Eurozone: Failing Statists Prescribe…More Statism
France has pursued a policy of harnessing Germany’s economic muscle to further its political ambitions, and Germany has for the most part been happy to let a succession of arrogant and posturing French leaders, of whom Nicolas Sarkozy is the latest, hog the limelight. Pundits like to say that Europe is led by German racehorse ridden by a French jockey cracking the whip of war-guilt; not only is it a great line, it’s an uncannily instructive description of the relationship.
Europe is a complex web of overlapping and conflicting interests, but these days it’s essentially a statist racket propped up by ever-less-sustainable borrowing; the latest wheeze to placate the bond markets is a jaw-droppingly foolish commitment to private bondholders that they won’t incur losses as a result of countries defaulting on their debts.
There are all kinds of scenarios for how the crisis will play out, and none of them end well. Last week’s agreement may not see the light of day in its present form — several governments are consulting their parliaments and some, such as Ireland, have indicated that they may put the deal to a referendum. (This is flirting with danger: Greek Prime Minster George Papandreou was forced out by “Merkozy” and the technocrats for threatening to put the latest bailout plan for his country to the people. It’s enough to make one nostalgic for the days when Europe’s leaders at least allowed referendums to take place, and simply ignored the result if it didn’t go their way.) Governments and leaders are likely to fall, whether kicked out by their austerity-weary electorates or, as in Italy and Greece, led away by the men in white coats from Brussels.
Whatever the outcome, millions of Europeans, particularly in the southern states, are being condemned to decades of high taxes and high unemployment, while having to work longer than they’d expected for reduced pensions and enduring swinging cuts to public services. But all the while the elites will keep pressing for ever-closer union — assuring their citizens that however bad things seem now, they’d be worse off outside the eurozone. British Foreign Secretary William Hague’s warning, made when he opposition leader back in 1998, that a European single currency area would become “a burning building with no exits,” has been thoroughly vindicated.
In the U.S., meanwhile, there’s growing concern both over the level of banks’ exposure to European debt, and the prospect of a default or another credit rating downgrade on the continent causing a new credit crunch and plunging the country back into recession. But whatever the immediate consequences, the crisis engulfing Europe might at least help to persuade Americans that they need to step back from the edge of the statist abyss to which President Obama has led them.
The crisis engulfing Europe is the supreme indictment of the centralized, big government, welfare state model. And yet this is precisely the direction in which Barack Obama, should he win a second term, wants to take America (a bailout for California, anyone?). While looking to the U.S. as an approximate organizational model, the European elites would like their United States of Europe to have rather less democracy and accountability than currently prevails on the other side of the Atlantic. But if Obama gets his way, the U.S. of A. could in a few years be indistinguishable from the U.S. of E.
Everything rings true in this article by McNally but I compare Europe more to a large ocean liner whose architects forgot to add the lifeboats and plans for evacuating a sinking ship for possible storms. The architects of the euro zone did neither and now there are even a few additional countries who actually want to join the EU – the first time ever where rats are clamoring to board a sinking ship.
But one fact the article fails to mention, just to give credit where it is due, the U.S. started this crisis to begin with in 2007 as well as the fact that apparently a corrupt fiat currency system, political system of money instead of apolitical, and under Keynesian economics. The only reason the U.S. has already collapsed is that it holds the privilege of printing endlessly the world’s reserve currency which isn’t worth the digital ink it’s not printed on.
“…..the U.S. started this crisis to begin with in 2007/…..”
What started this crises is over-spending from too many social programs and entitlements. Printing always follows out of control spending. And, a dissolution of the EU will help the PIIGS nations, letting them print their own denomination money, allowing the value to fall as necessary, while not affecting the healthy economies.
It takes two to tango – if the European bankers/investors hadn’t so eagerly bought the toxic American trash, the snake-oil salesmen would be unemployed instead of occupying corner offices, the product would have remained on the shelf and we would all be in a happier place. Still, on a more Platonic level, how would we know we were happy if we hadn’t suffered the pain, hey?
correction: The only reason the U.S. has NOT already collapsed
They’ll just finance the debt til they die in a giant four poster bed with cloth-of-gold hanging and peacocks singing a lament outside in their pleasure gardens even louder than their mistresses.
Amid the general destruction of european economies laid low by socialist policies over the years, the real underlying problem is a lack of competitiveness that is the by product of these policies. Now that we are stripping away the curtains and seeing europe in the light of day, we see what Hyak was really talking about in the “road to serfdom.” Not only these countries bankrupt but the people have been beaten down into basic drones of the state. Pretty pathetic but what would bed expect.
