The Greek Crisis: A Potential Stepping-Stone To Deeper Integration

Over the past five years, the world has been gripped in the suspense of an unfolding drama: that of the Greek sovereign debt crisis.  As the drama has moved towards its climax in the last few months, with Greece and the euro zone countries lurching from one nail-biting scene to another, the world has continued to watch and wait with bated breath, wondering what the ultimate outcome will be and worrying about its potential ramifications for the financial markets in Europe and beyond.

Despite the repeated injection of funds by Greece's creditors, namely the IMF, the ECB and the euro zone countries, Greece's plight remains dire: the country has lost 25 percent of its GDP over the past five years, the general unemployment rate is over 25 percent and double that i.e. 50 percent among the youth.  The country has strained and groaned under the imposition of austerity measures imposed by its creditors.  In the end, on June 26, her elected leaders chose to walk away from negotiations with creditors aimed at providing further bail-out funds in return for further austerity.  There followed a referendum in which the majority of Greek voters rejected bail-out terms offered by those creditors.

The European Union now finds itself in an unprecedented situation in which one of its members may default on a $3.9 billion in bond payments to the ECB on July 20th, having already earned the dubious distinction of being the first developed country to default on a loan from the IMF.  If the July 20 payment is missed, the ECB will likely cease propping up the Greek banks with emergency loans, Greece will plunge into bankruptcy and will have to start paying its bills in IOUs, all of which will probably lead it to exit from the euro. What the effect of such an exit will be on the financial markets in Europe and beyond and consequently on the global economy, is anyone's guess.

One of the problems with a Greek exit from the euro zone (commonly termed a "Grexit"), is that the monetary union was set up as a "no exit" union, meaning there are no legal avenues for those who have joined to leave it, and yet, as a practical matter, unless Greece and her creditors can come to terms before July 20, such an exit is likely to become a reality.  Even if this happens, however, there is nothing to stop Greece from staying in the EU although this relationship could rapidly become complicated if Greece finds herself unable or unwilling to follow the rules of the single market.  In the end, there is a chance that Greece may end up leaving the European Union.  Such a departure would set a terrible and unfortunate precedent for a Union that was committed to increasing its integration.  As the Economist points out "the long-term effect of an irrevocable union being partially revoked is unpredictable." 

What then, if anything, can be done to save the European Union from unraveling?

The answer may well lie in further integration and closer unity within the European Union.  Indeed, the American experience teaches us that further integration can be critical to solving Europe's financial crisis.  Most of us forget that American began life as a fiscal mess and that one of the main drivers for moving from a loose confederacy to a tighter federation was precisely the problem of the large debts that the thirteen American states had taken on during the revolutionary war and were finding themselves unable to repay. During the war each state had separately borrowed heavily from foreign powers. After the war, the states found themselves unable to repay what had become enormous debts.  The Confederation was hamstrung and unable to help, because it lacked the power to impose taxes and most states were not paying their share of assessments to the confederate government -- a condition that is familiar in the context of the European Union today.  Within the context of the American experience, the problem was further exacerbated because the states were printing their own money at will. The flood of paper money produced wild inflation in American economies.  The only solution was to move towards greater unity and integration by creating a federation with a central government capable of levying federal taxes that it could use to repay the foreign debts, or else risk disintegration.

The parallels with the EU's current dilemma are striking! One of the problems the European Union currently faces is the resistance by its member states to mutualizing liabilities, especially in the absence of mutualized responsibility, for example by being able to raise European-wide taxes to fund bail-outs or the ability to have shared decision-making over budgets, taxes and pensions in the first place.  As eminent economics experts have said, the crisis in Europe is at root a deep constitutional and institutional one rather than one of funding.  The real solution appears to lie in Europeans taking a quantum step toward deeper economic and political union which requires an acceptance that its member states must be willing to cede more sovereignty.

The insistence by EU countries on clinging excessively to sovereignty in the face of the suffering and chaos it is causing them individually and collectively, is not sensible.  Surely, policies and theories of how we organize ourselves as peoples and nations are there to serve our best interests and to lead to our well-being.  If they have ceased to do so and are patently injuring us, is it not time to reconsider and adjust them?  In this instance, giving up a modicum of sovereignty in accordance with clear rules, backed by collectively-created and shared enforcement mechanisms and agreeing upon sanctions for non-compliance that are applied even-handedly to all member states, may well go a long way to relieving the European Union of its current suffering and the Greeks of their plight.  While today it is the Greeks who suffer,  who is to say that in the absence of necessary reforms to the system, tomorrow other European countries like Spain, Portugal, Ireland or even France may not follow in its wake?

It was such a recognition that led the thirteen member states of the American confederation to take the momentous decision to fuse their interests by moving from a confederation to a federation, in which certain limited powers that affected their collective interests were delegated by them to a central government, while remaining powers were retained by the states themselves.  The Europeans might do well to examine closely this historical precedent that has resulted in the creation of a strong, unified country that overcame its debt problems and consider following suit by applying the adopting the principles of federalism to the European Union.  There is still time to use the Greek crisis as an opportunity or stepping stone, to create a watershed moment in the history of the European Union, one in which the obvious vulnerabilities of the common currency are recognized and addressed by taking swift, effective and unified steps to strengthen the EU by taking the next step towards creating a United States of Europe, as envisioned by Winston Churchill in the aftermath of the Second World War.

