Europe's High Noon moment
- J Brooks Spector
- 30 Sep 2011 (South Africa)
Up until very recently, the idea that the 27-nation European Union might come unstuck was virtually unthinkable. It had been one of the great post-World War II successes in economic and political integration. Now, however, two of the EU’s most important achievements – its common currency and the free movement of people across borders – are under threat. By J BROOKS SPECTOR.
This reporter author was always convinced – despite all the evidence that philosophy wasn’t a good career move – that staying awake throughout that Introduction to Western Philosophy class nearly a half century ago would eventually pay off. And, in a way, it finally has – in providing a handhold for understanding the current European financial crisis. A new article by economist Todd Buchholz, “Germany’s Mediterranean Envy”, calls on the opposing Apollonian and Dionysian ideals as set out by Frederick Nietzsche – in explaining the German debate about support for the Greek bailout, even as calmer heads understand that if Greece slips under the waves, the rest of Europe is no safer. Buchholz wrote:
“Greece is broke and broken. Its budget deficit bulges near 10 percent of gross domestic product, while the Germans choke theirs down to just 1.5 percent. Ask a typical German why and he’ll say: “They drink and dance during the day. We wait for sunset.” That’s the image. The hard-working, disciplined, punch-the-clock-on-time German stays solvent and sober. In contrast, the Mediterranean neighbor lolls around in fertile fields of lemons and olives. And yet most Germans go along, if grudgingly, with bailouts…
“Why are Germans willing to reach deep into their pockets for many billions of euros to bail out Zorba the Greek and his lackadaisical neighbors? The standard answer: to safeguard the German economy. But this is flabby reasoning. Despite the Great Recession, the German economy has been bouncing along at a decent pace with a 7 percent unemployment rate, and it even racks up a trade surplus with China…
“No, Germany’s real motivation to help Greece is not cash; it’s culture. Germans struggle with a national envy. For over 200 years, they have been searching for a missing part of their soul: passion.
“They find it in the south and covet the loosey-goosey, sun-filled days of their free-wheeling Mediterranean neighbors.”
Ah, so it’s Zorba envy, not the imperatives of the dismal science called the economy.
At first, given the challenge of bailing out the weak economies like Greece, Italy, Spain and Portugal, international commentary had focused on the resentment of Germans being asked to throw their good, hard-earned money into the fiery pit to save others – those Greeks who danced, sang, retired early to sit in the warm sun by the sea and were (especially if they worked for the Greek government) well-paid, protected and thoroughly coddled. But, if Buchholz is right, the real goad to the Germans in helping the PIIG economies of the Mediterranean Sea is to preserve the missing element of their own austere, Teutonic, Apollonian souls!
And, in fact, the Bundestag has, finally, at the last minute, agreed to ride into town on that psychic rescue mission. In the days leading up to Germany’s vote, the fact that Merkel seemed to need the support of opposition centre-left parties, sparked concern over her ability to control her coalition's responses to the debt crisis.
But, in finally overcoming opposition from within, Chancellor Angela Merkel's own parliamentary coalition, the German parliament agreed to support a near doubling of the resources of the European Financial Stability Facility by guaranteeing Germany’s contribution up to $285 billion (from an earlier level of $166 billion). The final vote was 523 to 85, and the back-benchers of Merkel’s ruling coalition – originally so disgruntled about the bailout funds - largely fell in line with the rest of the body, save for a rebellion of 15 members from the ranks of her coalition; more than 20 members might have been seen as an informal no confidence vote in Angela Merkel’s leadership. The measure will now go to the Bundestag’s upper house on Friday, where it is almost certain to pass.
As the Bundestag debate progressed, Volker Kauder, speaking for the Christian Democratic Union, had told the chamber “We have an existential national interest in the stability of Europe and the euro”. And in the Financial Times’ blog on the debate, the FT had noted there was some genuine surprise when Hermann-Otto Solms, the Free Democratic Party’s financial guru, announced he would vote yes after opposing it last year. The FT explained Solms had reversed course because he had decided that countries like Ireland, Portugal and Spain had demonstrated that under the pressure of the crisis measures, they had all taken drastic measures to improve their government finances.
