A Question of Sovereignty

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By Jim Leontiades
Cyprus International Institute of Management

Henry Kissinger once asked : “Who do I call if I want to call Europe”. Today he would find a ready answer, forget the EU and the European Parliament, call Berlin and more specifically Mrs. Merkel and Dr. Schauble. The focus in Cyprus these past few days has understandably been on the economy but events have also highlighted the astonishing loss of sovereignty which characterises the new Europe.
Cyprus illustrates how little national governments matter in the Euro zone. Mrs. Merkel and Dr. Schauble decreed that the Cyprus economic model was not acceptable. The Cyprus banking sector was too big and must be reduced (even though Luxembourg’s banking sector with 150 main banks is much bigger and the resident population smaller). This goes way beyond any previous intrusion into national affairs. No other Euro zone country has been required to remodel itself and destroy its main industry.
Intervention into national matters has been experienced by much of Southern Europe, Spain, Italy, Greece, Portugal and now Cyprus. Nothing of economic importance in these countries can be decided without considering if it will be approved by the Troika. These same nations at one time or another fought for their independence. Cyprus illustrates how little of that is left.
How did we get here? The European Union began as a political organisation aimed at securing peace through a partnership of member countries. The Euro zone, comprised of 17 members of the EU, is largely a financial organisation dedicated to the implementation and functioning of a single currency. Even those critical of the single currency concept from its inception did not anticipate its major flaw. As a financial organisation with a financial objective, decision making power will inevitably gravitate towards the country with the strongest finances. Germany’s financial support is necessary for all major decisions.

THE FRENCH CONNECTION
This dominance was initially disguised during the early years which established the European Union by the partnership between France and Germany. Their joint leadership of the EU was cemented after WWII when De Gaulle was the President of France and the French atomic bomb served as a bulwark against the Soviet Union. Today, the Soviet Union is gone. The French economy is in difficulty and so is the partnership. It is clear that Mr. Hollande, the French president has been marginalised. Germany makes the decisions.
Unfortunately, these decisions have had very limited success. The sacrifices demanded of the Southern European countries have been justified on the grounds of future economic improvements if these countries only mend their ways. The improvements have not happened. The Merkel/Schauble brand of austerity economics has brought about the greatest economic decline in Southern Europe since World War II. It has divided Europe into North (the lenders) and South (the borrowers). There is a further growing division between those members of the EU inside the Euro zone and the other 10 EU countries which have not joined.
Struggling with recession, the borrower countries have tended to overlook issues of sovereignty, even as their elected political figures plead with the Troika on matters relating to the governance of their own country. As the economic downturn continues, they will increasingly be asking: “Has it been worth it?”