By Tom Kando
The European sovereign debt crisis is becoming scary. The dominoes are falling. The contagion has spread from Greece to Italy and beyond. Even France’s credit-worthiness has begun to crumble. No one is safe any more. Even Germany does not have the limitless resources required to bail out the rest of the Continent. There is a vicious cycle of increasing borrowing costs for everyone, a decrease in the availability of credit, a slowing down of the economy and a decline in the governments’ solvency.
So we now hear from highly knowledgeable economists that the dissolution of the Euro is at hand. The dream of a unified Europe comes crashing down. Personally, I find this terrible. It gets me angry. As I see it, the European collapse is undesirable and unnecessary.
Facts: Overall European indebtedness is less than half of what it is in the US and in Japan! The combined debt of the 17 governments in the Euro Zone is 8.6 trillion, or 87% of their combined GDP. Much less than America’s or Japan’s. The average government deficit is 4.4% of GDP. America’s and Japan’s are twice as large.
But Europe is the one that is breaking up. Why? Because Europe isn’t a country. Unlike the US and Japan (or Britain), when a European country - mostly the “PIGs, countries such as Portugal, Italy, Greece, Ireland, Spain - runs into debt trouble, it can’t print money to get out of its difficulties.
It is anarchy. It’s as if two spouses shared a bank account, but when the wife overspends far beyond her means, her husband is not responsible for her debts.
There is one solution to the “Euro” and the “Europe” problem which seems unbelievably simple, yet it is opposed by many people, both on the PIG side and on the side of strong countries such as Germany and the Netherlands: It would be the further political and economic unification of Europe.
There is only one alternative to Europe’s break-up, and that is much more Europe. In other words, the integration of Europe. Europe must become one country, comparable to the US and Japan. To begin with, the debt would be shared. There would be Eurobonds, similar the US Treasury bonds.
Sorry, you guys in Holland and Germany. I know, you have been good, and the Greeks and the Italians have been bad. But are you therefore prepared to abandon the dream of a unified Europe, a return to the continent’s dark and fractious past?
Even now, German Chancellor Angela Merkel says that she finds Eurobonds unacceptable, that there cannot be “a common liability for the debts of others.”
I am reminded that the situation is not so simple, and that I overlook the other side of the issue: For one thing, pooling the debt together will not force the pig countries to borrow less and to balance their budgets. It will intensify their borrowing and make things worse. The only way Eurobonds would work is if all countries gave up a large part of their sovereignty, letting Brussels dictate how they will spend the borrowed money. Which is unacceptable to most European countries.
Maybe a smaller EU is not such a bad idea. It was too ambitious to begin with. Greece (and others) could re-apply when they have proven to be responsible members. What’s so holy about preserving the Euro, anyway?
So there you have it - two perspectives. Will we see the emergence of a strong club of, say, Holland-Germany-Finland, and a bunch of weaker clubs/countries in the South?
To me, this would be a tragedy. The correlation between European unification and its unprecedented level of prosperity, peace and stability is unquestionable. Unification has brought immense benefits. It transformed the Continent from a ravaged, violent, starving, war-torn region into one which enjoys the world’s highest quality of life (superior even to America’s). The fragmentation of Europe puts all this at risk.leave comment here
11 comments:
Eurobonds will eventually materialize but this is not the right time to go there. It will only make things worse. Pumping so much money into the pig countries to help them reach EU economic standards was an honorable idea and disastrous in a practical economic sense.
The fundamental problem in Europe is that you cannot have a functioning economic union without a political union, but because of the economic crisis, there is no time to build up a political union through the normal democratic process.
Germany has said no to Eurobonds and since it is now in the driver's seat, the other EU countries will have to swallow what Germany dictates.
Thank you, anonymous,
There is nothing with which I can disagree in your comment.
And it seems to me that, at least on some level, we agree: "You cannot have a functioning economic union without a political union."
Hi Tom
ici en France c'est la recession mais encore trop de gens endormis par les medias pensent que tout va bien....
regardez ce lien pour en savoir plus http://www.leap2020.eu/GEAB-est-disponible-Crise-systemique-globale-USA-2012-2016-Un-pays-insolvable-et-ingouvernable_a8454.html
bonne fin d'année et bon courage tom
(Translation: Here in France, it’s the recession, but too many people put to sleep by the media think that everything is ok. Check out this link.)
Thank you, Mary.
I looked at the link.
