EUROPE AT THE BRINK
Editorial
Washington Post, December 10, 2011
[Last Friday’s] summit of 27 European Union leaders did not lack for drama. With the future of the euro currency and the EU itself on the line, all but four of those present agreed to German demands for closer fiscal integration, and three of the holdouts said they would think about it. Only Britain’s Prime Minister David Cameron, fearing the impact on London’s financial sector, rejected the deal. A new Europe is at hand, in which Germany rules, France reigns and Britain loses out.
Or so it is breathlessly reported. What matters, though, is the problem the leaders failed to solve: the economic crisis that plagues their continent and threatens the world, the United States very much included.
Italy, Spain, Portugal, Ireland and Greece have piled up more debt than they can service, and investors refuse to buy additional bonds except at crippling interest rates. One or all of those countries could default—with disastrous repercussions for German, French and other banks that hold trillions of euros’ worth of existing paper. Unless a solvent entity appears on the scene with enough cash to convince investors that money lent to Europe will be paid back, the euro, and Europe itself, are at risk.…
At the summit, the vast majority of Europe, with no real alternative, agreed to adopt balanced-budget amendments like Germany’s and accept multilateral enforcement of those rules. German Chancellor Angela Merkel beamed in triumph. In the short run, though, fiscal tightening risks exacerbating the recession that Europe already faces. In the long run, it’s not clear how the treaty is to be implemented. What we have is a promise to make a promise.…
On Nov. 30, the European Commission’s point man for the euro crisis, Olli Rehn, warned: “We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union.” As you will notice, that was 11 days ago.
EUROPE DIGS STILL DEEPER
David Warren
Real Clear Politics, December 11, 2011
When you’ve dug yourself into a hole, so far down you can’t see the sky any more, the answer is to dig faster.… This is the primeval advice upon which Europe’s politicians are now working: to dig their own grave, gratuitously deep. At 5 a.m. Friday, euro time, they reached a deal to solve the mess created by the imposition of a single paper currency on various incompatible sovereign economies. They will impose uniform budgetary practices throughout the eurozone, thus further binding countries left with too little room to manoeuvre. Or rather, as many as 23 of the 27 members of the European Union resolved upon this grand Summit gesture. All will, according to plan, adopt common labour-market regulations, common corporate tax rates, and so on. All for the sake of saving not themselves, but their common currency.…
The count of participating eurozone signatories is uncertain, because several half-signatories have reserved the right to consult their respective parliaments.… Britain has definitely opted out, and generally, the British, Scandinavians, and Central Europeans (i.e. east of Germany) would rather watch [German leader Angela] Merkel and [French President Nicolas] Sarkozy dig, than fetch their shovels. Which means, they would rather take their risks that the European Commission will not try to punish them.…
At core…we have an attempt to overwhelm Nature. The eurozone will try to create a uniformly “hard” paper currency, by means of budgetary discipline imposed upon countries that have never entertained the possibility of such a thing, over the likely objection of their entire electorates. “Put not your faith in man…your trust in princes.” (I am quoting from one of Europe’s founding documents.) Place not your confidence in politicians. Economic arrangements which depend upon the goodwill and continuing good behaviour of the political class, must fail.…
And failure is the great liberator. Had the politicians simply ignored their problem, and hoped for it to go away, it would have begun to solve itself by a more gentle and piecemeal collapse of the euro. Greece, and other countries in similar straits, would have begun eurodeflating of their own accord, having no choice; their debts would be resolved in accelerating markdowns. The Greeks and others would have to adapt to the consequences of past profligacy. They could forget about their pensions. There would be riots, of course, but no one, not even Greeks, can riot forever.
Country by country, the euro would have had to be abandoned, usually for experiments in the reintroduction of currencies that could be hyperinflated. Once everyone had had a taste of that, the idea of discipline would be more universally subscribed. This would be, politically, very hard to watch, but such was the old pluralistic genius of Europe. One sovereignty goes down, but another remains standing. They learn what does and doesn’t work, from each other.…
Instead, now, the politicians are working to guarantee the catastrophe will be pan-European. The insupportable euro will now, most likely, come down all at once. And it will take the various other pan-European institutions with it. They may not realize yet, but they are working assiduously towards a future where the European Union solves all of its problems, by ceasing to exist.
