By Steven Hill, May 14, 2010, San Francisco Chronicle
Contrary to what the doomsayers have been saying, Greece’s debt crisis may turn out to be one of the best things to happen to the European Union.
While the situation has been messy, it also has signaled a badly needed wake-up call to Europe about a flaw at the heart of its monetary union. That in turn has resulted in a move toward reforms that have the potential to lead to sensible financial regulation and transparency, as well as to strengthen Europe’s union. These reforms include:
— Financial backstop. A $1 trillion rescue package has been created that will provide the euro zone with a sort of European Monetary Fund that can tackle the default of a member state or pressure a country to cut its deficit before it gets out of hand. For the first time in its history, euro-zone members are loaning money to each other, a clear step toward a tighter union.
— More transparency. Greece’s profligacy, as well as that of other euro-zone members, was enabled by a lack of transparency that allowed Greece to submit falsified finance reports. Now, more oversight power will be given to Eurostat, the EU’s statistics and data collection agency, to audit budgets of member states.
— Financial re-regulation. Europe is cracking down on hedge funds, derivatives and credit default swaps, those toxic investment vehicles that American investor guru Warren Buffett has called “financial weapons of mass destruction.” U.S. Treasury Secretary Timothy Geithner has dragged his feet on this kind of reform, but Greece’s crisis has pushed the EU to its limit, and Europe won’t wait any longer.
The idea of surrendering a measure of financial sovereignty would never have occurred had the Greek crisis not arisen. Indeed, the crisis seems to be spurring the European Union to fine-tune its institutions for the better.
Time will tell how it ultimately works out. But the EU often has evolved in reaction to a crisis. During each, Euroskeptics have predicted the imminent demise of the union, and each time they have been proved wrong.
It’s helpful to remember that “old Europe” is quite young. The configuration of the EU — 27 nations and 500 million people — dates only to 2004; the euro, used by 16 nations, dates to 2002. By contrast, from the inauguration of the first American government in 1789, it took the United States about 80 years to cease being a collection of regions and to bind into a nation. And during that time, we suffered at least eight banking crises and financial panics.
Instructively, while Greece has been going through this crisis, Greek families and workers still all have health care and access to many safety-net supports that European countries provide. But in California, which last summer had to issue IOUs to keep from defaulting, a new report found that 25 percent of the population has no health insurance. Nor do Californians have access to many other safety-net features, even as unemployment is over 12 percent. Many people have been left to fend for themselves.
One thing is clear: The EU member states have swum too far across the stream to turn back. It’s possible that one day we will look back at this time and realize it was a seminal moment in the further formation of the European Union.