Time is running short to make a jump towards federalism - to avoid a complete collapse of the euro, Guy Verhofstadt, leader of the liberal ALDE group in the European Parliament, tells EurActiv in an exclusive interview.
Belgian MEP Guy Verhofstadt spoke to EurActiv Senior Editor Georgi Gotev and Nikos Chrysoloras, a Brussels-based correspondent for the Greek daily Kathimerini and a Robert Bosch Stiftung EU Journalism Fellow.
Another EU summit is just ahead of us. Do you expect a strong response from leaders to the crisis this time?
After two years and a half of crisis, since December 2009, this summit is the 20th. And so we could expect now that with the things going worse in countries like Spain and Italy and even affecting Germany, in the sense that interest rates are also being hit, and you see also some difficulties in the economy, the confidence of the entrepreneurs is going down…
So we could expect now a jump forward in the sense of a federal union, because everyone knows what the outcome of this crisis is. The outcome of this crisis is the establishment of a federal union that is the foundation of a monetary union. And if we don’t do that, this crisis will simply continue.
What is your impression from the preparation of the summit?
I’m only looking to what’s happening in the last meeting between the four leaders - of France, Italy, Spain, and Germany - meeting in Rome on Friday [22 June] where Hollande says: “Yeah, I don’t want to give more sovereignty to Europe if there’s no solidarity”, and Merkel saying: “I don’t want to give more solidarity if there’s no transfer of sovereignty”.
It’s like two children! What do you normally do with such two children? You … say “OK, it’s over now” with both of them.
I think that from the outside, from outside of Europe, people have said: “Hey, what is happening?” Everybody knows that we have to go forward on both tracks, immediately, not wasting time. There is no choice to make. It’s not solidarity against transfer of sovereignty. It’s transfer of sovereignty and solidarity. Merkel and Hollande can go on like this another two months or so. But there is little time left before there is a complete collapse of the euro.
For the first time in such a serious financial crisis, many appear to know more or less what should be done…
We have known it already for three years. Some for five or even eight years.
This is more of a political crisis than an economic crisis. The trigger is the public finances and mainly the public finance in a country like Greece, but also in other countries, but that’s only the trigger. It’s not the source of the problem. The source of the problem is the lack of a federal union besides the monetary union so that countries the last 10 years have diverged in their budgetary issues or economic reforms instead of converging to each other. So it’s a political crisis. That is a real political crisis.
What kind of political crisis is it? Is it an issue of divergent political interests between let’s say France and Germany… or personal incompetence…
No, it’s a general lack of political courage to transfer new sovereignty to a European level. Because it’s a loss of power. This is what it’s about. That’s the obstacle that we are facing. It’s a transfer of power from the nation states to the European level. To a super national European authority. And to establish a super national European authority. It’s not so difficult to understand that. What we are asking to politicians now on a national level is to transfer power to the supranational level. And they shall only do it with their back against the wall.
I think they all have their back against the wall. Some of them may think that they can escape. Because let’s be clear: The attitude of some of these European leaders is fuelling the crisis at the moment. It is making in worse. For example if in Germany, Ms Merkel accepts to have the votes in the Bundesrat and the Bundestag to create a mutualisation of the debt inside Germany - this is what they have just recently agreed, but given the fiscal compact that we have at the European level, she’s not accepting the same rules. So she is indicating that she trusts the Länder, but she is not trusting the monetary union. And by doing that, she is undermining the fiscal compact, and fuelling the crisis.
But it’s not only Germany’s fault. France doesn’t accept the transfer of sovereignty…
That’s what I said a few minutes ago by saying it’s like two little children that say: “I want solidarity, but no transfer of sovereignty”... when we know that both are necessary. So the problem is that heads of states and governments are not capable to do the jump forward and on both tracks – solidarity and transfer of sovereignty.
But do they have a popular mandate to do this transfer? Maybe the Germans won’t agree. Maybe the French won’t agree…
The majority of the people, also in Germany, want to go forward with Europe. And if you want to go forward with Europe, you need to do that. Even in Germany they know it very well. Three million jobs in Germany are directly linked to Europe and can disappear. They disappear if the euro disappears. And people, also when you see the last Eurobarometer, are indicating that they want more Europe. They think that Europe can solve the crisis. They think that more Europe can solve the crisis. They are not against the Eurobonds; on the contrary, they are in favour of an economic and fiscal union.
I’m always saying that in a democracy, if the political leadership in Europe has the courage to defend European solutions, public opinion shall follow.
Yes, but public opinion in Germany shows that 70% of Germans want Greece out of the euro. So let’s have Greece out, right?
They want to continue with the euro, but they have a problem with Greece. My opinion about this is that Europe is not prepared for a Greek exit. It would have a negative impact in the sense that the contagion should be immediate to a number of countries like Portugal, Spain and Italy. And there is no firewall to protect the eurozone. We have no firewall. We have a number of fire extinguishers in the corners of the European Union, the EFSF, the ESM, mainly paid by taxpayers' money, but we have no real firewall in which we mutualise debt for a huge amount with high liquidity and bring down interests rates. That’s a real firewall.
Let’s be honest, a Greek exit means that you have to reinstall, reintroduce a Greek currency, the drachma, and we would see devaluations, one after the other, where the purchasing power of the Greek citizens should fall. And we shall see a Greek society in which no structural reforms are made because devaluation shall solve the problem. So it’s the fall of income of Greek citizens that shall solve the problem, instead of reforming the Greek society. Also for Greek citizens it should be a disaster.
How much time do we have for solutions? Can we afford to wait for new treaties?
