Euro crack-up: Whose fault?
November 18, 2011, 1:56 pm
Posted by Margaret O'Brien Steinfels
It’s not easy to keep track of the Euro crisis and whether or not it can be resolved. Here is an article in Foreign Affairs arguing, “Why Only Germany Can Fix the Euro.”
The authors hit upon a paradox rising out of German history and that nation’s resolve never to repeat the inflation that destroyed the Weimar Republic in the 1920s and led to the rise of the Nazis regime. Did Germany learn (or mislearn) that lesson too well? Unlike a lot of comments on the issue, this article is clear and straightforward. Angela Merkel should send it to members of her coalition.
AND SPEAKING OF WEIMAR: Uri Avnery has these reflections, “Weimar Revisited,” on the erosion of Israeli democracy; he seems to remember how Weimar ended.
Yes, the article is clear and straightforward in that it blames the ant for the grasshopper’s misery. Aesop drew a different conclusion. Economists apparently aren’t bound by common sense.
If by “common sense” you mean untested intuition or children’s parables, then no, they’re not. Nor should they be.
Actually David, it blames the ant for not recognizing the seriousness of the situation, and acting to stave off misery for both the ant and the grasshopper.
German exports benefited from the purchases of the “periphery,” which should have been more “frugal.” But now both German and the periphery will be in economic trouble if Germany doesn’t accept the fact that it is the most economically powerful country in the Eurozone and could stem the travails of those who import its goods as well as the downturn it otherwise faces.
Yes, I understand. But it seemed as though the authors were almost saying that Germany was ethically if not morally bound to commit economic suicide – that is, go as far as it could go – in order to repair a disastrous situation that it had created by failing to restrain its own economic growth.
In a way, the article was taking a very condescending attitude toward the entire non-German EU world – allowing it to be pretty stupid in its economic decisions – saying that only Germany had the smarts, wisdom, and discipline to be financially responsible.
We all read these things in our own way. I suppose I read the authors to say that for a time each country got what it needed. The “south” got the benefit of goods and credit; the “north” got the benefit of sales and income. Now a moment of reckoning has come. Does the south have to account for its “profligacy” and “pay up”; does the north have to recognize that its prosperity rests on the south and come to the rescue? If the whole euro-zone is to hold together, each has to come to terms with its responsibilities.
One of the thoughts on this is that the EU cobbled itself together too widely, that Greece, Spain, Portugal, Italy, and others simply aren’t in the same league with Germany, France, the Netherlands, and Belgiium – that, I suppose, they could have been more or less expected to behave irresponsibly.
It’s amazing how easily people lump countries together as if they were all profligate or profligate in the same way. Greece was indisputably profligate, Portugal was to some extent, but Spain and Italy were not much if at all. They had less deficit spending than many other countries. What they had were bubble economies that tanked, sending their tax receipts into a tailspin thus heightening their need for short-term financing, that is now going up and up in interest rates. THAT dilemma will not be solved by austerity that results in lower growth rates and even fewer tax receipts, and as it spreads to France and the Netherlands, are you going to revise your estimate of the “antness” of those countries as well? Eventually this “dilemma” will spread to Germany as well.
Being right about something is never enough to fix it. In addition to the non-trivial point that German banks were financing a lot of the speculative Southern growth, and by all rights, should be allowed to go down the toilet if everyone wants the consequences of bad behavior to fall where they belong, Germany can be right about what each and every one of those countries should have done but either it wants to preserve the euro or it doesn’t. If it does, it will have to stop fixating on the lack of virtue in others and bend to some extent.
Well argued, thanks Barbara…
And somewhat off topic, but interesting is Ross Douthat’s column on the non-democratic course of events. I don’t completely buy his opening premise that technocrats in Greece and Italy were forced on two democratically elected prime ministers. The Parliaments in each country voted (yes, under pressure) to get rid of two men not able to do the job that needed doing. Here’s his column: “Conspiracies, coups, and currencies.” http://www.nytimes.com/2011/11/20/opinion/sunday/douthat-conspiracies-coups-and-currencies.html?_r=1&ref=opinion
Yes, thanks, Barbara.