THE WORLD ECONOMY
Greece on Fire
A Greek default appears to be imminent, and a change of government is under way. Prime Minister George Papandreou promised and then canceled a national referendum on conditions to be imposed on Greece by the European Union in return for another bailout. When it became clear that his government would not survive the turmoil, he entered into negotiations with the opposition to select the premier of a new national-unity government, the purpose of which is to ensure the continued flow of bailout payments. As of this writing, the favored candidate was former European Central Bank executive Lucas Papademos.
So the Greek people are not to be allowed a vote on their own national economic policies. That is the European Union in miniature: economically incoherent and politically incompatible with democracy and national sovereignty. This incompatibility has come to a head now over fiscal questions, but it might have come to a head as easily over questions of national defense or immigration — questions in which the interests of a France or a Finland are very different from those of a Bulgaria or a Cyprus, but which in any case will be decided in accord with no country’s national interest but in accord with the interests of the bureaucratic elite in Brussels.
There is very little reason for Greece, Spain, and Portugal to share a single monetary policy with Germany and France — their public finances, labor conditions, balance of trade, and other economic fundamentals are radically different, and cannot be brought into harmony without something approaching a soft dictatorship. The business cycles of the members of the European Union are not coordinated, and neither are their economic interests. Less competitive nations such as Greece suffer particularly from sharing a currency with highly productive nations such as Germany, because it takes away the option of using currency depreciation to make one’s exports more attractive on world markets. Germany, a strong exporter, has benefited from this arrangement. There is some wisdom in human traditions, and it turns out that the Germans and the Greeks have separate countries for a reason — one of them being that they are separate peoples.
But Greece needs the money. Unhappily, the Europeans aren’t much in funds these days, which has them appealing to China for assistance in their bailout scheme. Which is to say, not only would the deal make Athens entirely subordinate to Brussels, it would make Athens entirely subordinate to a Brussels that is partly subordinate to Beijing.
The best and least likely outcome of this mess would be to have the economically stable northern-European countries break away to form their own union. The second-best and more likely outcome is for Greece to leave the eurozone, voluntarily or involuntarily. Either scenario would probably entail a default and would bring about massive economic disruption, and not just for the Europeans. But the alternative is a prolonged, slow-motion crisis and the entrenching of the one-size-fits-all, central-planning approach from Brussels that is a very large part of the present problem and no part of its solution.