x Abu Dhabi, UAEFriday 21 July 2017

Voters can only stall euro zone's austerity reality

The culture of debt in European countries will not be changed by elections, only by balanced budgets

The problem with temporary solutions is that they're temporary.

At the height of the financial crisis in April 2009, the European Union ordered Greece, Ireland, Spain and France to rein in budget deficits. Since then, Greece in particular has walked a tightrope, cutting spending and raising taxes, and awaiting a public revolt against those painful policies.

On Sunday, Greece toppled off that tightrope. As had been widely predicted, most voters rejected the two main parties, one on the centre-left and one on the centre-right, both of which support austerity measures.

The result is not a new crisis for the euro zone (and for the world economy) but rather a new chapter in the continuing crisis. Demands for renegotiation of Greece's deal, and for a return to deficit spending elsewhere, can be expected to generate more turbulence, more frantic bargaining, more "firewalls", more late-night announcements. Will Greece abandon the euro? Will the EU abandon Greece?

These questions, though gripping, are the wrong ones to be asking. The real question was posed this week by Alexander Graf Lambsdorff, a German member of the European Parliament: how can Europe, and the world, move "away from a culture of excessive state debt to a culture of balanced budgets, which we could also call a culture of stability"?

Voters naturally resent the end of the deficit binge that provided Greece - and all of Europe, even Germany - a cornucopia of social benefits and easy money. The Greeks were not alone last weekend: France elected a Socialist president who has promised a return to the good old days. Even German voters, in a regional election, punished supporters of budget stability.

"Austerity can no longer be inevitable," said France's president-elect François Hollande on Sunday. It's a popular sentiment that won him an election, but he is wrong. If governments won't balance budgets, borrowing rates will skyrocket and they will face the same crisis that now troubles the Greeks. No country can simply vote itself out of debt.

Mr Hollande, who will meet Germany's Chancellor Angela Merkel next week, campaigned on renegotiating March's 25-country austerity deal, which Ms Merkel supports. Both Paris and Berlin have since made friendly noises about possible compromise, but there is a basic disagreement at the heart of the euro zone. There is, to be blunt, more at stake than Greece's bailout package.

EU states have repeatedly promised to balance their budgets, but not even Germany has done so. Sunday's elections may force some difficult decisions, but until voters grasp that massive debt is more a problem than a solution, we can expect only more chapters in this lamentable story.