The 19th crisis summit won’t achieve anything until it faces up to the EU’s economic deceit, writes Jeff Randall.
Given Rome’s history of staging grotesque spectacles, it’s appropriate that the Eternal City was hosting last week’s gathering of leaders in the never-ending circus of European Union summitry. Spectators looking for a demonstration of gladiatorial courage will have been disappointed. Never mind fighting lions, the main players in the arena seem not to know what form the beast takes, much less how to kill it.
Since Greece went into meltdown, triggering a crisis of confidence in the euro, there have been 18 EU summits. The format is wearyingly familiar: after 36 hours of unproductive haggling, a communiqué is issued, promising a united effort to boost growth, promote jobs and curb “speculators”.
Vulnerable countries then brief reporters on the desirability of mutualising sovereign debt and fiscal transfers. This is followed by a statement from Berlin, the subtext of which is that the Germans would rather eat their own eyeballs than give Athens the PIN for a Bundesbank savings account.
Having rallied briefly on superficial hopes of effective action, financial markets lurch into reverse, forcing up the borrowing costs of weaker eurozone members to “Game Over” levels. Amid rancour and confusion, the unfulfilled alchemists of EU politics retreat to work out whom to blame next.
All that has changed is Germany’s readiness to dish out its retaliation first. Anticipating (correctly) that Greece’s new order would call for an easing of the bail-out terms, Volker Kauder, one of Angela Merkel’s key parliamentary allies, last week told Der Spiegel that his government should not “send any signal” that agreed austerity measures can be changed.
At the heart of the disaster is the reluctance of Europe’s self-deluding elite to admit that the single currency was launched on a false premise and shored up by deceit. As long as its members insist that there can be a politically contrived solution to what is essentially a financial crisis, the cost of failure will continue to soar.
The false premise was, as the high-priest of liberal-Left economics, Princeton’s Paul Krugman, pointed out recently, “the arrogance of European officials, mostly from richer countries, who convinced themselves that they could make a single currency work without a single government”.
The deceit, highlighted by Harvard historian Niall Ferguson in the first of his Reith lectures last week, continues to be a “fraudulent” system of national accounting, allowing huge liabilities to be hidden by profligate states: “Not even the current income and expenditure statements can be relied upon in some countries.”
Confounded by events and discredited by outcomes, those who urged us to believe that political firepower would abolish financial gravity inside the eurozone are now tormented by their own hubris. Yet rather than confess to intellectual shortcomings, they thrash about for scapegoats.
One crackpot theory suggests that it’s all the fault of the Germans for having the cheek to work hard, pay taxes, save money and be competitive. If only they were more like their unproductive, big-spending trading partners, all would be well.
Another blames the evil of “speculation”. This Anglo-Saxon barbarity, it is claimed, must be rooted out so that near-bankrupt EU countries can once again borrow on terms normally reserved for AAA-rated customers.
This is nonsense. The problem is not those benefiting from the system but the system itself. In a league table of financial fantasies, the euro is right up there with Tulipomania and the South Sea Bubble.
Encouraging soft economies to operate with a hard currency is the devil’s work. It ends in financial purgatory. There is, however, one important difference between where Greece is today and Hell: unlike the eternally damned, the Greeks do not have to suffer in perpetuity. They have an alternative; it would not be pain-free, but it offers an escape from diabolical austerity and a chance to rebuild.
Greece must default and leave the euro. Writing in Le Monde diplomatique, Costas Lapavitsas, professor of economics at SOAS, explains: “Greece needs to stop chasing its tail by seeking to service an unsupportable debt… default ought to be followed by the reintroduction of the drachma.” Yes, there would be short-term economic turmoil, but it has to be better than endless suffering.
Formal bankruptcy is the financial solution to a financial problem: Greece’s insolvency. Will it happen? Not if self-serving EU leaders and their Brussels flunkies have anything to do with it. Like members of the Flat Earth Society, they cling desperately to a vision of the world that no longer bears scrutiny.
The dream of a United States of Europe has turned into a nightmare, but confronting reality is too terrifying for them to contemplate. In the absence of voter approval for irreversible fiscal union and a perpetual conveyor belt of taxpayer funding from Stuttgart to Salonika, how does the euro survive?
For if Greece goes, what about Spain? Many Spanish banks are bust (their property portfolios are a horror show). Madrid cannot afford to rescue them, because its borrowing costs are too high. So the European Central Bank is lending cheap money to the Spanish financial sector so that it can recycle the cash into Spanish bonds at below-market rates. It’s like a drowning man throwing a lifebelt to a sinking ship: both are doomed.
In the amphitheatres of ancient Rome, there was a grisly form of voter participation. The crowd was invited to pass judgment on defeated gladiators. Thumbs down meant a swift dispatch.
EU leaders arriving in Italy last week were, perhaps undeservedly, spared death by the sword. They will, however, be held to account by investors, whose dwindling patience is murdering the euro.
Some of giants of Europe use to lecture us about fiscal responsibility and they themselves did not foresee the tsunami of bailout heading their way. I think they will have cut back on social programs whether people like it or not besides that workers will have to take pay cuts as well in order to compete with emerging economies. This is the reality of to-days world. This is how we did in North America in order to rescue auto plant jobs.
The latest one to join rescue club is Cyprus due to the fact they had loaned huge sums of money to Greek Banks. They are releasing the bad news in bits and pieces in order to avoid rush to the banks across Europe. Some of the big Banks in North Europe are going to be on chopping block as well due to the fact they have loaned close to two trillion dollars to South European Banks in the real estate projects.
Euro will not die. All your half baked theories and unscrupulous Suppositions will fall flat on its face. Benefits for common man will go that's given. But euro will be alive even after rupee has hyper inflated just like the dollar.
That is exactly what I have been thinking for a long time, how will each nation and her citizen react to the central control by EU? Will they compromise and tow the line or escalation in riots across Europe will be norm?
In my earlier post, I had asked a question as to who will benefit from impending Euro breakup? It was improperly worded. I should have asked what effect will exit of one or two states have on Euro?