Saturday, March 06, 2010

Euro QsOTD

The March 6th Washington Post editorializes on Europe's financial crisis:
The fundamental problem here is that, in the decade since it joined the euro area, Athens has consistently run massive budget deficits, in violation of European Union rules, and then disguised them with less-than-honest bookkeeping. The responsible E.U. and member state officials essentially did nothing about it. . .

No doubt politicians from Berlin to Athens would have preferred to keep pretending that 16 countries could employ a single currency without an enforceable common fiscal policy. But the hedge funds called this massive bluff. Before retaliating, government authorities should factor in the possibility that the hedgies merely precipitated a crisis that Europe was going to have to face sooner or later.
The March 6th New York Times:
Germany has the most fiscal flexibility among European Union members to help Greece, but public opposition to any assistance has been vehement. The debate has crystallized broader German misgivings about the European project into a public outcry. "It’s like a mosaic and the Greece crisis is the last stone," said Wolfgang Nowak, a former senior adviser to Mrs. Merkel’s predecessor, Gerhard Schröder, and head of Deutsche Bank’s International Forum. "More and more there is the feeling that French farmers, Polish farmers, Spanish infrastructure, that Europe is not a community but something held together by a German paycheck."
As Arnold Kling says:
The first phase of financial crisis gave capitalism a bad name. This phase may give European social democracy a bad name.
See MaxedOutMama for background.


Geoffrey said...

Ironically, there's great value in what's happening in Europe. The situation in Greece is being compared to California, who are also living on borrowed time. Reportedly, Spain and Portugal are in even greater long-term financial distress. So the European financial crisis will not end soon.

The American military umbrella has allowed Europe to indulge its socialist fantasy without having to spend any significant portion of its revenue on defense. Yet even with that artificial subsidy they are unable to make socialism work.

What a salient lesson for any promoting socialism and the strongest possible indictment of socialism's inherently false premises.

"Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy. " Winston Churchill

MaxedOutMama said...

I have been watching the situation with awe and shock.

There never was an explicit guarantee for any European country - indeed, that was ruled out in the charter.

The idea that countries would be bailed was based on the fact that Italy, for instance, already has debt above 100% of GDP. So Greece is just the first one, and the theory was that Greece would have to be bailed to protect against a cascade of defaults which would hit - let's guess - the BANKS. The banks can afford to take a loss on Greek bonds, but not Italian, etc.

I said over a year ago that there was big trouble ahead in Europe, and there is. Deutsche Bank was just downgraded again by the credit ratings firms.

As for the Germans, they are rightly opposed to bailing out all these countries; before the population would consent to intervention they would require a limit to their intervention and for the benefits of these other countries to be cut to theirs.

But what the German population doesn't know is that Germany's exports are hideously imperiled by what is happening now.

MaxedOutMama said...

Geoffrey - that is why Krugman and his ilk are tying themselves in knots trying to pretend this isn't happening, or it means something else.

It means what it means. The citizens of VA are not going to bail out the citizens of CA, etc. Progressivism in the US has just been killed by circumstances.

Who Struck John said...

Progressivism may have just been killed by circumstances, but it doesn't know it's dead yet, and may do tremendous damage in its death throes.

OBloodyHell said...

> This phase may give European social democracy a bad name.

Isn't the more important question "Hey, like -- What sort of imbecile gave it a 'good' name?"