We need to wake up and reallize that liberal policies of these countries breed a malcontented envious and bitter people always bitching about their benefits and entitlements. The economic pie is always shrinking, production of goods and services stagnated and of poor quality, national health services rationed and in general a climate like marxists russia. Time for a wake up call.
And yet….the whole thing keeps coming around as a “way to save everything”. It’s been tried, in various forms, for quite some time. Always to failure. Every single European nation prior to WW II had tried different forms of it under different rulers…be it royalty or dictator, then others after WW II but without the sudden takeover by a tyrant (“kind” socialism), but the end result is always the same. An unproductive people, hovered over by nanny-state bureaucrats, with few freedoms and complete lack of desire to accomplish anything. Some say that’s “peace in our time”. I call it stagnation of the human species.
It’s almost odd then, that Europe was the breadbasket of the industrial revolution. Nowadays, I’m sure they teach it in schools as the “evil, bigoted, racist, selfish” attitude of the dominant classes but what it did financially was bring Europe into mega-status compared to anywhere else in the world.
And where have all their brave defenders of freedom and tireless workers gone? They are buried on the battlefields, and the survivors left for fairer shores in America. The so-called elites spit on the graves of brave French and Polish soldiers who defended the liberty of their homelands against tyrants and claim as their own the works of men who should be insulted to be called merely a thousand times better than the so-called elites. The blood of a Polish patriot runs through my veins, and I intend to give them their due honor. While I still hold out hope for liberty in these United States, I will not consent to live a slave to tyrants. Better to die for God and Country than to bow before a tyrant.
I would like to add that the patriots who came before us, who defeated the tyranny of Britain, tried every peaceful means to reconcile themselves with the King of England, and resorted to arms only after their own country declared war on them. We must do the same. Not until all possible means of preserving our liberty without resorting to violence are exhausted is violence even on the table. Even then, we shall not do violence against our own government unless and until it commits an unprovoked act of war against its own people. We will not start another civil war, but if war should come, we shall fight.
I suspect the EU will keep its show on the road for far longer than anyone would expect. It won’t be forever, though. One day something unexpected will break, and they won’t be able to put humpty dumpty back together again faster than he is breaking apart. Debt pyramids have the same mathematics of collapse as avalanches in sandpiles. You can’t predict when it will go or how big the avalanche will be, but the probability is related to the steepness of the pile. And the EU pile is really steep, as their banks are so leveraged that US banks appear to be misers in comparison.
The UK could blow up at any time too. Its financial sector has a debt exceeding 600% of UK GDP.
“In the absence of exchange rate flexibility, there have to be mechanisms for transferring wealth from the better-off areas to the poorer ones.”
This statement betrays the Keynesian mindset of the author, and of British “conservatives” in general. The fact is that the Southern Europeans clamored to join the eurozone exactly because they realized what British “conservatives” still don’t get, that Keynesian “competitive” devaluations made them uncompetitive: it’s not the lack of competitiveness that forces the devaluations, it’s the devaluations that cause the fall in competitiveness.
This is NOT to say that it was a good idea to let the Southerners join the eurozone: at least in the case of Greece, Spain, and Ireland, it wasn’t. (Though Greece COULD have benefited, if they had cut public spending 10 years ago, instead of waiting until now.)
But the Keynesian rationalizations of British “conservatives” are wide off the mark.
A coworker of mine went back to Greece after ten years to be a Professor. At the university he could not get his equipment moved from the loading-doc to the lab without paying a gratuity. After 2 months of this he came back to the US.
Greece is uncompetitive by culture. The Greek worker is lazy, unmotivated and corrupt.
In the next 50 years we will see the rise of India and China because these people work. The Muslim world will not take one step forward because Muslims culture of Laziness.
“A coworker of mine went back to Greece after ten years to be a Professor. At the university he could not get his equipment moved from the loading-doc to the lab without paying a gratuity. After 2 months of this he came back to the US.”
Not hard to believe, but you should also tell us how long ago this happened.
“Greece is uncompetitive by culture.”
Assuming that this is true (and neglecting the effect that legal and socio-economic conditions have on culture), what does this have to do with what I wrote?
“In the next 50 years we will see the rise of India and China because these people work.”
Indeed, but the fact that Indians now work, proves that the legal and socio-economic context changes the culture by providing crucial incentives to work (or not to work, as might be the case).