We can envisage treaty changes after the next European elections, but meanwhile I think we have to use the actual treaty to try to solve these problems. And I think for an economic, fiscal, political union in the sense we are looking to that or a redemption fund, there’s no need for a treaty change.
Do we need a treaty change for having eurobonds?
Not for the redemption fund type of eurobonds, no. You know, redemptions funds are also a certain type of eurobonds. But for that type you don’t need it because, it’s limited in time, and it’s limited in an amount while a eurobond market needs … a change of treaty because that is eternal - for a long time and unlimited amount. But we can start with a redemption fund immediately, we can start with an economic and fiscal union immediately based on the actual treaty. But after the elections, a treaty change could be needed to jump toward a full-fledged federal union.
By the way, should we be afraid of Germany? I mean, Germany is becoming too powerful. On one hand everybody is looking at Mrs Merkel, too much power concentrated in her hands…
Because this is a system in which it’s still intergovernmental. We have now a system in which member states are managing this crisis, and it’s also the weakness of this approach. The markets simply don’t believe that heads of states and governments are capable to governing the eurozone.
A monetary union and a fiscal, economic and political union cannot be governed by intergovernmentalism, and markets simply don’t trust it. They have no confidence in this because they want a super-national approach. Why there is a crisis in Europe at 88% of debt in the eurozone ? And no crisis with 100% in the US? And why not with 226% of debt in Japan? Why do Japanese pay the lowest interest rates in the world with the highest debt?
They can print a lot of money…
Yeah, but behind the yen, behind the dollar, there is a central state that everybody trusts. Behind the dollar, there is a federal budget of 23% of the American GDP. And what is behind the euro? A union with 1% of the GDP? And countries fighting themselves and saying “No, no it’s discipline, no it’s about solidarity”, and it’s neither discipline nor solidarity that we see.
That’s the problem: there’s no big federal authority behind the euro. And because of that … what we need is unquestionable discipline and enhanced solidarity. And we have neither one nor the other. That’s a crisis of today. That’s a political crisis. Because there is a lack of establishing a full-fletched economic and fiscal union based on discipline and solidarity that can make the euro sustainable because of the lack of a real federal authority behind the euro. And either we are creating this federal authority behind the euro, or the euro disappears.
Some politicians said there was only one week left to save the euro, and that was already a few days ago. What do you think?
If they are not at least showing the end game, what they want to achieve, and the roadmap – how to come to that - things can get worse indeed. The recent decision to increase the growth pact with €130-140 billion is simply the leverage of the increase of the capital of the European Investment Bank and the launch of this minimal scenario of project bonds. Four hours after the announcement, markets reading it were wondering, where is the beef?
But where is the Commission in all this?
That’s what I am asking. They have to put the whole roadmap on the table, and the legislative package – the proposals for legislation to Council and Parliament. They have the right of initiative to propose to mutualise debt, to have a full fledged economic union, and so on. If not, they are failing on their responsibility.
Your expectation on Greece?
I expect at least that they discuss again the memorandum. I have nothing against changing the memorandum and making it better. I think there rare fundamental weaknesses in the memorandum, because it asks the ordinary citizens of Greece to pay the bill. Whereas the real problem of Greece is fundamental central reform – professions that are not open, [a] market sector that is not open, public sector which is still too high, privatisation that has not started, that is the main problem.
Secondly, next to structural reform, a growth package for Greece is necessary. If you privatise, why not put aside 20-25% in a separate fund, and use it giving guarantees for loans for private industries and investors? And promote growth in Greece, instead of using the whole product of the privatization to cover the debt?
The present memorandum is a one-point memorandum. It has to be a triangle. What is inside, more or less, plus structural reform and a real growth package? And the question is: are they capable to do so? Because the two big parties are responsible for this mess. Are they capable to change and become normal political parties, instead of the clientelist political parties that they are now? And the Troika should push in this direction.
But let’s face it: the Troika doesn’t have such a mandate. Their mandate is stick to what has been agreed and to press Greece to deliver.
This is bad. This is my opinion.
Are you optimistic about Greece?
No, if there these two additional key elements are not present.
How serious is this Schengen stand off between the Parliament and the Council?
It’s very serious. It’s not a joke what we did, to block these six proposals in Parliament, until the Council changes its legal base on the evaluation mechanism of Schengen.
Was this mishandled by the Danish presidency?
I think it was larger than that. I never received so many requests for meetings with ministers of the Interior, as now.
They want to speak to you?
Not only to me, to Parliament. The Parliament is very keen on this. At the moment we are going forward with European integration, when we want to make a jump in the direction of the federal Union, it’s really not the time to renationalise, directly or indirectly, the Schengen acquis. It’s the time to strengthen the Schengen acquis by reinforcing the external borders, not by restoring national borders.
Isn’t there a geopolitical danger from Europe being so weak for so long? With parts of it falling under other influence. Russia is more assertive, Turkey is even more assertive, in a smaller area. And Greece looks like an easy prey. So is Cyprus.
These are elements showing that the strengthening of the whole system is absolutely necessary. If we don’t make from the monetary union a full-fledged economic and fiscal union, all this can happen.
And look at Egypt, which is like a volcano. Or at Iran. Or at northern Mali, with fundamentalists arriving from all over the place. Or at Saudi Arabia, which masses an immense arsenal..
The lack of European unity means that we cannot play a decisive role … we are not using our influence to put these countries on another track. The lack of European unity is affecting the whole world. Economically, with the euro crisis, politically, by not being able to deliver at the world level, and that’s what we have faced in Mexico a few days ago – everybody asking what is happening with you? Can you make the jump to a full fledged union? It’s crazy that for the first time, it’s not from inside of the European Union, but from the outside, that we get those messages.