Stephen Kinsella

Thursday 21 August 2014

Technocrats can't cure Europe's ills – but neither can democracy

Stephen Kinsella

Published 18/03/2014 | 02:30

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German Chancellor Angela Merkel
German Chancellor Angela Merkel

THE late Tony Benn had five questions for the powerful. Benn asked: "What power do you have; where did you get it; in whose interests do you exercise it; to whom are you accountable; and, how can we get rid of you?"

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Pose those questions to the elite of Europe. Angela Merkel gets her considerable power from the German electorate and the size of their economy relative to the rest of Europe. She is accountable to her electorate and, if she messes up, the electorate can get rid of her in a few years' time. But in whose interests does Dr Merkel exercise her power? In the interests of the German people.

Given that Germany is in a monetary union with 17 other countries, the simple fact of Germany's often-inward focus is a source of huge problems. For example, in the recent Asset Quality Review, some very German banks had their mortgage books exempted from the exercise on the grounds it would be "too costly" for them. This change happened, of course, because of Germany's size and strength. Imagine if Ireland's banks had had the same request. Germany's current account, a measure of its earnings from selling exported goods abroad, was larger than China's at about €260bn. This current account surplus is causing nothing but damage in the eurozone, as the threat of deflation looms ever nearer. Dr Merkel's power to change all of these things relates perfectly to Tony Benn's questions.

Now consider Italy's new prime minister, Matteo Renzi. What power does he have? Mr Renzi has very little real power, with a shaky coalition trying to change Italy's sclerotic political system, and with time running out to do anything of substance.

He wields it for himself, having taken power by political manoeuvre rather than a straight election. In fact, Mr Renzi is the third unelected Italian prime minister in a row. To whom is Mr Renzi accountable? His coalition colleagues, and the power brokers within the Italian parliament. For whom does Mr Renzi exercise his power? That remains to be seen, but hopes are not high he will be able to achieve anything, and then the crisis of confidence surrounding the future of the eurozone might well return, as Italy owns the fourth-largest debt stock of any nation in the world, and any change to its funding costs by the markets would spell disaster.

What about the European Commission? We don't hear much from them, but Europe's civil service is immensely powerful. Ireland will be under the rules of the Commission's macroeconomic imbalance procedure until at least 2018, if not much later, and these reviews have the character of the troika assessments we are used to from the bailout years. The Commission gets its power, ultimately, from the people of Europe, but its officials are not elected by those peoples and are not accountable in the same fashion. Olli Rehn, for example, a vice president of the Commission and responsible for economic and monetary affairs, wields enormous influence at the level of the troika. It is unclear in whose interests unelected officials like Dr Rehn wield their power. For example, Dr Rehn's recent comments on the role and operations of the Troika included this line: "Europe's strategy has been based on extending solidarity in return for solidity". "Solidity", of course, being code for "austerity", a coordinated deflation through the wage channel of a series of economies in crisis. If Dr Rehn had to face an electorate, would he have made the same decisions?

In previous columns, I've beaten up on technocrats like Dr Rehn and Mario Draghi, the President of the European Central Bank. These are people who are experts in their fields, wielding enormous power, but crucially are unelected and so wield their power in different ways and for different people and institutions.

It is also not clear how to get rid of them when they don't do their jobs properly before their terms of office end. Jean Claude Trichet, Mario Draghi's predecessor as President of the European Central Bank, made terrible decisions throughout the crisis, but simply could not be removed.

There is no solution to the problems Tony Benn identified, nor is democracy a perfect solution either.

We live in a world of overlapping institutions which exercise their power over us in different ways. In his recent book 'Governing the World', historian Mark Mazower makes the point that international institutions like the UN and EU often do great work in reducing war and increasing cooperation on judicial, humanitarian, and scientific fronts, but also act as fig-leafs for the exploitation of naked national self-interest as well.

STEPHEN KINSELLA, SENIOR LECTURER IN ECONOMICS, UNIVERSITY OF LIMERICK

Irish Independent

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