I suspect that Corzine and MFGlobal are only the tip of a huge US Progressive banker iceberg. Their goal is to prop up the EU and our stock market until after Obama’s reelection…when they plan to use the ensuing crash to their advantage. If a Republican wins, the inevitable crash can be blamed on Republicans. If Romney wins, then we will get to see his Progressive bona fides swing into vigorous action.
Just want to add the advantage Germany gets from all this. The EU countries have no tariff barriers against German industry. The Euro-zone nations have no currency barrier against German industry. Germany is the worlds second largest exporter with $1.120 trillion being exported in 2009. German exports counts for one third of the national output.
It would be great for Germany if the other nations would show a little discipline and pay their bonds. Greek, Italian and Spanish discipline would be the cheapest solution for Germany. That’s why they made the BS agreement.
It’s against Germany’s interests for each nation to have its own currencies and have the values float according to financial conditions. German exports would suffer to allow devaluations in the PIIGS nations. That’s why Germany is at the forefront of trying to maintain the EU.
Progressive statism if the new “faith”. Like true believers of any faith they are fanatics. No amount of failure can disrupt belief. Like people believing in doomsday prophecy, who when faced with reality move to the next catastrophy.
Remember Y2K. It’s now the Mayan doomsday.
Interesting article but one must postulate the emerging role Germany may play in formulating a different version of European Socialism in which they control the purse. It is beyond my reasoning any economy can last long by taxing the producers and paying people not to produce. Seeing individuals of working age given welfare checks and pandering to their demands of more “free” stuff goes beyond common sense. The German mind will prevail and in the end will form a viable workable system.
An entire continent built an economic model that emanated from the daydreams of the lazy and the corrupt, now wonders what went wrong.
Retiring from a public pension life, is like retiring from pro fishing. To what?
When entire countries are modeled on the hatred of work, production, betterment and achievement, and constantly looking for ways to game the system for more “free” stuff from the fewer and fewer who do actually work, produce and pay for the freeloaders…it seems rather axiomatic that the backsliders would eventually suck the system dry.
They don’t need a currency adjustment, they need an attitude adjustment. When societies learn to care more about what they leave to their heirs than what was bequeathed to them by their ancestors, they will heal themselves.
Until then, the self-absorbed are simply the last victim in their own endgame.
A well written article on this subject.
http://opinion.financialpost.com/2011/12/15/peter-foster-cut-government-promote-growth/
Canada was dying a decade + ago, came up with a decent plan that worked to save their country.
Maybe it was unintentional or just me but this take on the events in Europe strikes me as quite optimistic – Mike, there is no solvency in Europe – not anywhere, nor in Japan, and China is not the breadbasket of the world and the big finance houses here, ditto, it is all, all built on air – this is not going to be a higher taxes and public benefits sorting out over time unless you describe the Great Depression as a problem in regulation that took a decade to sort out.
The Great Worldwide Ponzi Scheme will unravel, is now unraveling and will lead to extraordinary loss of money here, there and everywhere and lead to open rebellion in this country as the shadow financial system collapses and suddenly we the taxpayers are on the hook for shenanigans like MF Global. If you wonder where your money went there? – see JP Morgan who seized ‘collateral’ by re-hypothecation rights under a law signed by none other than George Bush in 2005. Now multiply that by the hundreds: pension funds, brokerages, banks, and the Fed are all up to their ears in over 600 trillion in debt that when the margin calls begin, as they are now beginning, will see a cascade of sovereign debt defaults. The Fed even now funds European banks who are going under. But even Bernacke can’t play that game for long – and live.
One day, you will go to the ATM machine and it will be off. You will then wait for the state to send you checks and note that your cost of living plummeted and then shot up like a rocket – and even if you had money, there is not much to buy in the way of food.
The problem is that this is about to implode with a speed that will defy the ability of the media to even present, much less try to spin in the favor of the administration. It is how a demagogue like Obama turns soft tyranny into hard.
This has been building for decades, it has reached its denouement.
EXACTLY
…these crooks are stripping the last of the “real” money from pension funds and accounts of small players who haven’t caught on that the market is rigged.
it will most likely look like a mad max movie in all the big cities.
none will survive a week without fuel trucks running. that is all it will take to start riots.
The crooks will soon learn there are no lifeboats on this ship. When they sink it, they’ll go down with it.
Just a reminder the dead white male imperialist Rudyard Kipling encapsulated the social/political development of Europe and the USA since the “War To End All Wars” in his poem “The Gods of The Copybook Headings” published in 1919, some time before George Orwell said much the same. Not bad for a far right-wing
imperialist, eh?
