By the middle of 2015 the EMU is approaching a state of complete failure. Growth is stalling, deflation has become a real threat and unemployment stands at more than 10 per cent with rates of more than 25 per cent in Southern Europe. The failure of the EU to tackle the Eurozone crisis is becoming obvious. The root of the problem lies in the great gap of competitiveness in favour of Germany that has been generated by German neo-mercantilist policies since the first days of the Euro. Put briefly, Germany has systematically suppressed growth in domestic wages to obtain huge surpluses in its international transactions. The gap in competitiveness remains glaringly wide, while Germany has emerged as a major lender in Europe.
The decision by the European authorities to force the countries of the periphery – and especially the South of Europe - to adopt pro-cyclical policies on a scale that was last seen in the 1930s has proven a fatal error. The German mantra of “austerity as the only solution” was applied to all countries that were forced to ask for financial help when their access to the global capital markets ceased, or was blocked de facto by very high interest rates during 2010-11.
But even the countries that were not constrained by the financial markets are under scrutiny and are pushed towards restrictive policies in the midst of the biggest recession the entire region has witnessed for eighty years. Obsession with apparent fiscal problems, debt phobia and concern to protect the interests of banks and other big business dominates the debate and prevents a socially beneficial solution.
With persistent German dominance over export markets and given Germany’s refusal to adjust its own economic model the future looks bleak for the Eurozone. The lack of policy instruments to tackle the recession, the conditionality attached to the adjustment programmes imposed on the economies facing crisis, the dysfunctional “structural” adjustment itself, and the prospect of looming deflation have raised the costs of remaining within the EMU to the point where political upheaval mostly led by the Right threatens democracy and the very existence of the EU. Failure to address the high rate of unemployment as well as rising poverty has paved the way for radical right-wing and populist parties in creditor as well as in debtor countries. Against this danger, the benefits of being a member of the EMU are small and, more importantly, they are shrinking fast.