The country’s op-ed pages have been full of condemnations of the dysfunction of American politics, what with all the populist clamor and partisan disagreement.
So, a thought experiment: What if we were governed by a sophisticated transnational elite that operated outside of normal political channels as much as possible and, sharing similar values, forged compromises relatively easily? What if the elite were high-minded and visionary? What if they succeeded in doing “big things”?
In Europe for the past couple of decades, this hasn’t been a fanciful hope, it’s been a reality. A political and financial overclass engineered the adoption of the euro, based on one of the world’s most foolhardy delusions since the fall of the Berlin Wall: that you can have a common currency without a common country.
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The euro fueled the sovereign-debt crisis that has brought Europe to the brink and threatens to take the American economy down with it. Our double dip may come courtesy of people named Jacques and Wim who were brilliant — and desperately wrong.
As the euro began to become a reality in the 1990s, the chief economist of the German Bundesbank rudely pointed out that “there is no example in history of a lasting monetary union that was not linked to one state.” But what is history compared with the dream of guys around a conference table sipping Evian?
In his excellent primer on the euro crash, Bust, Matthew Lynn notes that there were two answers to this objection. One was that the euro would be the forerunner to a unified Europe — in other words, create the currency first, worry about the nation later (details, details). The other was that Europe was an “optimal currency area,” where economic efficiency would be served by a single cross-border currency.
As the euro expanded to the periphery of Europe, the currency area got steadily less optimal. The euro foundered on differences of national culture and interests. The Swabian housewife — once invoked by German chancellor Angela Merkel as a symbol of austere common sense — does not live in Athens. She never will.
The euro nonetheless made it possible for countries like Greece and Portugal to borrow at essentially the same low rates as Germany under the illusion that they were just as safe. It’s one thing for Germany to borrow at German rates, since fiscal tough-mindedness is practically the country’s state religion. It’s quite another for Greece, with an ingrained habit of spending what it doesn’t have, to do so.
True to form, Greece lied about its fiscal indicators to get accepted into the euro, and kept right on lying once it joined the currency. Its national motto could be a paraphrase of the famous Animal House line: “You messed up, you trusted us.”
The low costs of borrowing in countries like Greece spurred massive binges by consumers and government. The bubble felt good on the way up, but it’s been brutal on the way down, and Europe — which is to say Germany — is ultimately on the hook for all the unsustainable debt.
Under traditional rules, Greece would devalue its currency in its desperation to get out of its current predicament. The euro makes it impossible. The Greeks have accepted a crushing deflationary program imposed by the EU that makes growth impossible and probably only delays the inevitable default. And the contagion is spreading to Spain and Italy, raising the prospect of a crisis in countries too big to bail.
The euro locks them all into a German-approved currency despite the fact that only one of them is Germany. As Ambrose Evans-Pritchard writes in the Daily Telegraph, “These countries were thrown together into monetary union by high-handed politicians before there was any meaningful convergence of productivity, growth patterns, wage bargaining, inflation proclivities, legal systems, or sensitivity to interest rates.”
The handiwork of the splendidly effective euro-crats should be undone. Greece is a basket-case country. It deserves a basket-case currency. Bring back the drachma.
How much longer will the Germans put up with this nonsense? Are their banks too heavily indebted now to ever pull out without collapsing? There is an old Jewish saying that an old Jewish businessman once told me. "Your first loss is your best loss." I believe Germany is now up to it's third loss which you might say it another unintended consequence of the holocaust.
The idea of a European Union (however conceived) has a long etiology. German unification accelerated the process by the debacle of two world wars. What they lost in war they have reaped in the peace. The 'dream' now may be a fiscal nightmare for those on board and Germany may yet regret the tyranny of history.
America's fiscal delinquency is of its own making. If sent to the reformatory, it may lead the way out of a Euro disaster.
The whole EU concept is against human nature and against history. You just cannot make a strong union of 25 countries who have 25 nationalities, 25 languages, 25 cultures, 25 national interests, etc... It was a delusion created by bunch of socialist bureaucrats and politicians who thought that they can force a union of 25 nations just because they create a set of laws and regulations. It was doomed to fail from the beginning.
The great irony is that the idea of Eurobonds is exactly the same as the bad mortgage debt that we had. The idea is to spread all the EU member's debts throughout the union in the form of these bonds. This will allow states like Greece to have lower interest rates and borrow money more cheaply because the solvent states will be inextricably bound up with them. (Of course, no one is saying what this will do to the interest rates the Germans are paying.)
Sound familiar? It should. The debt crisis here took toxic debt and co-mingled it with good debt and then propagated it throughout the financial system.
The Germans are fools if they do this. Greece's debt should remain Greece's. If the Germans establish joint ownership of Grecian debt through these bonds the Germans will wind up paying for all of it.
There is another old Jewish saying that said if everybody pulled in the same direction the planet would tilt.
Go, way-farer, bear news to Sparta's town
that here, their bidding done, we laid us down
For the Germans the first holocaust was at Jena in 1806. Murat chased the remenants of the Duke of Brunswick's Prussian army all the way to the Danish border. The French revenged Rossbach. Wrecked economies are not unknown to the Deutschen mentality. The 1922 Rentenmark comes to mind.
