Europe's Way Out of the Crisis: Time for a “Grand Bargain"

Notes internacionals CIDOB, núm. 75

Adisconcerting amount of optimism” came out from the snowed peaks surrounding Davos this year”, as editorialized by the Financial Times at the beginning of 2013. The world elite looked a little more cheerful, compared with last year’s meeting where “many expected the disintegration of the euro to add to the problems of depressed economies in Europe and the US. Their worst fears, however, have not been realised.”

The fact has been that financial markets’ mood improved during the months which followed, sovereign bond spreads decreased, ECB backing yielded better financing conditions and steps towards a banking union were taken in Brussels, even if the main disagreements persist, as Germany wants to have joint supervision, but no mutual deposit guarantees. All this certainly helped to create a more positive climate in Europe throughout the first half of the year.

And yet, the global financial climate deteriorated again by mid June and turmoil came back to European markets, including sovereign bonds’ spread in southern countries. As seen from the dry plains of Spain, with a GDP plunge of -1.3 % in 2012, a further -0.7% in the first half of 2013, unemployment skyrocketing well above six million people (one in four Spanish workers is out of job), and with Portugal, Greece and Italy in a permanent political instability and deepened economic downturn, Europe’s crisis does not seems to have receded much.

While the way out of Europe’s economic and financial crisis, it is said, is an already foreseeable development for 2014, present political and social scenarios depict a far more gloomy state of affairs than the atmosphere reportedly perceived from the luxury Swiss skiing resort at the beginning of the year.
The upcoming German elections in September seem to have frozen any of the urgent stimulus measures that have been gathering momentum among most governments across the continent, not least in Paris, Rome and Madrid, once the failure of the one-dimensional policy of austerity and overall cuts in public spending is becoming apparent.

With European parliament elections already in the horizon for late May 2014 and Euro-skepticism on the rise, it is becoming increasingly urgent to put in place a comprehensive political action that would push Europe out of a deep governance crisis that is proving to be dangerously toxic for the European Union project as a whole. It is time in Europe to broker a Grand Bargain.

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