Diving Into Shallow Water
For years, the idea of the euro was unloved, unwanted and unwept for. Europe never desired a common currency; it was something foreign to their way of doing business. Take the Germans, they loathed the idea of surrendering their cherished D-mark, which had become more than a measure of currency; it was an heroic symbol of post-war recovery, a Phoenix rising from the ashes of war transforming charnel houses into palaces of wealth. Most other Europeans felt the same as the Germans. Even the economists and the bankers were deeply skeptical that a single currency would be some sort of magic wand fostering European integration and solidarity.
So what happened? If everyone was against the euro, then who was for it? The politicians, who else? The idea of a united, democratic Europe was a delicious prospect to savor. A European economic engine firing off all cylinders was theoretically capable of surpassing the Promethean might of the United States. Salivating at the notion of frolicking in the empyrean precincts of the gods, Europe dove head first into shallow water.
Elites are predisposed to thinking they know what’s best for everyone else even though history is fraught with examples of their stunning lack of prescience. But for the masses the euro has proven anything but platitudinously popular, especially as the carcinoma of indebtedness voraciously devours the entrails of Europe’s economic presumptions. Europe has been living beyond its means for years, the southern tier of the continent most conspicuously of all, which has resulted, since the adoption of the euro, in the transfer of wealth from Northern European countries such as Germany, Holland and Belgium to the needier, financially dissolute states of Southern Europe such as Greece, Italy, Portugal and Spain.
Indeed, the practical difficulties of implementing the euro, if not insurmountable, were staggeringly immense. Reality was twisted and tortured under the crucible of an ideal whose authenticity was not infrequently the progeny of wishful thinking. The proponents who believed Europe would unite, more or less, under the same auspices that economically integrated the North and South of the United States failed to understand, as Alexander Hamilton did, that what engendered this amalgamation was a pre-existing tableau of linguistic and cultural commonality that made the marriage highly desirable. European integration was a concept stillborn from birth. At the molecular level, the chemistry for a European union wasn’t right; it was embryonically challenged from the moment of conception and a safe delivery from its womb of unwarranted expectations was ambiguous if not downright doubtful.
The euro simply involved too many countries with too many ingredients. Even at the most fundamental level, it was nearly impossible to reconcile all of the conflicting variables. It became a towering task, to use but one example, to set a single interest rate that would be sensible for all. Somehow, political leaders convinced themselves that these different circumstances and different cultures would in themselves provide the motivation for the continent to congeal into a single political and economic unit. Well, as the great playwright Eugene O’Neill said, “Man cannot live without illusion.”
Countries like France, which is heavily unionized, were never going to come to the table accepting wage reductions. The very notion of austerity in its quasi-socialistic, entitlement culture is ludicrous; the French are the French. Germany also has powerful unions and generous welfare benefits, but not to the extent where it has asphyxiated the nation’s productive capacity. This has led richer countries and central bankers to devise rescue packages to prop up failing banks and keep the exposed southern European countries connected to the euro. Far from dissolving the migraine, temples are throbbing in Portugal, Ireland, Italy and Spain. Just when you think German Chancellor Angela Merkel & Co. have tranquilized the festering situation with another hastily put together settlement, another crisis percolates with even higher stakes.
Greece, the poster child of aberrant economics, has behaved so recklessly that one wonders if it’s a country or an insane asylum. Greece makes the state of California, at its worst, look like a model of fiscal probity. Economic policies in Greece seem to act on the presumption that not only does money grow on trees but that there is a whole forest of them. For all intents and purposes, Greece has already defaulted on its debts and no amount of financial re-structuring by the European Central Bank can camouflage its catastrophic implications. It is one thing, of course, for the Greeks to live radically beyond their means but now that it’s part of the European economic fabric, their problems become everyone else’s and hence the throwing of repeated lifelines. Everything’s connected. When Martin Luther was a rebellious monk in the years before he ignited the Reformation, he complained that he could not break wind in Wittenberg without them smelling it in Rome. The same is true of Greece’s travails as we get a whiff of it here, all the way across the Atlantic, as our sagging stock market will attest.
Greece seems inclined to go on picking the pocket of its brethren in the euro zone as long as the rescuers remain compliant about being robbed. Pro-bailout parties in Greece won the general election assuring its larcenous practices will continue, but in truth this will do no more than delay Greece’s exit from the euro. Defaulting, while remaining inside the euro, remains an option for Greece but it’s neither a viable or wise one. The country would have to pay its debts with expensive euros leading to more inadequate bailouts and encouraging other countries paddling their own leaky boats to ignore fiscal rectitude and await deliverance from a similar economic messiah, most likely Germany, whose citizens are tired of seeing their country acting as some ATM for bankrupt economies who show little interest in righting their errant ways.
It is, I trust, no surprise that indefinite transfers of wealth are not the answer to Europe’s gnawing conundrum. Frankly, none of the options is very appealing, but the one with the best long-term prospect is for Greece to leave the euro and adopt a new Greek drachma at some X value that would be worth substantially less than the euro. This redenomination would devalue Greece’s indebtedness giving them a fighting chance of extinguishing some of its crushing debt. That’s not a zero-sum game, for it would harm Western European banks that have given Greece huge loans. Still, rapid recoveries under the aegis of similar plans are not unheard of and if financial assistance from wealthier countries and the ECB are not drastically cut back one might begin to see a faint light at the end of a long dark tunnel.
The lesson in all this, other than intramural cooperation among different cultures, histories and economies is almost impossibly problematic, is that profligacy is a mortal sin of democracy. Politicians want to feel the love and being generous to voting constituencies with other people’s money has proven a surefire way to achieve perpetuity in elected office. The United States has not reached this level of fiscal debauchery, but it sure seems to be trying. The historian Barbara Tuchman once noted that history is a distant mirror, but the reflection we see from Europe may be nearer to our own than we realize. If we become a nation of the unheeding, while ignoring what’s happening in Europe, we walk blindfolded into a future full of minefields.