“This agreement is all about saving the euro, which in turn is the key mechanism for advancing the greater political project that is closer European integration, leading ultimately to a federal system along the lines of the United States.”
Wouldn’t it be more akin to the United Socialist States of Russia than the United States of America?
And, on a political level, what’s the difference?
Now you are seeing how this plays out. Leftists opened the floodgate for third world immigration into America and Europe, Mexicans flooding the US and muslims flooding Europe. Europe’s gone, conservatism and the desire to save what made us great is only a flickering candle in the breeze and we’re not far behind.
The utopian goal was to have a kumbaya moment with everyone all sharing and living happily every after. However, there are several reasons why it backfired both in the US and in Yurp. The muslims, like the mexicans here, working for very small wages but still living better than they did in their homelands, become a burden on society with healthcare, food needs, housing needs, etc. They put nothing in, take everything out. Thus, the definition of unsustainable. Perhaps someone or someones considered that eventually, they would become productive members of society but the masses of influx far exceeded the existing population’s ability to train, educate and put them to work. Then, there’s the constant thread that is the same with mexicans as it is with muslims who refuse to assimilate to their new home and instead set up barriers both with language and custom. When it is brought up as a problem, they scream “racist” at the top of their lungs. And there is no shortage of money-grubbing lawyers looking to make hay out of their case.
There are many more factors, of course but largely the people who have emigrated from country X refuse to accept their lot in Country Y. Once they learn that they have an advantage by playing it that way, there is destruction of society. The left social-engineers think they have it all figured out and look down their noses at those of us who point out that it’s a problem. They dismiss our notions as racism and bigotry when in reality, our concerns are infinitely more pragmatic than that. There have been peoples of all nations who came to the U.S. and assimilated to society and were enthused and glad to do it while still keeping much of their homeland traditions but never to usurp local, state or federal law.
Now, they don’t want to do that. They want to fly the mexican flag over their shop and refuse to learn English….in Europe, they want to implement sharia law and have largely been successful. This is a recipe for disaster in both nations. Moreso right now in Europe than here and it’s created problems.
The biggest problem of which is…liberal government that thinks nationalism is a bad word and that being France or Spain or Italy is just a notion and the plebes aren’t embracing the “new change” that hey have assembled with bubble gum and bailing wire.
But, it’s gonna hurt. Someday it’s gonna really hurt. Political correctness be damned.
Germany, The Netherlands, Norway, Sweden, and Denmark are all, by North American standards, pretty centralized, biggish government and highly taxed, and yet they are in nowhere near the economic, and ‘quality of life’ mess that the US is. In fact, Norway and Denmark seem to alternate at first place on any surveys that assess ‘happiness, with all the mentioned countries way ahead of the US on any survey that measures quality of life variables. What I’d like to know is where there is an example of a highly respected, envied country that is small government, decentralized, and minimally taxed…and please don’t respond with the US as an answer. It is slipping into a dystopian nightmare largely because it is the closest to the economically unregulated standard held up by conservatives.
Apples and oranges?
Even with the increased immigration of peoples from different cultures and races, Benelux, Scandinavia and Germany have a much more homogeneous population than the US has ever had. Put together smaller populations the assumption that homogeneity results in social agreement in attitudes and behaviours. Amsterdam as temporary exception/aberration? until discovering inevitable effects of absolute “tolerance” of self-indulgence among some citizens and immigrants with different mind-sets concentrated the minds of the native born.
Yes, the US is slipping into dystopia. But that is no natural development but was/is the intent of the “leaders”/political professionals (fuehrers?) of the past half century to bring about precisely that dystopia.
With, it must be said, agreement from Americans also tempted to no-cost self-indulgence. To ride in as white (sorry!) knight/”Messiah” to SAVE America from the dissolution of the social glue with their contrived cold civil war in pitting citizen against citizen. Similar to the actions of administrators of the EU now the failed token currency has exposed their end-game.
In the same ways as the EU in Brussels saves Europe from its history. As the Nazis in the 1930s in Germany, AND the Bolsheviks, working underground for a half century to achieve their “Dreams From The Father” via the Finland Station to Change Russia, and subsequently the world. Their dictatorship/commissariate to control actions of populations. None of which is of interest to most people until it adversely affects them personally.
We do indeed live in interesting times.
Hello Mike
What exactly is Obama proposing in terms of health care??? A system like the NHS????
Has government spending increased further with Obama???