Yves here. The alternative title for this post could be “No ‘whocouldanode’ excuses for the Eurozone crisis.”
By Geoffrey R D Underhill, Professor of International Governance, University of Amsterdam. Cross posted from VoxEU
Many policymakers have reacted to both the financial crisis and the recent Eurozone sovereign debt problems as though they were unexpected. This column argues that we knew more than enough to anticipate both problems, that the evidence was easily accessible, and that the institutional and political weaknesses of the Eurozone were hardly a mystery either.
We have long known that financial market stability cannot automatically be achieved. There is historical evidence aplenty (Kindleberger 1989; Galbraith 1993, 1995), and adequate theoretical explanations of the phenomenon1. Scholars have long debated the costs and benefits of financial openness (Bordo et al. 2001; King and Levine 1993; Demetriades and Hussain 2006) and/or possible systems of regulation and supervision (Steil 1994; Barth et al. 2006). As I argue in a recent CEPR Discussion Paper (Underhill 2010), the writing was all over the library walls.
A well-deserved crisis
Often enough, cautionary messages in the literature emerged that should have served as ample warning that global financial market integration was potentially destabilising and might unduly constrain the policy space available to governments (Rodrik 1998, Bhagwati 1998, Stiglitz 2000, 2002, Cohen 1993, 1996). This was especially the case for developing countries and emerging markets (Lucas 1990, Prasad et al. 2007) but a number of warnings can also be found in the EU. Such difficulties would likely require something well beyond the “governance lite” of the international financial architecture (Underhill et al. 2010). Neither national nor global institutions were up to the job and remedial action was required at great public expense and risk. Banks were bailed out and bonuses preserved.
The euro: Global finance, the ‘stability culture’ and institutional pot holes
EU financial integration and the Eurozone were very much part of the adventure of global financial integration. Eurozone architecture made similar assumptions that “governance lite” was a workable option and that monetary and financial stability could be automatically achieved, given the correct rules and proper application by governments and financial institutions alike. This combination of intense integration into the liberal financial order coupled with the weak institutional fabric rendered the EU and single currency in particular vulnerable to either monetary or financial crises.
In 2002 I labelled this blithe optimism “the political economy of the stability culture”, making four observations at the birth of the Eurozone (Underhill 2002).
First, there was and remains a central paradox concerning the place of the Eurozone as an economic unit in the structures of global monetary and financial system.
The EU is relatively self-sufficient in terms of international trade, but is deeply integrated into the structures of global financial markets and investment flows. Capital flows, not trade pressures, mediate between the Eurozone and the rest of the world. Capital mobility should have been the focus of policy effort.
Second, while there is a clear legal institutional mandate in terms of managing the Eurozone’s monetary policies, it is unclear how other policy domains are to be managed.
In particular there is a dearth of collective EU machinery for managing internal or externally-induced crises. This situation tends towards a reliance on rules and macroeconomic standards which are easily and perhaps necessarily breached under pressure. The theory was that of the German Bundesbank – if policy remained resolute and free of political interference, a “stability culture” could be achieved quasi-automatically.
This was an unfortunate misinterpretation of post-war German economic success, but the case appeared well-grounded in experience and was anyway politically unassailable if the German government were to agree to the Union in the first place.
Third, financial integration and the euro confront members with considerable pressure for policy convergence, but does not change bottom-line pressures of domestic political legitimacy.
The primacy of political legitimacy in terms of social policies, national (and other) identities, and the role of national democracy remain despite the increasingly integrated economic supranational unit. This is often perceived as the “sovereignty issue”, though the debate is probably better characterised as one concerning identity and policy autonomy, which are not the same as sovereignty.
Fourth, following from the third point, the Eurozone can be seen as a radical extension of the Single Market in financial services.
The euro enhances the cross-border market forces already at work and was explicitly intended to do so. Yet, this integration process is juxtaposed on what remain distinct political systems with their own internal dynamics. The economic development and adjustment process associated with the single currency would furthermore prove highly asymmetrical with the greatest adjustment pressure on the weaker economies (Padoan 1994, Feldstein 1997, 2000)3. The Eurozone was consequently likely to encounter its share of disagreements among its members as the asymmetrical distributional consequences of integration became clear. As we now know, it did, and crisis made this worse.
