Two false paths for Europe — and a new third way

Rather than austerity plus reform we must offer growth and reform, writes Tony Blair

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Europe as an entity and as an ideal is more needed than ever. The individual countries of Europe need the collective power of Europe to assert their interests, influence and values. Yet, as the impasse over Greece confirms, the continent is in crisis.

Many assume that some form of compromise is in the offing. Debt can somehow be kicked down the road. The Greek government will bend; the troika of creditors — the EU, ECB and International Monetary Fund — will bend and somewhere in the middle the two will come together.

I do not see it. Greece is part of a much wider problem. Athens is right to say that the situation is unsustainable; but the solution it proposes is wrong. The rest of Europe has imposed a burden on Greece that could never be borne for any length of time. I do not know what would happen in the UK if our economy contracted by 25 per cent; but I suspect it would be revolutionary.

The dilemma confronting Greece mirrors the dilemma confronting Europe. The country knows that departing the euro would — in the short term at least — be catastrophic; but the pain of keeping to the constraints is unbearable. However the structural reforms desired by the rest of Europe are indeed necessary. That is why the problem with the Greek government is not simply debt repayment; it is opposition to reform.

As has been obvious for some time, unless the eurozone can grow strongly, with a significant improvement in employment, political tensions will mount. It is true that some economies show real signs of recovery. But unfortunately not far enough or fast enough for the politics. Some of the politics will break to the left; some to the right; and as often happens in this situation, far left and far right find common ground.

The only solution is for the centre ground in European politics to retake the initiative. This requires a grand bargain in which the European economy is stimulated, both by fiscal and monetary means; and in return there is in each country a clear, verifiable and enforceable programme of structural reform.

This cannot be done by a series of steps, manoeuvre by manoeuvre, country by country. For the bargain to work, everyone has to see that they benefit. The countries which must reform need the comfort of a Europe-wide agreement.

Germany needs to be able to justify any forbearance by saying the others have agreed to its position on reform in the way genuinely necessary to achieve long-term competitive change. What is needed is more than a technical programme. The impact of the bargain has to be big enough to represent a new way forward; big enough to dominate European political debate and bigger than an isolated deal over Greece.

Otherwise Europe is in a fix over Greece: either it makes a deal which is seen as a major concession to the Greek government and then sets a benchmark for others to aim at, undermining those governments that have tried to comply with Europe’s conditions; or Greece caves in; or Greece leaves the eurozone.

Austerity plus reform was never a good choice to offer Europe. We have to offer growth plus reform. Macroeconomic policy should do what it takes to get there. This is essentially what the leadership in Italy and France have been arguing. Many others now agree.

The platform of the nationalists and anti-reform parties of left and right offer what they always offer: anger but not answers. They peddle ghastly and reactionary myths about immigrants; they pretend that complex problems have easy pain-free solutions; and there is a worrying authoritarianism (evident in their admiration for the Vladimir Putin brand of leadership) which lurks only a little beneath the surface. But if the centre does not lead, the extremes will be followed. The Greek crisis is an opportunity. It has to be seized.

The writer was prime minister of Britain from 1997 to 2007

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