The award of a Nobel Peace Prize to the EU comes at a crucial time. Some critics of the EU regard the reward as absurd because war between its member states is inconceivable and would, the critics say, remain inconceivable even if the EU broke up. The contrary argument is that the EU has been so successful that it has not only prevented war but made it seem inconceivable; and this despite the fact that brutal wars were fought just outside EU frontiers in the 1990s. In addition to avoiding war, the EU has hitherto enabled conflicts to be sorted out within an institutional framework, becoming a possible model for areas of conflict.
However, though there would be no immediate or foreseeable danger of war even if the euro zone breaks up, the EU’s status as model for the institutionalisation of peace is under immediate threat from a possible break-up of the euro zone, particularly if such a break-up occurred in a chaotic way and was accompanied by an increase in the acrimony between EU member states that has already been seen between Greece and Germany in particular. The visit of Angela Merkel to Athens on October 9th, to meet members of the Greek government, appeared to have been constructive despite hostile demonstrations, but whether it actually was so will only be confirmed if the next tranche of the euro zone/IMF financial facility is soon released (although Germany is crucial this also requires the agreement of other countries).
In June, Greek voters gave a narrow but clear majority to the three political parties that not only wanted to stay in the euro but also committed themselves to continuing with the most severe programme of austerity imposed in any EU country since the Second World War. It would be a tragic failure if Greece’s euro zone creditors cannot agree with the government on a moderate alleviation of the extent of continuing spending cuts over the next two years. This surely is the moment where tightening the squeeze on Greece could just fall slightly short of the current harsh demands. That does not mean that the troika and other euro zone countries should not put pressure on Greece to introduce other measures, such as radical clampdown on tax evasion, effective laws and sanctions against corruption, privatisation of state assets where feasible, compiling a land registry, and action against restrictive prices which have kept prices high while wages have drastically fallen. But it is partly the fault of the troika and the creditor countries that these issues have not been addressed with the same urgency as expenditure cuts and tax increases; and proof of effective action will necessarily have to wait until after the next tranche of the loan facility is released.
There is also increasing cause for concern about what is happening in a much larger country, Spain. Generally in Spain, the large demonstrations, and the encampments in Madrid, have been more peaceful than in Greece. The near 25% rate of unemployment (double that for youth unemployment) has been regarded as less alarming than the headline indicator would suggest because of large scale unregistered employment and the fact that similar unemployment percentages were recorded in the 1990s. However, signs of social stress have recently increased, one being that the Spanish Red Cross is this year for the first time devoting funds collected on Red Cross Flag Day (October 10th) mainly to helping support the destitute in Spain, rather than in developing countries.
As worrying is the rapid development of a crisis affecting the future unity of the country. Until recently, the regional Catalan political parties, unlike the Scottish National Party (SNP), had not demanded independence but this has changed quite dramatically in the last two months. The main reason for the change is the question of how to share the pain of austerity. Unlike Scotland in the UK, Catalonia as one of the richer regions makes a substantial net contribution to Spain’s overall budget. It estimates that it sends the equivalent of 4% of its GDP more to Madrid than it receives back. While it is true that Catalonia is richer than the Spanish average it is also very severely affected by unemployment and despite having to make severe expenditure cuts, the regional finances have plunged into deficit. Because the deficits of Catalonia and other regions are the main reason why Spain is likely to overshoot its 6.5% of GDP general government deficit target this year, the Popular Party government led by Mariano Rajoy, has been putting pressure on all regions to cut their deficits. By effectively treating Catalonia which makes net contributions (without which its budget would be in surplus) the same as Andalusia which is a net beneficiary it has riled opinion in Catalonia, which in the present economic circumstances feels that Catalonia would be better off on its own.
No country has yet broken up while being a member state of the EU (although several broke up or broke away before becoming members). If a settled majority of public opinion in a region comes to demand independence, there is a strong case for allowing that such democratic wishes should be fulfilled but that independence should take place in well-planned way in agreement with the country it is leaving with the minimum of economic disruption. But a sudden lurch to independence in defiance of the central government, both resulting from and exacerbating an economic crisis would be serious blow to the political stability which the EU member states have hitherto been able to claim.
It might be desirable that EU institutions or a team from other EU countries should try to mediate between Madrid and Barcelona. The Spanish government should recognize that both the historical and cultural status of Catalonia and its net contributions to the Spanish budget mean that its government should be treated with diplomatic respect, rather than on the same level with Murcia or Andalusia. For its part, the Catalans should appreciate that the post-Franco order in Spain has provided the region with the conditions to become prosperous and to restore the cultural identity. It would be highly irresponsible rapidly to abrogate their financial contributions deriving from the position as a richer part of the Kingdom of Spain at a time of crisis.
Equally important, however, is that the euro zone countries in less dire financial straits stick to what they agreed at the June European Council, rather than trying to backtrack the moment the financial market pressures on Spain and other countries look a bit less threatening in the short term, as they have done in early October.
Writing from the UK, a country of which not very much is being asked, it should be said that it would be helpful if the prime minster, David Cameron, could be a little more consistent instead of berating his euro zone partners for not acting and as soon as they do act, veto the agreement, whether on a fiscal pact as last December or a banking union now under discussion.