BRITAIN SHOULD PITY THOSE STILL TRAPPED
IN THE EURO NIGHTMARE
Janet Daley
Telegraph, December 10, 2011
So we are isolated, are we? Cut off, locked out of the room, left on the sidelines, cast out of the inner core—and any other baleful metaphors you can think of. Well, Britain has stood alone before, as I recall, and we defended the idea of democracy in Europe then, too. But we need not get romantically heroic about it. We just have to ask ourselves: what is it exactly that we are outside of? A burning building? With only our triple-A credit rating and our competitive financial industry to console us?
What just happened, after all? We jumped off a bus that was hurtling toward a brick wall. When it eventually crashes, the driver(s) of the bus—who will survive, this being a metaphorical bus—will probably blame us, claiming that if it had not been for our failure to co-operate, the wall might have evaporated. The crash, when it comes, will be truly dreadful, and all the more tragic because a delusional European elite refused to accept its inevitability.
Before the mythology that David Cameron’s envious political rivals are desperately constructing becomes received wisdom, let us consider what that splendid new solution to the euro problem (from which we are so piteously excluded) entails.… This putative treaty (if it really is a new treaty, it will need ratification, which will require referendums in some states) so triumphantly proclaimed by Merk and Sark is very much a work in progress. According to the German Chancellor, what there is at the moment is an agreement to “work towards” a number of goals intended to have the effect of stabilising the euro and preventing forever the recurrence of the sort of sovereign debt crisis in which we are now mired.
The three most significant objectives are: 1) a golden rule on deficit limits for all member states, 2) automatic penalties (presumably in the form of sanctions) for countries that break that rule, and 3) a requirement that member states submit their budgets to the EU authorities for approval before they can be considered by their own national parliaments. That is what Mrs Merkel calls stabilisation. You may call it something else.
Just as a matter of interest, is this what those eastern European countries that have so recently been liberated from Soviet domination dream of: the freedom to submit their tax and spending plans to a claque of unelected commissars in Brussels? And what did Merk and Sark have to offer the bankrupt countries of the south in return for this surrender of their self-determination and democratic legitimacy? Not a lot. Would there be, to put it bluntly, more money made available from their richer European partners, or a promise to purchase more of their debt? Well, yes and no. Mrs Merkel spoke of an increased fund to come “from the eurozone countries”—a promise that may or may not wash with German taxpayers. But more significantly, she spoke only of the European Central Bank giving its “expertise” to the European Stability Fund. Expertise? So no hard cash, then. (This is hardly surprising: the ECB made it clear only last week that it may bail out banks, but it is not in the business of bailing out countries.)
Yes indeed, Britain is on the outside: left out of this idyll of anti-competitive regulation and tax harmonisation. I can remember when the greatest Eurosceptic nightmare was a “United States of Europe”. They should be so lucky. The United States of America has nothing like this ferociously imposed central control over the budgets of its member states. Nor does it require tax harmonisation among them. The states of the American union have independent tax systems: apart from federal income tax, the taxes that US citizens pay are determined by the states they are in. Some of those states have high property and death taxes—others (like Nevada, where the revenue from gambling pays for almost everything) have low ones. Some have sales taxes and specific duties which others do not. Hence the great American tradition of driving across state lines in order to buy cheaper alcohol.
Those states which have competition on their immediate borders from others with, say, lower retail taxes, lose custom. But most importantly, some state governments impose much lower business taxes than others. By lowering their corporation taxes, once-poor states have managed to encourage inward investment and become not-poor. This internal competition increases prosperity in the private sector and incentivises efficiency in the public sector. Which is precisely the opposite of what tax harmonisation will do to EU member states. If Ireland, for example, is forced to give up its lower rate of corporation tax (because the EU regards that as an “unfair” competitive advantage), it will lose the capacity that it might have had to recover under its own steam.
