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.