Time to Even Out the Nuclear Energy Playing Field

On September 7, 2008, the New York Times reported that the 45-nation Nuclear Suppliers Group, an international body which regulates the sale of nuclear energy and technology around the world has approved a deal which allows India to engage in nuclear trade for the first time in three decades.  India was banned from buying nuclear fuel and technology because it conducted nuclear tests, developed a nuclear weapons program and yet consistently refused to sign the Nuclear Non-Proliferation Treaty.   The deal in question reverses past policy and practice in this regard and allows India to buy nuclear fuel and technology to power its civilian nuclear program thereby allowing it to meet its growing demand for electricity and to continue its economic growth.   In return, India has promised to separate its civilian nuclear reactors from its military reactors used for its nuclear weapons program.  It has also agreed to allow international inspectors to monitor its civilian nuclear program.

Putting aside the politics of the situation, it strikes me that a number of relevant questions need to be asked:

1. How does the international community explain its decisions to allow certain countries like India to trade in nuclear nuclear fuel and technology while denying others like Iran and North Korea the same opportunity?  Are there a set of principles on the basis of which such decisions are made?  Have these principles been agreed to by all nations in advance?  If not, what should these principles be?  

1.  If the issue is one of a nation's increasing demand for electricity and energy, shouldn't the international community be equally concerned with ensuring that such demands are met not only in India but in all countries where the need arises?  At the level of principle, isn't it crucial to deal even-handedly with the legitimate energy demands of the peoples of all nations including Iran and North Korea?  After all, they too, have claimed that they need nuclear reactors to satisfy the growing energy demands of their people and yet they have not been offered similar deals by the Nuclear Suppliers Group.  It is time to deal with all nations in an even-handed fashion, be they large or small, powerful or weak and ensure that the legitimate energy demands of all are met.  And yet, the issue is not that simple.  Clearly a closely allied question is how trustworthy a nation has proved itself to be in its dealings with the international community.  It is clearly too risky to allow all nations to have access to nuclear fuel and technology especially if one cannot trust their intentions.  Which leads us to the next question:

2.  What are we going to do about crafting a viable international system to adequately manage the risks of the proliferation of nuclear arms while at the same time providing for the legitimate energy demands of peoples everywhere? The current international system designed to protect the world from this danger appears to be falling apart at the seams.   In a world where nations can still adopt secret nuclear weapons programs that threaten the peace of the world, in which there is no mandatory, no-notice and geographically unlimited system of inspections of ALL nuclear sites worldwide and in which nations can choose whether they want to sign onto the Nuclear Non-Proliferation Treaty or not, it is too dangerous to allow countries to build nuclear reactors even if they claim that they are intended to meet legitimate civilian energy demands.  

In order to respond to both questions i.e., the legitimate and growing energy demands of countries worldwide while also ensuring our safety from nuclear weapons, I propose that we create a supranational institution with responsibility to manage all nuclear facilities and all activities related to the nuclear cycle worldwide.  This institution would be made up not of government appointees but rather of individuals elected by the people of every nation.  To ensure its independence from the dictates of individual governments it would be funded from levies imposed on the sale of nuclear fuel.  This body would be responsible for assessing the legitimate energy demands of all nations and of ensuring that each nation has fair and equal access to nuclear energy to meet its needs.  It would have the authority to set prices that are fair for all.  It would also have the authority to impose penalties on any individual, company and country that did not abide by its regulations.  Such penalties would have directly enforceable by the courts of each country.  The transparency regarding supply, demand and nuclear activities afforded by having all nuclear facilities under international management would considerably reduce the risks of secret weapons programs and would make the world safer.  Most importantly, nations would no longer feel the need to acquire nuclear capability because they would be assured that their energy needs were met.  They would also be secure in the knowledge that no other nation was building nuclear capabilities against which they would need to protect themselves.    

Fortunately, we do not have to start from scratch in creating such a supranational institutions.  The world has done something similar in the past with great success and created a model that we can learn from:  In the aftermath of the Second World War, six Western European nations including France and Germany established the European Coal and Steel Community and pooled the management of their coal and steel into its hands.  They were willing to cede a measure of sovereignty in this narrow economic sphere, albeit one critical to their reconstruction and economic well-being, because they concluded that it was in their collective self-interest to do so.  Consequently, despite their visceral discomfort with the idea of ceding sovereignty over such critical resources over which they had fought many wars, they did so to their great advantage.  In addition to ensuring that they all had equal access to the coal and steel they needed for reconstruction after the war, the creation of the Coal and Steel Community marked the end of ruinous wars between France and Germany and established the foundation for further European integration ultimately resulting in what we now know as the European Union.  There are many lessons the international community can learn from this experiment.  It can replicate this model to our advantage with respect to nuclear energy as well as oil and gas, learning from its strengths and avoiding its weaknesses.