Some Ruminations on the Euro Crisis

Germany is the main beneficiary of the Euro crisis. The collapsing Southern European economies have made the glaring imbalances between Germany and Greece, Spain and Portugal more obvious. The export producer Germany depends on the ability of the Southern Europeans, who as Euro members have pegged their currencies to the stable Euro currency (mostly backed by Germany and France), to purchase German items.

The currency peg has enabled countries like Greece or Portugal to borrow enormous sums of money from foreign creditors (mostly German and French banks), because these creditors were lulled into believing that lending sums in a stable currency will guarantee interest payments that otherwise could not occur had those weak debtor economies run their own currency. In that case, these poor debtors could roll the printing press, and reduce their debt burden through inflation. Since that was not possible, the creditors put their faith in lending vast sums to the poor countries.

German companies were happy that the German banks were lending the revenues that the German companies accrued (by screwing the German workers, who produce most of the consumed goods, in lower wages and “flexible” work conditions), because the Southern Europeans could loyally purchase German products even if it is built on credit cards. The Greek and Italian governments were promising their people a welfare system, which could not be sustained by the low productivity levels of their country, and had to be financed on credit.

The economic crisis began, when the mortgage bubble in America collapsed, which involved the French and German banks, who in turn tightened their eligibility for credit. The Greeks, among others, were overwhelmed by this sudden increase in debt. They flee into externally imposed austerity, which saps the economic viability of the country further, and thereby the ability to continue to pay off the loans. The manifestation of this crisis is the fact that people in Europe are pushed into despair as their cost of living, unemployment, homelessness and poverty rates are shooting through the roof, whereas clumsy European policymakers are frantically dumping billions in bailouts to wealthy banksters, who need to be assured that every Euro owed is fully paid back, lest greater financial catastrophe is to be created.

This economic injustice is no longer sustainable. The Germans, who have been monopolizing production and profiting from the crisis, are now caught up in facing the problems which they helped to create. Faltering demand weakens the German economy that so heavily relies on exports (because the German people are both screwed by their tight-fisted employers and trapped in a tendency to remain frugal).

What should have happened from the very beginning when this monetary union was forming was that the countries that produce the goods should pay the workers that produce those goods more money (especially the German workers), and subsidize the countries that are less productive, so they get to consume as well what is produced. To all those, who cringe at the latter solution, because it rewards a “welfare hammock” for the poor countries, I propose that the productive countries should not only subsidize the consumption of the poor countries (Greece, Spain, Portugal, Ireland), but also investment in industries so they can approach the levels of strong economies. That could be done by a work-sharing process, in which factory labor is spread among a greater number of workers across the continent.

I also think that debt should not be carried by single countries, but by the whole Eurozone. If there is one currency, there should be one fiscal policy. With a unitary fiscal policy, internal frictions could not occur, and the Euro crisis could have been prevented. The problem, however, is that as of now, the poor countries, whose governments have to sell their people unpopular austerity, can not be brought to give up sovereignty in fiscal matters that would amount to strengthening the grips of Germany via even more austere policies from Berlin. That would be foolish. On the other hand, the West Germans are overwhelmed by making transfer payments to their East German siblings (amounting to what I talked about in the previous paragraph), and do not want to pay even more for their more numerous poor brethren south of the alps. The situation of gridlock is set, the politicians continue to be overwhelmed by the crisis. The people are frustrated by austerity, and the fruits of a revolution become ripe.

The scenario of the Spanish or the Greeks leaving the Eurozone and devaluing their currency to the point that the debts become managable would sound like a realistic solution at this point, but would happen under even greater strains of poverty and privation. It would amount to a failure of the European project that would weaken the position of the wealthiest continent in the world, comprising of 40% of global economic activity. It would precipitate internal nationalist struggles that are more reminiscent to the World Wars than Fukuyama’s promise of universal liberal democracy.

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