In a column ominously titled, Euro Zone Death Trip, Paul Krugman laments the sad state of Euro nation deliberations over the fate of Greece (and Italy and Spain . . .), the Euro itself and the European economy. But he might as well have been talking about the sad state of US politics, because we’re having parts of the same argument here.
They’ll probably find a way to provide more credit to countries in trouble, which may or may not stave off imminent disaster. But they don’t seem at all ready to acknowledge a crucial fact — namely, that without more expansionary fiscal and monetary policies in Europe’s stronger economies, all of their rescue attempts will fail.
As the New York Times and other media report, the European leaders left the IMF meetings in the US promising to do what was necessary to save the Euro but unable to agree on what that is or how quickly they can implement measures that require every Euro nation to agree. They’re trying to figure out how to leverage the bailout funds they agreed to earlier, because the size of the needed bailout keeps growing. In the meantime, Greece is twisting in the market winds.
Krugman very clearly lays out the origins of the Euro predicament:
The introduction of the euro in 1999 led to a vast boom in lending to Europe’s peripheral economies, because investors believed (wrongly) that the shared currency made Greek or Spanish debt just as safe as German debt. Contrary to what you often hear, this lending boom wasn’t mostly financing profligate government spending — Spain and Ireland actually ran budget surpluses on the eve of the crisis, and had low levels of debt. Instead, the inflows of money mainly fueled huge booms in private spending, especially on housing.
But when the lending boom abruptly ended, the result was both an economic and a fiscal crisis. Savage recessions drove down tax receipts, pushing budgets deep into the red; meanwhile, the cost of bank bailouts led to a sudden increase in public debt. And one result was a collapse of investor confidence in the peripheral nations’ bonds.
The soberest views suggest we’re now confronting the risks of a depression. At a minimum, Greece may now undergo some form of default, “controlled” or otherwise, within or outside the Euro, while the Troika of the Euro core nations, the European Central Bank and the IMF try to “ring fence” Greece and possibly other vulnerable economies to protect the others. But we’ve seen this argument before.
Recall a previous GOP debate in which observers were appalled when audience members seemed to cheer the thought — suggested by Ron Paul [and his questioner] — that someone without health insurance could be allowed to die, because “that’s what freedom is all about.”
And think about the GOP today, threatening to shut down the US Government because the Democrats, so far, are refusing to impose offsetting spending reductions as a condition for funding emergency disaster relief. Or worse, recall the GOP’s successful hostage taking, with apparent White House complicity, during the debt limit debate, in which a foolish Congress and a misguided President agreed to impose drastic austerity measures on the country, and if they didn’t pass them, other drastic measures would kick in as a punishment — not for them, but for the economy.
The anti-growth, anti-worker pain lobby controls US politics just as it controls the European discussion. And the results are the same on both continents: high, continuing unemployment; worsening wealth/income disparity; dismal [or no] economic growth; mass suffering; but no foreseeable recovery. It’s hard to imagine a more convincing proof of a policy failure.
And yet it continues. The elites still demand reparations from the undeserving for the massive failures of the elite’s own system. And whether it’s undeserving Greece or the uninsured, unemployed Americans, the elites have the attitude of “I’ve got mine, Jack, so screw you, and my only concern is that you not infect me.”
The visionaries in revolutionary America, like those in Europe, hoped to create not just a union for coordinated action but an enlightened social compact. We would do this together. We would honor individual freedom and state sovereignty, to be sure, but we’d also create a national union that could function in the broadest national interest.
We would not let any parts just die; we would help each other and together we would pull through adversity, become stronger, more secure. Social Security, Medicare, public schools, a common infrastructure to support us all. That’s the compact, that’s why we’re called the United States and not the Confederacy or the Collected States of America. It’s not just about a common currency, though that’s necessary too.
The condition individual Euro nations and their central bankers are imposing on Greece is that it agree to die, to punish it workers and its people and bleed its economy to the last drop in an effort to pay back the loans that French and German banks made to Greece to allow the Greeks to buy products made in Germany and France. Germany’s prosperity was built partly on Greek borrowing from French and German banks. And now the focus is on how to protect the French and German banks and other nations when Greece finally dies.
Well, that’s not what freedom is about. That’s what looting is about. And we’re doing it too.