Bill Emmott writes: Ever since Europe’s economic crisis erupted more than four years ago, politicians and pundits have clamored for a grand solution, often invoking the example of America’s postwar Marshall Plan, which, starting in 1948, helped to rebuild Western Europe’s shattered, debt-ridden economies. But the political moment has never been ripe. That could be about to change.
Europe’s situation today bears some similarities to the 1940s. Parochial suspicion has been the main obstacle to a grand solution. No country’s taxpayers have wanted to feel that they are paying for others’ excesses: the single currency did not impose shared responsibility.
The two sides disagree about the nature of the European sickness, and when there is no agreement on the diagnosis, it is hard to agree on a cure.
Greeks look poised to elect on January 25 a government dominated by the far-left Syriza party, which once stood for repudiation of the euro but now pledges to negotiate a restructuring of Greece’s debts. Spain’s most popular party ahead of the general election due at the end of this year is Podemos, which was founded only in January 2014 and has views similar to Syriza’s. And the United Kingdom’s election in May will rock the European boat by focusing on the question of when Britain should hold a referendum on whether to leave the EU.
These political rumbles worry creditor countries, which is reflected in the frequency of warnings from Germany that any new Greek government must adhere to existing agreements.
The passage of time ought to help with this bargaining. Germany’s formula for the euro crisis has been to insist on fiscal belt-tightening and structural reforms to reduce future public spending on pensions and wages, make labor markets more flexible, and boost productivity, all in return for emergency loans. Since the crisis began, the main recipients – Greece, Ireland, Spain, and Portugal – have been following that formula.
As a result, it is becoming possible, in political terms, to say that the debtors have taken their punishment and have made their economies more competitive. Economic growth has rebounded strongly in Ireland, mildly in Spain and Portugal, and meagerly in Greece.
That is why a modern version of the Marshall Plan is needed. Politically, it would be smart if German Chancellor Angela Merkel were to take the initiative in proposing such a grand solution, rather than being forced into piecemeal, reluctant concessions by new governments in Greece, Spain, or elsewhere.
A modern Marshall Plan should have three main components. First, sovereign debt in the eurozone would be restructured to ease the pain suffered by Greece and Spain. Second, a collectively financed public-investment program would focus on energy and other infrastructure. Third, a timetable for the completion of single-market liberalizing reforms – notably for service industries and the digital economy – would be established.
In Germany, debt restructuring would be the most controversial component. But Germans should be reminded that, along with Marshall Plan funds for Western Europe, the other big boost to Germany’s postwar economic recovery came from debt restructuring. The London Agreement of 1953 canceled 50% of Germany’s public debt and restructured the other half to give the country much longer to repay.
By including the other components of public investment and single-market completion, the Merkel Plan (or, better, the Merkel-Hollande-Cameron Plan) would be able to restart economic growth while opening countries to more trade and greater competition.
Of course, a modern Marshall Plan would face a wall of skepticism and obstruction by national interest groups. But, by standing together, European officials could win that battle. And if it is not tried, tomorrow’s Europeans may never forgive today’s leaders.
