Supranational Government in Europe?
UPDATE: Spain's economy minister Christobal Montoro June 5 "called for outside support for the first time to battle the financial crisis," asking for help to recapitalize Spnaihs banks, which he claims don't need "excessive" amounts of money." He's lying.
Great swathes of southern Europe operated as a fiscal scam within the European Monetary Union, we know now. Greece lied about its economy to get into EMU and then ran its national debt up to 130% of GDP to feed a kleptocratic patronage machine. Spain's banks fed a real estate bubble that, in relative economic terms, is three times as big as America's, by issuing bank bonds that amount to an astonishing 110% of GDP. The difference between America's subprime bubble and the European equivalent is that the latter was concentrated in a few countries where the government and financial institutions conspired to misuse the borrowing capacity they derived from membership in the monetary union to turn the local economy into a Ponzi scheme. Greece is now bankrupt, with its debt worth 20% to 30% on the dollar depending on the trading day.
Now the European Commission bureaucracy wants European countries to cede sovereignty to Brussels in return for a German-financed bailout. Germany, the only major European economy with financial resources to spare, faces an unpleasant choice: either it will assert its own interest and refuse to bail out the Bernie Madoffs of Club Med Europe, or it will endorse the bureaucracy's pitch to dissolve Europe's states into a regional government. Germany's conservative newspaper Die Welt broke the story over the weekend, and today's Wall Street Journal writes:
Germany is sending strong signals that it would eventually be willing to lift its objections to ideas such as common euro-zone bonds or mutual support for European banks if other European governments were to agree to transfer further powers to Europe.
If embraced, the move would deepen in fundamental ways Europe's political and fiscal union and represent one of the boldest steps taken by the bloc since the euro was launched. Germany has never before been willing to discuss the conditions it believes necessary to move toward assuming common risks within the euro zone. Now, although the end may be a long way off, it appears willing to discuss those conditions.
"The more that other member states get involved with this development and are prepared to give up sovereign rights to get European institutions more involved, the more we will be prepared to play an active role in developing things like a banking union," a German official familiar with the discussions told The Wall Street Journal. "You can't have one without the other."
The Obama administration, George Soros, the International Monetary Fund, and liberal opinion in general believe that no crisis should be wasted: an enlightened supranational bureaucracy should emerge as the ruler of Europe.
I find this repulsive for the most elemental of reasons: the further that government is removed from the electorate, the more prone it is to abuse. The Brussels bureaucracy is responsible for the catastrophe in the first place, and one doesn't normally give the gasoline monopoly to a bunch of arsonists.
As an old investment banker, though, I think that consolidating all the European scams into supranational entities will fail disastrously. The lifeboat itself will sink under the weight. Some of the scams are simply too outrageous to be rescued. The same Keynesian quackery that has kept the US in recession for the past four years festers among the Eurocrats.
In today's Asia Times, I published an open letter to German Chancellor Angela Merkel proposing that Germany take the situation in hand instead. Spain can't be bailed out; France must be, at least in part.
Here are some extracts from my open letter:
....Ultimately, you will have to sacrifice Spain. That will compromise the French banks, which in turn will require German support. Spain is unsalvageable. It is better to take the pain early and deliberately, rather than later and chaotically. Dealing expeditiously with Spain, moreover, should convince Italy to adopt the reforms which can prevent it from following Spain and Greece into de facto national bankruptcy.