Without being able to devalue their currencies, or to slash their taxes in order to attract investment and commercial activity, the poor countries of Europe will be locked permanently into disadvantage and dependence. They will be forced to accept austerity programmes while being deprived of any of the fiscal mechanisms for improving their own economic condition. And if they behave in what the EU decides are incorrigibly delinquent ways, they may even have their elected governments replaced—so the democratic mechanisms for political change will go, too.
If Britain is at all culpable for the nightmare implosion that is to come, it is only that we did not argue hard enough against it, and on behalf of the principles in which we believe: the integrity of democratic nationhood and the value of free markets. What Europe needs to hear is the case for a managed, systematic winding-down of the machinery: there may still be enough time, before the bus hits the wall, to persuade the less vainglorious forces that this idea of security through uniformity is not only doomed but sinister. It will not lead to permanent peace, but to endless conflict and patent injustice.
Behind the scenes, there are functionaries who are, even now, working on the contingency plans. Somebody has to face the reality of what will happen when it all blows up. It is a pity that it cannot be the people we elected, rather than faceless minions who are accountable to no one.… In the long term, the whole euro project is dead.
THE TECHNOCRATIC NIGHTMARE
David Brooks
NY Times, November 17, 2011
During the first half of the 1990s, I lived in Brussels and wrote about the European Union, among other subjects, for The Wall Street Journal. This was the heyday of European integration. Helmut Kohl, François Mitterrand and Jacques Delors were in power, negotiating the Maastricht Treaty and organizing the common currency. There was a lot of excitement among the civil servants who saw themselves as the architects of a new Europe. But there were some oddities.
The European leaders would come together for a summit and issue a joint communiqué. But then if you sampled the coverage in each of the national medias, you felt as though you were reading about 12 entirely different events. Europe was unifying legalistically and economically, but there was no common language or common conversation. At one meeting, leaders embraced “federalism,” but that word meant one thing in Britain and another thing in Germany.
Then there was the elitism. Off the record, Europe’s technocrats would say the most blatantly condescending things: History had taught them that Europe’s peoples were not to be trusted and government should be run from the top by people like themselves.
As a consequence, European integration was opaque, and consisted of a long series of complicated fudges. When the European Union leaders were compelled to seek popular approval to get the Maastricht Treaty ratified, they sponsored a forlorn rally in a Brussels park. There were EU flags and booths and speakers. But the crowd was bored and sparse. At one point, everyone was asked to sing the new European national anthem to the tune of “Ode to Joy.” Dead silence. No one knew the new words that had been written to go with that masterpiece.
The European Union is an attempt to build an economic and legal superstructure without a linguistic, cultural, historic and civic base. It was the final of the post-World War II efforts—the United Nations was among the first—to build governments that were transnational, passionless and safe.… But now the inherent flaws are undermining the project. The nations of Europe have been running different kinds of economies and different kinds of democracies, reflecting their diverse histories, values and cultures. If you jam diverse economic cultures into a single currency, you’re bound to get an explosion.
At this moment of crisis, it is obvious how little moral solidarity undergirds the European pseudostate. Americans in Oregon are barely aware when their tax dollars go to Americans in Arizona. We are one people with one shared destiny. West Germans were willing to pay enormous subsidies to build the former East Germany. They, too, are one people. But that shared identity doesn’t exist between Germans and Greeks, or even between French and Germans. It was easy to be European when it didn’t cost anything. When sacrifices are necessary, the European identity dissolves away.
The mess threatens to bring down the European project and European economies. It threatens to send the world into another global recession.… On a superficial level, the fault lies with the current European leadership, their addiction to inadequate patches and fudges. But the real problems emerge from the technocratic mind-set, from the arrogant gray men who believe they can engineer society, oblivious to history, language, culture, values and place.
And the final curse is that while building Europe in this way was a mistake, Europeans cannot now simply reverse course. If the euro was immediately dissolved, the Deutschmark would surge, nearly every other currency would plummet and the imbalances would create a global catastrophe.
