Updated 19th June 2012 to add Edward Hugh article.
Over the weekend I had time to digest a lot of excellent material on the Euro crisis, which I’ve excerpted and linked to from this blog entry.
Like many, I felt a profound disappointment when I learned last night that Antonis Samaras had won the elections in Greece, because it felt like New Democracy were presenting the country’s options as a Hobson’s choice. I think the Greeks hold a few more cards in this game of inter-institutional poker than ND have been suggesting. And regardless of Samaras’ intentions, the result hasn’t calmed the rhetoric of the right-wing German press (link in German).
Anyway, here’s a rundown of the best of my reading:
An excellent Greek documentary on the deteriorating situation in that country, and its causes. The TL;DR version is that the Memorandum imposed by the Troika isn’t so much the result of irresponsible public sector spending, but a response to a crisis which has provided cover to complete the neoliberal project, as imagined by Hayek and later Friedman. The question is not so much about reducing government, but of who (the democratic state or corporations) should govern.
There’s an excellent detour into exploring the history of the Treuhandanstalt, which presided over the post-reunification divestment of East German state assets, and which managed to report a colossal loss despite starting with billions of Deutschmarks of assets. The implication is that the Troika have explicitly modelled the installed technocratic Greek government on the Treuhand, and that the fire-sales going on in Greece are cast from the same mould.
I’ve still to watch the last part of this (it’s about an hour and a half long) but so far it’s very good.
Paul Krugman: The Greeks as Victims (link)
The ‘painting by numbers’ version of the crisis presented for American readers. Krugman presents a potted history of the Euro, and a warning that the ECB needs to be a bit less ‘Bundesbank’ (treaties permitting - which I think raises practical concerns):
The only way the euro might — might — be saved is if the Germans and the European Central Bank realize that they’re the ones who need to change their behavior, spending more and, yes, accepting higher inflation. If not — well, Greece will basically go down in history as the victim of other people’s hubris.
Edward Hugh: Rescue Me (link)
The fantastic Edward Hugh of ‘A Fistful of Euros’ brings together all the threads of the crisis, with a focus on why Spain is different. If you only read one article out of this selection, make it this one.
Back in 2006 inspectors at the Bank of Spain sent a letter to Economy Minister Pedro Solbes complaining of the relaxed attitude of the then governor, Jaime Caruana (the man who is now at the BIS, working on the Basle III rules) in the face of what they were absolutely convinced was a massive property bubble. Their warning was ignored. What could have been done, many say. Well, at least two very simple things could have been done, and well before things got out of hand – on the one hand apply much stricter loan to value and income documentation rules which offering a much higher proportion of fixed interest rate loans (quotas could have been applied), and on the other insist the Spanish government run a much higher level of fiscal surplus to drain demand from the overheating economy.
Of course, the politicians were not interested in hearing about any of this, since as measures they would have been highly unpopular, but where were M Trichet and his colleagues? They were too busy presenting Euro Area aggregate data to be willing to warn about growing imbalances between the individual economies. Now of course, the imbalances are undeniable, and the ECB is having to implement an asymmetric set of collateral rules (among other things) to try to counteract their impact.
Wolfgang Munchau: What happens if Angela Merkel does get her way (link)
A pretty stark outline of the Gordian knot of preconditions the various institutions are placing on the potential solutions to the crisis:
The Bundesbank said there should be no banking union until there is a fiscal union. Angela Merkel said that there should be no fiscal union until there is political union. And François Hollande said that there should be no political union until there is a banking union. They have 10 days to disentangle that knot.
Nerves in the Kanzleramt are no doubt frayed - to say nothing of the Tobin Tax the SPD are trying to force in return for German ratification of the European Stability Mechanism.
He also predicts, in fairly certain terms, Spanish and Italian exits within weeks or months:
Clearly, Mario Monti is not going to pull the trigger. He was installed in the job of Italian prime minister to avoid such an outcome. But the political mood in Italy is changing. The arrival of Beppe Grillo and his populist Five Star movement as a force in Italian politics tells us that we should not expect Brussels-compliant technocrats to run the country for ever. “The EU is out of control and the euro is a box of dynamite with a fuse that is getting ever shorter. And we are sitting on top of it,” Mr Grillo wrote in his blog.
Slavoj Žižek · Save us from the saviours: Europe and the Greeks (link)
London Review of Books
Treading much the same ground as Catastroika (Žižek is in fact one of its interviewees), this piece imagines the Greek situation as the testing ground for a new form of capitalism - a “a depoliticised technocracy in which bankers and other experts are allowed to demolish democracy”.