"You Poltroons Do You want to live forever"
Frederick the Great
Haven't had so much fun since the day the pig ate my little brother
as a regular European reader of NRO I am a bit puzzled that you describe Greece's massive cuts in spending and entitlements as a "deflationary program ... that makes growth impossible". Doesn't this argument sort of contradict your policy preferences for the U.S.? Also, do you want to imply that currency devaluation is a sound policy to spur economic growth? And if so, would you favor such a policy in your own country, too?
The the ultimate policy perference is reduced public spending coupled with a regulatory environment that encourages private economic growth. The two of which synergize to reduce the deficit (and ultimately the debt) while growing the tax base to pay off said debt.
A nation unwilling or unablet to do these things has no choice but to devalue or default - a difference of degree not of kind.
Presuming that you are a regular reader, you ought to be aware of the (unstated) pro-private growth component of "M. Lowry's policy preferences for the U.S." Thus we dispense with the the perceived contradiction.
As to the the desirablity of currency devaluation as a sound policy. I read M. Lowry's comentary as descriptive of what necessarily would happen as result of Greek fiscal chicanery, not a desired policy. You mistake the effect for the objective.
Dear German Reader,
I think that, rather than supporting the devaluation of currency as a matter of policy, Mr. Lowry is pointing out that it would be the only option open to Greece after spending themselves into this hole. It is not available to them by virtue of their membership in the EU.
The better solution would be to avoid the problem in the first place, hence Mr. Lowry's opposition to the current US administration's policy of continuing to spend money far in excess of it's capacity to repay in the absence of devaluation.
Regards
JP1
There is only one currency that is not supported by a nation-state to derive its value - gold.
Of course the exchange mechanism is rather cumbersome with requirements for assay, weight verification etc.
The bottom line is that the Euro was created to allow Europe to maximize its marketing efforts against the United States. Ironic that the New World and Old World are in the same whirlpool, as China is in its ascendancy.
Gold is not a currency; it is a commodity.
The "cumbersome requirements" that Sir John lists do not begin to exhaust all the problems with commodity money.
Please Google "milton friedman gold standard;" something that I'm sure Rep. Paul has never done.
...and therefore you suggest what? More of the same? A fiat currency based upon something else? How do you control a currency and maintaining its value? Don't just criticize, suggest.
My quick trip in April to sites of biblical significance in Greece and Turkey revealed stark contrasts: in Greece, resentment at the denouement of their socialist party, with restoration on the Acropolis funded solely by the EU; in western Turkey, an enterprising spirit very clear at the restoration of the ruins of ancient Laodicea, a project adopted by its modern city, Denizli, as a feature of that city's economic development plan. At the one, home of priceless sites and remains of the birth of western civilization, stagnation and the booming black market; at the other, vigor at curating its own ancient remains with a booming above-ground economy. I, a Christian from the West, actually felt more in common with the spirit of enterprise at Denizli than with the pall of contemporary Greece, even when taking in the ruins of ancient Corinth, whose ancient church accounts for the largest quantity of correspondence from the apostle to Gentiles.
What the current economic nightmare tells us is that stupid people cannot only get Phds they can then run national banks, international banks, become prime ministers and presidents.
When the non-Phded folks said don't bailout the banks, organize managed bankruptcies, we were laughed at. When we said don't waste trillions on useless stimulus bills cut our budgets so you have the money we will need for social safety nets, we were told we were just too unsophisticated to understand macroeconimics. Now we are on the brink of a worldwide collapse and none of the major industrialized democracies has enough money, or credit, or tax base to provide a safety net.
Stupid people with Phds controlled the world. They will be fine in their gated communties while we are stuck living in the dystopia created by self-satisfied stupid people, the stupidist people in history.
"The euro nonetheless made it possible for countries like Greece and Portugal to borrow at essentially the same low rates as Germany under the illusion that they were just as safe."
I keep hearing this statement but I don't think it's true. The mere existence of a common currency between Germany and Greece doesn't necessarily mean they both have to get the same interest rate.
Right now the market rate on Greek 10 year bonds is over 15%, for German bond it's just over 2%. Those don't look the same to me.
What's endangering the Euro is the ECB buying up Greek debt, I believe, with printed Euros, a most foolish version of quantitative easing. The value of the Greek debt is worth less that the Euros they gave in exchange for it. Why did they do that? They are by the own volition shooting themselves in the head, monitarily speaking.
They should have just Greece go bankrupt taking down a few banks along with it. Now if Greece defaults, it could take down the ECB itself and along with it the Euro down with it.
The author is correct. All governments in the Eurozone, including the Greek government, were able to borrow at spreads just basis points higher than that of Germany for nearly a decade after the establishment of the Euro since the bond market perceived the risk of any Eurozone member to be virtually the same. The wide spread you see now between German and Greek bonds is relatively recent.
The Euro did not fail, it accomplished exactly what it was suppose to. The power families behind the central banks have indebted the entire western world and now in the chaos, they will attempt to impose one-world-govt. The only "solution", at least here in America, is to do the exact opposite of what they want. And that is, to devolve the central government back to its Constitutional limits.
Oh please let me get in on this one.
What happens when a few members of the commune borrow "according to their needs". The whole commune goes up in flames. Oh that Greek austerity. Will happen here to. It amazes me that it takes a crisis like this to discredit the socialist creed.
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