Filibuster CartoonsTitle: One big happy EU family (click to view)
Date: October 26, 2011
As I mention in
this week's podcast, I've been having a bit of a hard time wrapping my soft brain around the complexities of Europe's current fiscal woes. I mean, just look at this passage from
yesterday's Financial Post:
EU leaders on Sunday outlined plans to recapitalize and improve funding for European banks, but failed to resolve how big a loss the private sector takes on Greek bonds and how to make best use of the EFSF eurozone rescue fund. Banks have offered to stretch the voluntary loss on Greek debt to 40% from July's agreement to take a 21% loss, but politicians are demanding the private sector agree to writedowns of at least 50%, a senior German banker said.
Gwa?
But this sort of minutia is not the real story. By now, most of us understand the broad shape of what's going on in the EU — which is to say, basically the same thing that's going on in the United States. Countries have more debt than they can afford to pay off, and it's preventing the world from getting out of this nasty recession. The grad school details that clutter up the papers are actually more a reflection on how little has been done to address this basic, fundamental crisis than proof that the crisis itself is getting more complicated. As anyone who's attended a meeting of this sort can attest, nothing will yield quite as much convoluted jargon and byzantine strategies than a group of well-meaning people struggling to come up with an airtight solution to a basically insolvable problem.
In Europe's case, the crux of their troubles remains the same as ever: Greece. Despite several bailouts, tax hikes, and spending cuts, Greece continues to be the basket case of the EU, with an over 100% debt-to-GDP ratio that is still nowhere near manageable. If countries were like people, Greece would probably be thinking very seriously about simply declaring bankruptcy and being done with it, but, alas, countries are
not like people, and there's no real precedent for a whole nation defaulting. There's
also no precedent for the other obvious solution: kicking Greece out of the Euro. If the country could return to its own currency, it could devalue its dollar to prompt foreign investment, or lower interest rates to put its banks in a more loan-happy mood, or peruse some other traditional monetary strategy for a nation desperate for economic growth. Instead, it looks like they'll just have to continue plodding along doing what they've already done, only moreso: cut spending, raise taxes, and ask other countries to cover the rest. But there's obviously certain rational — and political — limits to how far you can go with all three of these options, and Greece seems to be fast reaching them.
It's a bad time, then, for so many other mini-Greeces to be suddenly sprouting from the darkness. Italy, for example, also has a national debt comprising over 100% of its GDP, and is suffering from perennially low growth that has
recently cast doubt on its ability to pay down its own creditors — let alone those of other nations. Spain, likewise, saw its credit rating downgraded, America-style, by Standard and Poor last week, with the agency citing concern over the country's banking woes, a state of affairs spawned by — you guessed it — an out-of-control national debt.
Paul Krugman recently referred to the Euro as the new gold standard, in the sense that like gold, the Euro is this magical, arbitrary thing of fixed worth that offers the countries bound to it very little monetary flexibility in times of crisis. It's clear that in the long term, only economic growth will save Europe, since only economic growth will create jobs and investment and all the other good stuff that helps generate revenue for the state and pushes citizens off the dole. Yet shackled to a shared currency, the troubled economies of the EU are finding their fiscal policy options depressingly limited, and the agonizingly slow pace of collective action, as personified by these endless Eurozone summits, councils, and meetings, the only dreary road to (possible) salvation.
For a currency that was devised, among other motives, to help unify a conflict-prone continent in a sprit of "we must all hang together" harmony, it's ironic that the Euro has now become such a tremendous source of bitter division between its member states. Relations between European leaders are
acrimonious and tense, as everyone blames everyone else for Europe's woes while remaining chauvinistically indifferent to the unique national contexts in which such troubles arose, and from which solutions are trying to be devised. To the extent things have gone as well as they have, one can only credit the unusually generous German guilty conscience, but even that seems to be getting close to the breaking point.
Europe is in a straight jacket of its own making. Though the debt-induced woes of Greece
et al were arguably unexpected, the slow, bumbling way the EU has proceeded to deal with the aftermath is very much ineptitude by design. The fiscal union of a continent in a spirit of peace and cooperation was certainly a noble sentiment, but perhaps we should put a bit
more thought into logistics next time.
CKA Uber 
CKA Elite 
CKA Elite 
Active Member 
