-honoured fashion of politicians and bureaucrats everywhere, the European Commission is drawing up plans to bolt the stable door and ensure that “a Greece” can never happen again. This is likely to involve more transparency over national statistics and sanctions against members that borrow too heavily or fail to manage their economies properly. The EC is the bureaucratic arm of the European Union and, as such, is unelected. It is likely that this new plan will not go down well with certain of the members.