DUBLIN – The European Parliament election is grabbing headlines worldwide, as it highlights a new skepticism in the European politics and raises concerns about the future of the integration project. But the real litmus test for the European Union is to be found elsewhere – in the health of its smaller economies, especially Greece and Ireland.
Both countries are small and highly indebted, with weak domestic industrial structures and faltering banking systems. Both suffered massive financial crises – rooted in egregious economic mismanagement in Greece and a massive asset-price bubble in Ireland – which were amplified by the eurozone’s structural shortcomings. And both countries had somewhat venal political systems, dominated by two large parties.
Of course, Greece and Ireland also have their share of differences, and have weathered the crisis with different degrees of success. But both are being celebrated as examples of the EU’s achievements: Rapidly recovering Ireland is being lionized as a model for other troubled economies, while the still-fragile Greece is being held aloft in defiance of those who warned that the EU would crumble.
This sense of “mission accomplished” is premature and dangerous. For starters, the EU has drawn the wrong conclusion from the experience: austerity works. This belief ignores the critical role in calming markets played by European Central Bank President Mario Draghi’s pledge to save the eurozone, just as it overlooks austerity’s high cost in terms of lost economic potential and social stability.