Though Cowards Flinch

Let’s start by being  fair to Nick Clegg, and actually quoting what he said, rather than what the Dail Mail interprets him as saying.

Using its quotation marks for the purpose, the Daily Mail reports Clegg as having said:

‘nobody could have predicted’ the crisis now afflicting the hapless nations of the Eurozone.

In fact he didn’t say this.  What he actually said was much more specific:

I don’t think anyone could have predicted at the time the euro was created that the rules which were supposed to be in place to ensure that everybody looked after their own financial affairs properly would be so spectacularly ignored and broken.

He then goes on with his carefully planned justification for the LibDems previous stance:

My own view remains that if the disciplines – and they were strict fiscal disciplines – on which the euro was originally launched had been respected and adhered to, the euro would not now be in the trouble that it was.

In so doing, Clegg cleverly/cynically focuses attention back on what people could or could not have predicted way back in 1997, when the Stability & Growth Pact was signed, and away from the fact that joining the euro was official LibDem policy until three years ago.

Here, though, is where for our support for Clegg stops.

Because this carefully worded claim – that LibDem policy was based on a perfectly reasonable, and at the time a totally unquestioned, assumption that everyone would abide by the terms of the Pact – is rubbish.

The Pact, which essentially sought to institutionalise a deficit limit of 3% of Gross Domestic Product (GDP) amongst all states participating in Economic and Monetary Union, was never anything other than a last minute compromise, finally reached in the early hours of 13th December 1996, in parallel sessions of the Ecofin Council and of the European Council. 

This compromise made allowances for the breaching of the deficit rules in circumstances where recession had taken hold, such that 

[while] a recession of less than 0.75% ‘as a rule’ does not qualify as exceptional, a recession of over two per cent automatically does [qualify as an exception].

If the recession is in between these two figures the Ecofin Council will determine whether or not the recession is exceptional. The result is a rule that can be overturned by an Ecofin blocking minority of at least 26 out of 87 weighted votes or covering at least six Member States if they refuse to label a budgetary deficit of over three per cent as ‘excessive’ (source).

This was effectively the thin end of the wedge, and with automatically tirggered sanctions ruled out in favour of political judgments over whether countries (including Germany in 2002), rule enforcement was alwas going to be difficult, from the very moment the Pact was agreed in 1996 (coming into force in 1997). 

Certainly, doubts about the credibility of the PACT’s self-imposed rules were very evident by 2003, when the 13th House of Lords Select Committee on the European Union reported (para 132) reported

[T]he Stability and Growth Pact came under severe strain last year when the Council did not endorse the Commission’s recommendation to issue an early warning to Germany and Portugal. As explained above, this decision was widely interpreted as undermining the credibility of the Pact.  

The Stability & Growth Pact was a key element in the entrenchment of neoliberal policies within the European Union in the 1990s, and in that respect it was a victory for Germany over France, whose initial position was much more in favour of a more holistic ‘gouvernement économique’ focused on growth and employment (the addition of the word ‘Growth’ to the Pact was little more than a sop to France, as there was nothing about it in the actual agreement). 

What is important, here, though, is that even in Clegg’s own terms (the desirability of enforcing neoliberal norms upon unsuspecting populations), he is quite wrong to say that none of the ‘it’s OK if Germany breaks the rules’ stuff could have been anticipated.  As I’ve shown, albeit in brief, the evidence was there from the mid-90′s cobbling together of the Pact onwards, and was staring Clegg and co in the face by the early 2000s.

But perhaps Clegg wasn’t a very assiduous MEP between 1999 and 2004, as he appears not to have noticed what was going on.