He points that we’ve seen this kind of ‘democracy’ before:
Here is the paradox that sustains the ‘free vote’ in democratic societies: one is free to choose on condition that one makes the right choice. This is why, when the wrong choice is made (as it was when Ireland rejected the EU constitution), the choice is treated as a mistake, and the establishment immediately demands that the ‘democratic’ process be repeated in order that the mistake may be corrected. When George Papandreou, then Greek prime minister, proposed a referendum on the eurozone bailout deal at the end of last year, the referendum itself was rejected as a false choice.
Satyajit Das: The Euro-Zone Debt Crisis – It’s Now ABOUT Germany NOT UP TO Germany! (link)
An attempt to refocus attention on the fact that Germany has, in fact, a very weak negotiating position in relation to Greece and the other potential flashpoints in the EMU zone:
Greece owes about Euro 400 billion to private bondholders but increasingly to public bodies, such as the IMF and ECB, mainly due to the bailouts. If Greece walks away as some political parties have threatened, then the fallout for the lenders, such as Germany, are potentially calamitous.
Das’ piece reminded me of a segment in Michael Portillo’s (ugh) excellent Euro-crisis documentary (filmed in March, which now seems at least a world away). I was struck once again by the sense of self-sacrifice which German blue-collar workers feel regarding the pain of the early days of the Eurozone. Their ‘internal devaluation’ has meant that real wages have not increased in fifteen years. It’s something that Das touches on to drive home the point:
German citizens will have to pay twice for the Euro. In the early 2000s, they paid through internal devaluation – reductions in real wages, unemployment and labour market reforms. Now, they will have to pay for the bailouts. Once the artificial boom ends, voters will discover they were betrayed by Germany’s pro-European political elite. There will be an electoral revolt and, as in the rest of Europe, a strong challenge from radical political forces with unpredictable consequences.
Daniel Gros: Democracy versus the Eurozone (link)
An older piece - written nearly three weeks ago, which now feels like the Mesolithic period in terms of this crisis. It addresses the question of why EU government commitments are being laughed at by the bond markets: they see a risk of defection or rejection by Eurozone member states:
The broader message from the Greek and French elections is that the attempt to impose a benevolent creditors’ dictatorship is now being met by a debtors’ revolt. Financial markets have reacted as strongly as they have because investors recognize that the “sovereign” in sovereign debt is an electorate that can simply decide not to pay.
My own two cents
Either the Federal Chancellor, the German Constitutional Court or the European Council are going to have to blink. Debt reduction is a necessary precondition to growth in the peripheral economies, which are not solely responsible for the predicament. And that means mutualisation of the liabilities Greece, Italy and France have built up.
For the record, I support the Euro project and wish to see it succeed, but recognise that it was not built with crisis in mind - to put it mildly.
I fail to see an immediate short-term solution, but then I suppose the succession of short-term fixes is part of the issue. Eurozone electorates (rather than governments) are going to have to choose between preserving the Euro and preserving national democracies in their current form. It needs to become impossible for Europe not to stand behind its commitments, and that means fiscal and political union.
And to achieve this, the Parliament, the Commission or some other body has to be empowered to be responsible for Euro area debt, as well as run budget coordination when the rout is over. But it would be all too easy to allow such an arrangement to become a ‘union of the creditors’, or a neoliberal fantasy project which subserves democracy to fiscal conservatism and asset stripping. Or for it to end up being a Council-led, technocratic and intergovernmental process, beset by all the wrangling and summits and one-upmanship that that entails.
In truth, the time for national ‘leaders’ has passed.
Their inaction begat crisis, and continued talk of ‘firewalls’, ‘big guns’ and ‘austerity’ no longer convinces the electorates or the markets. While they use the Council and ECB to play the kind of principal-agent blame game which (unfortunately) so often characterises European politics, the contagion just spreads to the next-weakest of the pack. I do wonder what sort of political integration Merkel has in mind, but I suspect my best hopes may be over-optimistic.
And so those turgid questions from the pre-Lisbon Treaty era raise their ugly head again: how do we give direct democratic legitimacy to the European Union? And how do we avoid simply affixing a veneer of democratic accountability to an elite-driven process? Most of all, how do we rebuild European integration around shared social values, so that we can benefit economically in equal measure from an essentially political project like a single currency?
Answers on a functionally integrated, fiscally harmonised postcard, if you please.