This article, by a French organization called LEAP, deals with the crises occurring on both sides of the Atlantic. It is especially somber about the US’ prospects, which it describes as no longer “solvable or governable.”
Hmm... Scary, indeed.
I don’t mean to overlook the possibility that it may, as the article says, indeed be “the end of the world as we have known it since 1945, marking the collapse of the American pillar upon which this world order has rested for nearly 7 decades.”
There is no denying that America is in trouble, and that there is no visible light at the end of the tunnel.
However, this article is uncannily reminiscent of two things:
1. The innumerable articles I have read, some published as far back as the 1920s, predicting the imminent decay, collapse, revolution, turning fascist, civil war, downfall or destruction of the USA.
2. These prognoses are made most frequently by Europeans. Often in France, but also in Russia, Germany and elsewhere.
And incidentally, Americans return the favor. There are many (mostly conservative) articles and seminars here, which have been predicting the imminent decay, collapse, revolution, turning fascist, civil war, downfall or destruction of Europe.
Well, maybe both sides are right. Maybe it’s the entire Western World which is collapsing.
Still, I can’t help but chuckle a little, seeing how each side keeps shouting “chicken little, the sky is falling,” preferably focusing on the other guy’s impending doom, and how far back these doomsday scenarios go.
Of course, any prediction of death is bound to come true - some day. As Keynes said, “in the long run, we are all dead.”
It’s the Greeks’ fault. I wrote a book that you may remember, The Greek Peasant, in the 1960s that predicted Greece would never develop economically because of a culture of mistrust and corruption. Ha!
Scott,
I remember your book.
Greece did start the ball rolling, indeed. You'd think such a small country (1% of US GDP) couldn't do this. Go figure!
It is difficult for a set of countries to have an economic union with a single currency when each country tries to follow it's own fiscal policy. It is reminiscent of the time under the old gold standard. If a country was living beyond it's means gold would start to leave. This would force a needed reduction in prices and wages to bring things into equilibrium. Think of Euros as being analogous to gold. The PIGS countries will have to lower wages and prices to become competitive.
Marc Luce's link to an article entitled: "Global systemic crisis – USA 2012/2016: An insolvent and ungovernable country", lacks conviction, not in the least because their sources are mostly daily newspapers.
The authors could have come to an entirely different (and less biased) conclusion had they derived their information from more in-depth readings.
No, their article is not convincing.
The weird thing, at least for me, is the fact that they (the Greeks) were let into the EU with a wink and a nod toward their bogus financial reports.
à mon avis , beaucoup d'européens rèvaient comme moi des Etats Unis d'Europe .
hélas , par la faute des politiciens européens qui préfèrent être Chefs d'Etat que gouverneurs , ce beau rêve a été détruit .
aussi , pour préserver leur égo , ont-ils construit une Europe bancale sans se préoccuper d'unifier les salaires , les retraites , les congés , les charges de tous ordres .
depuis 10 ans que l'euro a été créé , cette unification aurait pu se faire . au contraire , la situation n'a fait que s'aggraver .
aussi , ne pouvons nous qu'assister , impuissants , à notre déclin , éspérant quand même que nos décideurs seront contraints de réagir avant qu'il ne soit trop tard
amicalement
Translation:
In my opinion, many Europeans such as myself dreamed of a United States of Europe. Alas, due to the fault of European politicians, who prefer to be heads of states instead of governors, this beautiful dream has been destroyed.
Also, in order to preserve their ego’s, they built a banking Europe, without bothering to unify salaries, retirements, furloughs, and other matters.
Since the 10 years that the Euro was created, this unification could have been achieved - but to the contrary, the situation has only worsened.
So, we can only behold, powerless, our decline, hoping nevertheless that our deciders will have to react before it’s too late.
cordially
Thanks for the many comments.
Most people seem to agree that Europe’s problem is a lack of unification at all levels.
Wayne sees market forces coming to the rescue, maybe.
Madeleine is skeptical about the validity of the article "Global systemic crisis – USA 2012/2016: An insolvent and ungovernable country" provided by Marie Luce (sorry, Marie - for misspelling your name as Marc, Mary and Mari).
Scott is right about Greece, and I believe that other weak countries were admitted with a similar absence of scrutiny, although there IS a “two-tiered” system of some sort, which admits some weak countries (such as my birth country - Hungary) to the EU without admitting it to the Euro. It would have been a good idea to treat Greece the same way.
Guy’s analysis seems wise and correct. I hope that he speaks for most Frenchmen.
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