Nevertheless, analysts argue even doubling the fund will not be enough to stop the downward trajectory of the debt crisis. As if to prove this point, a sale of Italian sovereign debt bonds on Thursday had been forced to offer significantly higher rates than Italy had planned to offer, based on investor concerns that it is now Italy that is going to have trouble paying its debt.
Moreover, the requirement all 17 eurozone countries had to approve the measure, has brought up to the surface serious domestic divisions about this plan, in some eurozone countries – besides Germany – calling into question Europe's ability to act firmly and with unanimity. With Germany’s approval, and before that, Finland’s, only six more countries must pass the agreement that was initially reached back in July. But Slovak politicians remain highly critical of the agreement and the governing coalition in that nation is deeply divided about the measure, especially since Greece, even these dismal days, is a richer nation than Slovakia is.
This approval process has revealed ever more division and complex layers of decision-making in European financial decision-making – giving fits to investors. And this prolix mechanism points to troublesome difficulties in reacting quickly or decisively to upheavals in the financial markets. Analysts now say that the fund, even with all 17 nations on board, will probably not be enough to defend successfully against attacks on deeply indebted European countries.
The other day, even as this beefed-up eurozone financial stability mechanism was visible on the horizon, Nouriel Roubini and his analytical team had issued a global economic outlook that fully lived up to his nickname, Dr. Doom. Roubini and company predicted, “a recession in developed markets, albeit a less severe one than in 2008 and 2009, and a meaningful slowdown in emerging markets. Failure to respond with appropriate policies could bring a more protracted and severe recession. A disorderly exit of Greece from the eurozone and financial pressures on Italy and Spain remain key downside risks.”
Meanwhile, in Greece itself, public workers blocked entrances to a number of ministries, including finance, just as inspectors from the international "troika" managing the bailout were due back in Athens. This group – comprising the European Commission, the European Central Bank and the International Monetary Fund – are to decide whether Greece has done enough to receive a new tranche of eight billion euros set aside earlier.
Protesters shouted, “Take your bailout and leave,” outside the finance ministry. According to press reports, the protesters hoped to prevent finance minister Evangelos Venizelos from even meeting the troika officials.
Meanwhile, taxi drivers, hospital workers and other public sector workers are also slated to go on strike from Thursday, angered by the new austerity measures that have included pension cuts and a new blanket, country-wide property tax. Even the deputy prime minister, Theodoros Pangalos, said the people's ability to pay extra taxes had been “exhausted for some time”.
New taxes have been approved and deeper spending cuts have been promised, but some decisions have been delayed, privatisation is running behind schedule and a growing number of people believe these austerity measures are pushing Greece's economy deeper into recession – effectively cutting off any chances for new growth or salvation.
Up until very recently, the idea that the 27-nation European Union might come unstuck was virtually unthinkable. It had been one of the great post-World War II successes in economic and political integration. Now, however, two of the EU’s most important achievements – its common currency and the free movement of people across borders – are under threat. And the idea that the EU might not survive in its present shape has entered mainstream debate. On Wednesday, Jose Manuel Barroso, the president of the European Commission, the EU's executive arm, said, “We're in a crucial moment in history. If we do not move forward with more unification, we will suffer more fragmentation.”
Meanwhile, Nicolas Veron, of Washington’s influential Peterson Institute for International Economics, told a US Senate committee the damage would not be limited to the Europe. “The requirements for crisis resolution cannot be met unless political conditions change sharply in their favor. This leaves the United States exposed to a risk of financial contagion… The United States can and should also continue to play a constructive role… However, only the Europeans themselves can solve their current predicament.”
It seems we are all in the same boat, after all, regardless of whether we are Apollonian or Dionysian. DM
- Germany Approves Expansion of Euro Bailout Fund in the New York Times;
- Outlook Overview: Gravity Exists at Nouriel Roubini’s website;
- Current Crises: Greek Sovereign Debt, also at Roubini’s website;
- The European Debt and Financial Crisis: Origins, Options by Nicolas Veron, Peterson Institute for International Economics Congressional testimony submitted to the US Senate Committee on Banking, Housing, and Urban Affairs: Subcommittee on Security and International Trade and Finance, September 22, 2011 at the PIIE website;
- Germany’s Mediterranean Envy at the New York Times;
- What Would It Take to Save Europe? At the New York Times.
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