In the short term, the European Central Bank, the stable European nations and even the U.S. will have to take extremely big and painful action to stabilize the situation. But, after that, it’ll be a time for chastening. It’ll be time to discard the technocratic mind-set that created this inherently flawed architecture and build a Europe that reflects the organic realities of those diverse societies.…
HOW THE U.S. CAN HELP EUROPE: JUST SAY NO
Jim Demint
Wall Street Journal, December 9, 2011
If the United States wants to help Europe find a way out of its current debt crisis, we must be a strong, world economic leader, not merely the lender of last resort.
American taxpayers sent $40 billion to Greece last year, through the International Monetary Fund, to stave off an economic collapse. But the bailout did not prevent Greece’s day of fiscal reckoning. It only delayed it. Austerity measures are still needed throughout Europe’s socialized economy and the debt contagion has not been stopped. Financial chaos has spread from Greece to Ireland, Portugal, Italy and Spain, and it now threatens the very future of the 17-member euro zone.
Undeterred, President Obama last month told the press after breaking from a closed-door meeting with European leaders, “the United States stands ready to do our part to help them resolve this issue.” He would do better to focus his attention stateside. The most dangerous threat to the U.S. economy is not across the pond. It’s in the swampland of Washington, D.C.
The very problems that have roiled Europe’s economy are coming to a slow boil in the U.S. Just as European leaders must limit deficit spending, reform unfunded entitlement programs, and resolve the underlying systemic problems in their financial systems, so must the politicians in Washington. Yet the Obama administration is burning taxpayers at each end of the dollar by bailing out failed socialist policies abroad and, at the same time, forcing them into place here at home. Although every country’s finances are unique, the U.S. is unquestionably in the danger zone.
Greece’s economy reached its tipping point and was bailed out when government debt topped 137% of its gross domestic product. Despite all the measures that have been taken to aid it, Greece’s debt-to-GDP-ratio is even higher now, at 160%. Ireland was bailed out at 74% of GDP and is now at 80%. Portugal was bailed out at 94% of GDP and is now expected to top 100%. The bailouts have arguably made the European debt crisis worse, not better. Total U.S. debt, including entitlement liabilities, reached 100% of GDP when Congress increased the debt ceiling in August. Our $15 trillion debt now rivals the size of the entire U.S. economy.
When he first took office, President Obama promised to cut the federal deficit in half by 2013. But instead he’s increased it by more than $4 trillion. Indeed, under his direction, the U.S. government spent about $1 trillion on a stimulus that failed to create the jobs promised, will spend trillions more creating a European-style health-care entitlement with ObamaCare, and has more Americans on welfare than ever before. With President Obama in the White House, liberals have succeeded in their longstanding quest to make America more like Europe. Problem is, their idealized version of Europe’s collectivist government is now in shambles. If the U.S. continues to mimic our European allies we’ll fall to pieces, too.
It is under these circumstances that high-level members of the Obama administration, including the president himself, are negotiating with international leaders over how best to solve the European debt crisis. [Last] week, Treasury Secretary Tim Geithner met central bankers and European leaders days ahead of the emergency EU summit in Brussels. The International Monetary Fund, which the U.S. funds at a higher percentage than any other nation, is expected to aid the rescue. The only question is how big a role the IMF and U.S. taxpayers will play.
This year the U.S. sent about $67 billion to the IMF, which represents 17.7% of the IMF’s yearly budget—nearly three times more than any other nation. On top of that, taxpayers provided an additional $108 billion credit line to the IMF in 2009. In 2010, the IMF sent nearly $40 billion in assistance to Greece, which did nothing to prevent the country’s economic collapse in 2011. [Last] Monday, the IMF approved another $2.95 billion worth of bailout funds for the struggling country. If this is what President Obama meant when he said the “United States stands ready to do our part,” it’s time for him to part ways from his European friends seeking the same kind of assistance that has been provided to Greece. American policy makers must send an unmistakable signal that the era of bailouts is over once and for all.…
Members of the Obama administration must focus all of their efforts on strengthening the U.S. economy…rather than on continuing to borrow from China to pay for Europe’s out-of-control debts. President Obama and Mr. Geithner have lectured European leaders on the need for them to take decisive action to stabilize their economies. They should practice what they preach and set a positive example for the world to follow. Lending isn’t leading. Balancing the budget would be.
(Mr. DeMint is a senator [R] from South Carolina.)
