When it comes to justifying violation of European rules on sovereign debt or liquidating banks, one argument is very much in vogue just now: That you have to make an exception once in a while to avoid fueling populist criticism of the euro and EU.
This is how France extended mitigating circumstances in the run-up to the presidential elections, even though it had been flouting the European agreement on reducing public debt for years. Deadlines were constantly pushed back and penalties postponed, for fear of providing grist for the National Front’s far-right mills.
Spain had already profited from similar arguments prior to its last elections. And the latest approval for government assistance in a bailout of Italian banks was essentially aimed at depriving the anti-Europe Lega Nord and Five Star Movement of fresh ammunition against Brussels.
The idea that states should be rewarded with transfers for complying with European agreements, rather than sanctioned for transgression, has become common currency in the European Parliament. It’s little different from rewarding those who manage to refrain from shoplifting rather than punishing theft.
The European Commission has just published a reflection paper on the future of the European monetary union, devoid of any calls for structural reform, such as more flexibility in the labor market, cutting excessive public spending or eliminating barriers to market entry. Instead, the paper is rich in ideas for new hedging instruments and financing mechanisms for the benefit of southern Europe.
If fear of populists guided the paper’s authors in the Commission, they aren’t alone. The European Central Bank is shying away from normalizing its monetary policy. Since it can no longer excuse its decisions with economic data, political uncertainties are repeatedly raised as justification.