The euro suffered from institutional pot holes which would make the collective management of these problems a serious challenge. The unknown factor in the eventual success of the stability culture would likely be external to the Eurozone itself – the periodic eruption of monetary and financial crisis at the global level. There was insufficient attention to this problem when the euro was created; officials I interviewed at the time were baffled by the very question I posed.
Would the Eurozone be the island of monetary and financial stability its architects had hoped? The institutions and co-ordinating mechanisms for prudential supervision and oversight of the financial system and eventual crisis management were woefully underdeveloped at the level of the Eurozone and even after post-crisis reform still remain essentially the stuff of national jurisdiction.
The Maastricht Treaty reinforced a reliance on market forces to provide discipline and stability. The only collective mechanism for dealing with crises was the Stability and Growth Pact that accompanied the treaty. This was essentially an agreement on sovereign debt burdens, less inflexible than many thought, but the overall framework implied that governments, not financial markets, were the problem – if the rules were properly applied, stability would prevail. The Treaty thus favoured price stability and the fight against inflation over growth, employment, and social policies. Much was in the hands of the independent ECB and the markets, but political authorities (the Commission, the Council, elected national governments) would have to pick up the pieces and suffer the legitimacy shock in the face of failure.
Of course there were also substantial benefits. Those who had been subject to German monetary policy would now have a voice at the ECB table. Internal exchange rate crises would be a thing of the past, and the most competitive economies (Germany, Netherlands) would no longer suffer the devaluations of others. Member states would have better access to cheaper capital. Given that by far most EU member trade was with other EU partners, Eurozone participants would be sheltered also from global exchange rate volatility. Members would be relatively free of current-account constraints as well (Jones 2003), though less free of the need to adjust to competitive pressures in the long run. Last but not least, and in retrospect perhaps the most important, national central bank reserves and resources that might be required for adjustment or in a financial rescue would be pooled. That is, large and stable economies could, and would (it was assumed), support the weaker links hit by asymmetrical adjustment. The stability culture was a safe harbour from the winds of financial, exchange rate, and monetary instability and this was central to the compromise. What political and institutional machinery was to manage the process when push came to shove was unclear, but over time there was as much talk of solidarity as of the need for discipline.
At the very least, if one institutes an essentially federalised monetary union, then under the threat of crisis the union must act in a functionally federal manner even in the absence of sufficient institutions to do so. This means central (ECB) guarantees to the “provinces”, and adequate internal resource transfers to compensate for the fully predictable adjustment asymmetries in the absence of intra-Eurozone devaluations. During the financial phase of the crisis the EU led by the Bank behaved just so, violating its own rules to take on all sorts of dubious collateral from banks. The sovereign debt phase was more fractiously handled. At first, European “solidarity” proved non-existent, and its delayed and weak return has since most likely worsened the problem for all. Neither national nor EU institutions have seen their legitimacy enhanced as a result, and it is unclear whether the Eurozone will yet survive.
The EU appears for a long time to have been looking for some functional equivalent of the lost, mythical Gold Standard – if only the rules are the right ones, and everyone behaves properly, stability will be achieved automatically. The Eurozone hangs in the balance as a result of serious policy mistakes. Purely national solutions may yet prove the only option, leaving the European dream to wither and die. The worst is that bank bailouts turned out to be more important than fellow citizens of the Union, especially citizens in poorer economies. The poor and the “other” too frequently appear expendable in our world. There are sombre days yet ahead of us where EU governance is concerned.
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Good analysis, thanks to Underhill (and to Yves for mirroring).
This is the real matter that I have tried to explain in many other comments, specially in this blog.
I’d emphasize the following:
“At the very least, if one institutes an essentially federalised monetary union, then under the threat of crisis the union must act in a functionally federal manner even in the absence of sufficient institutions to do so. This means central (ECB) guarantees to the “provinces”, and adequate internal resource transfers to compensate for the fully predictable adjustment asymmetries in the absence of intra-Eurozone devaluations”.
Absolutely. There is a fundamental error in not providing for any such mechanisms. And it is an error that benefits nobody, not even Germany (who needs markets to stay afloat).
“The worst is that bank bailouts turned out to be more important than fellow citizens of the Union, especially citizens in poorer economies”.
