IN 1980, facing widespread calls to abandon her deeply unpopular liberalisation of the UK's economy, Margaret Thatcher famously answered her critics in a speech at the Conservative Party conference. "To those waiting with bated breath for that favourite media catchphrase, the 'U-turn', I have only one thing to say: 'You turn if you want to. The lady's not for turning'."
Thatcher was certain in her conviction that, although her reforms were causing acute pain to the country's economy, they were necessary for the UK to regain its long-term competitiveness.
Fast-forward 32 years and another powerful woman, German Chancellor Angela Merkel, is in the same spot. She has proven equally resolute in her methodical, sequential approach to Europe's crisis. This lady is not for turning either.
From the beginning, Merkel has consistently stressed fiscal discipline and structural reform of restrictive regulations and overly-generous benefits systems as a condition of aid, believing both to be prerequisites for growth and competitiveness. To avoid a repeat of the current debt crisis, she has called for greater political integration for the continent.
These are politically, economically and socially wrenching reforms. They will yield rewards in years, not weeks. Like Thatcher, she finds herself trying to convince the world that the pain will pass. She believes this firmly.
But the market has not been patient. The situation has deteriorated since the beginning of the year. Greece required a second bail-out, writing off huge portions of its private debt in the process. Spain requested emergency funding for its troubled banks. And Cyprus called for help. Unemployment levels have climbed, manufacturing has slumped and large portions of the region have fallen back into recession. Banks are foundering. Students are voting for socialists and pensioners are picketing. And the debt situation has not improved.
A growing chorus of commentators, politicians and economists has coalesced around the idea that Germany must temper its calls for fiscal austerity and disruptive reforms with measures that will boost growth, other measures that will restore faith in the continent's banks, and still more to lower borrowing costs for those countries under pressure from bond markets. Italian Prime Minister Mario Monti said last Friday that unless leaders act at their summit this week to reassure investors, there will be "progressively greater speculative attacks on individual countries, with harassment of the weaker countries", including Italy and Spain, the euro zone's third-and fourth-largest economies, respectively. The cost of bailing out these countries is estimated at more than ?1-trillion, an amount that would easily swamp Europe's rescue funds. One, or both, could be forced out of the euro zone. In response to Monti's lamentations, markets plunged and commentators bemoaned Merkel's stubbornness. But the lady did not turn.
"I say it quite frankly: when I think of the summit on Thursday, I'm concerned that once again the discussion will be far too much about all kinds of ideas for joint liability and far too little about improved oversight and structural measures," she said in Berlin on Monday. Merkel believes that political reforms, including centrally enforced fiscal discipline, must come before risk-sharing.
Without it, there is no incentive for profligate spenders to amend their ways.
Billionaire investor George Soros took to the opinion pages of the Financial Times on Tuesday to tell Merkel she is wrong. "Merkel insists that a political union should precede a fully fledged fiscal and banking union," he wrote. "That is both unrealistic and unreasonable. The three have to be developed together, step by step." The New York Times's Paul Krugman and the editors of the Economist, among many others, agree.
Merkel's goal is to deal with the root causes of Europe's troubles, not the symptoms. She believes Europe's common currency was flawed from the start, a monetary but not fiscal union doomed to failure without reform. Her vision is clear. Her pursuit of this vision has been unwavering. She will not turn. Position yourselves accordingly.
. Quigley is a former official of the US treasury department and the Federal Reserve Bank of Boston. He is currently developing Exchange Data International's business in SA.