31/01/2012 08:39 GMT

Germany's Desperate Plans Spark Fears Over 'Economic Occupation' In Europe

Greece roundly rejected a German plan, revealed last week, to hand power over the country's budget to the European Union as its failure to push through economic reforms continues to endanger the stability of the eurozone.

That same weekend, German Chancellor Angela Merkel said that she would be prepared to actively campaign for her French counterpart, Nicolas Sarkozy, as he prepares to fight off a strong challenge from Francois Hollande - his socialist rival who has promised to renegotiate the EU's hard-won agreement over a continent-wide fiscal compact.

Sarkozy dismissed the reports, saying that he was unaware that Merkel was able to vote in France.

The damage may have been done. Both incidents highlight the concern that a new fiscal union is creating a momentum that will inevitably lead to an erosion of sovereignty in individual countries in the eurozone, and that electorates will begin to lose influence over their economic affairs. While appearing rational from a Northern European perspective, such reports play into a long-running suspicion in the periphery that the economic dominance of Germany may lead to it imposing its own social and economic models on the south.

It is a dangerous game. While the French may support European integration and the Greeks want to remain in the euro, would they buy into the vision if it meant giving up control over their internal affairs?

Greek citizens continue to assemble on the streets of Athens to protest the vicious austerity programme, which has in part been imposed by external actors - the EU and the International Monetary Fund (IMF) - and has caused serious pain for many in the country. Public servants have seen their wages slashed, and unemployment has risen to nearly 19%.

Even so, Greeks retain a degree of agency. Their leaders must maintain a balance between their international and domestic obligations or risk losing office. A centrally-controlled budget would have no such democratic accountability and, the thinking goes, far less sympathy with the real pain inflicted on individuals.

At a meeting of the European Council on Monday, leaders agreed to introduce fiscal rules across the eurozone and in other participating countries, with an enforcement mechanism through the European Court of Justice. Momentum is building for increasing centralisation of powers, and, Germany's economic potency puts it in the driving seat.

"I think that's definitely the direction of travel. I think we are likely to see more integration, centralisation on the fiscal side, but also more generally across economic policy," Mujtaba Rahman, Europe analyst at Eurasia Group told the Huffington Post UK.

Opposition from major players, such as France, make it questionable whether the specific plan to put a European Commissioner in charge of the budgetary affairs of sovereign nations will come to pass.

Other leaders, including the Danish prime minister Helle Thorning-Schmidt and Austrian chancellor Werner Faymann, lined up in support of Greece on Monday, refusing to countenance such direct involvement in another sovereign state.

The proposal, Rahman said, comes out of a frustration at the constant slippage to reforms in Greece, and the political pressure being put on Merkel at home.

"70% of the [Greek] electorate wants to stay in the eurozone, but the counterfactual for Greece doesn't look pretty. Staying the current course is difficult, but it's a lot better than the alternative," he said.

"But in Germany Merkel is facing much greater opposition from within her own party, across the political spectrum and across the wider electorate as the Greek programme slips."

"This proposal shows more than a rational decision - it could be rational in terms of economics. not in politics - it is more a sign of desperation over what to do with the Greek problem," Achilles Skordas, professor of international law at Bristol law school and former adviser to the Greek parliament, told the Huffington Post UK.

As Skordas said, the Greek government, hindered by an almost uniform resistance across the political spectrum to redundancies in the public sector, has been unable to meet the structural adjustment programmes outlined by the "troika" of the EU, European Central Bank (ECB) and International Monetary Fund (IMF) - who between them are overseeing its bailout packages.

"The real problem is that the Greek political elite proved to be, up until now, unreliable. This prompted this proposal. If you cannot trust the political leadership of a country - and here I do not speak about the prime minister, who is really a person with moral authority but I speak for the behaviour of the elite as a whole - then you really have to do something drastic."

"We have a collision between markets and democracy expressing itself on a very extreme level," Skordas added.

Externally-imposed structural adjustment has never been popular. Throughout its history of heavily conditional lending, the IMF has been criticised for ignoring the on-the-ground realities of the economic programmes it enforced in the developing world. That same fear has stalked the periphery of the eurozone.

However, according to Dr Stephanie Rickard at the London School of Economics, the idea that the IMF is a "big bad wolf" is a misrepresentation of the real experience of structural adjustment.

Rickard and her colleagues studied 86 countries' IMF programmes, finding that those with strong labour representation tend to get a better deal out of the fund, in terms of concessions for workers and citizens.

"The programme that emerges is actually the outcome of negotiations between the government and the IMF… and we find that it is actually responsive to workers' concerns and citizens' concerns," Rickard told the Huffington Post UK.

"Even in Greece we've seen the IMF dial back some of its very harsh measures that relate to workers. So in that initial programme, because of the demonstrations that emerged on the streets in Greece, we saw them dial back and say 'OK, we're not going to impose these austerity measures across the board.' They made exceptions for lower wage workers, for older workers," she said.

"Even in Greece, which seems to be the textbook example of the opposite, we saw that protests on the street got the IMF to dial back its austerity. There are still very painful measures in place but they made some concessions to workers' concerns and citizens' concerns."

This is because the institution has realised that being responsive to the real concerns of the electorates in democratic countries increases the likelihood of programmes being even partially implemented, and reduces the risk of their total rejection.

Total rejection of austerity and of the euro has always been the Greek people's prerogative. While their government, for the time being, remains committed to staying in the single currency and fixing its economy within the framework of the monetary union, Greeks retain the ability to throw out their government and the currency.

In this respect, continued threats from the core could, rather than strengthen Greece's resolve, undermine it. Southern Europe is socially and culturally distinct from the North, and sensitive to having Anglo-Saxon orthodoxies imposed upon it.

"The public… might have a feeling of economic occupation," Skordas said. "It can be explained by the fact that in Greece, the economic crisis is not the product of a specific wrong economic decision, as you might perceive it for Iceland or Ireland, but there are deep-rooted social patterns that need to change in order to accommodate this adaptation to the new rules, that the public indeed perceives this change as almost being violent. It intrudes into their own regularities. Hence the reaction.

"It may risk a backlash. It may risk the euro. But you are at a point where you are damned if you do it, you're damned if you don't. You have Germany, which is the main economic power in the union, which is saying that it can't do what it did for the rest of the south what it did for East Germany."