This is the crux of the matter. Instead of a Europe of the citizens, a Europe of Europeans, it has become a mere Europe of the bankers (and their bureaucratic and political minions). This is not workable.
However I do not think that “national solutions” are any solution, I’d rather advocate for an immediate radical change in the overall policies of EU (and member states) towards a greater “socialism” in general and against the big corporations. However I strongly suspect that the available mechanisms of decision making, from political parties, to elected or non-elected governance bodies, allow for such change – certainly not smoothly nor easily. Hence the state of popular revolt and deep discontent that dominates the EU these dark days.
Please see link below for a “legal perspective” I am sure the Fed would love.
http://namawinelake.wordpress.com/
Maju,
My criticism with Underhill’s analysis is this: Doesn’t he imply that if the EU’s institutional holes or inadequacies can be filled, then what ails the EU can be cured? Quite to the contrary, I would argue that the EU’s problems are not so much institutional as they are paradigmatic.
Underhill tells us, for instance, that the “combination of intense integration into the liberal financial order coupled with the weak institutional fabric rendered the EU and single currency in particular vulnerable to either monetary or financial crises.” Later he tells us that “The euro suffered from institutional pot holes which would make the collective management of these problems a serious challenge.” He adds that “The primacy of political legitimacy in terms of social policies, national (and other) identities, and the role of national democracy remain despite the increasingly integrated economic supranational unit.”
So if only “the weak institutional fabric” or “institutional pot holes” can be remedied, the EU’s problems can be solved?
This sounds plausible, that is unless one takes a look at what has happened in the United States. The U.S. had a strong “institutional fabric,” which over the past three decades was slowly but inexorably dismantled. The institutional fabric of the U.S. was systematically riddled with “pot holes.” The United States has an “integrated economic supranational unit.” It also has an integrated political supranational unit. Has this spared the U.S. from the ravages of the Great Financial Crisis?
So I would lay the blame not so much on institutional voids or inadequacies, but on the economic paradigm that both the U.S. and the EU are trying to impose. And contrary to what Underhill says, it is not “integration into the liberal financial order” that is being imposed upon the people of Europe and the United States, but “integration into the neoliberal financial order.
It seems like we’ve come full circle back to where we were in the latter part of the 19th century. We didn’t learn, or we’ve completely forgotten, the lessons the events of the first half of the 20th century taught us.
Michael Allen Gillespie traces the philosophical decent into late-nineteenth and early-twentieth century nihilism in Nihilism before Nietzsche:
Early modern thought was principally concerned with human preservation and prosperity, but even in this context some thinkers recognized that freedom was essential. This was implicit in Descartes and became explicit in Rousseau. The relationship of this freedom to nature, however, was left largely unexamined. Kant faced this problem and tried to provide a ground for their mutual coexistence. In the thought of Fichte (1762–1814), we witness the turn away from coexistence toward the assertion of freedom as absolute and the consequent demand that objective nature be annihilated. Freedom and freedom alone must rule, a pure will or activity that shapes only itself and abides by no laws, that knows in its heart of hearts that it is the source of all laws, of all logic.
And as Gillespie observes, Fitche “little suspected the danger, which became all too clear to Nietzsche, that man would shipwreck on this infinite [freedom].”
If we narrow the scope of our inquiry down to economic philosophy, we find that Adam Smith is not entirely Fichtean. There is still some subtlety in Smith’s writings as he struggles with the antinomy of nature and freedom. As Amitai Etzioni observes in The Moral Dimension: “The fact that the position Smith took in Moral Sentiments is not easily reconcilable with the one he took in The Wealth of Nations has generated a small industry of writings interpreting the differences and generating ways to solve what has become known as Das Smith Problem.”
One way to solve Das Smith Problem is to do a selective reading of Smith so as to purge any moral sentiments so that it becomes completely Fichtean, which is exactly what theorists like Herbert Spencer did. As Robert H. Nelson explains in Economics as Religion:
Spencer is yet another of the economic determinists of the late nineteenth century and early twentieth centuries… In the advance of the world, old ideals like social justice, fairness, equality, and so forth will do more harm than good; they impede—-even though they can never permanently frustrate—-the evolutionary workings of the iron laws of economic progress. Social planning is an impossibility because it is beyond human capacity to redirect the laws of nature, as they are embodied in the survival of the economic fittest.
So, as Gillespie put it, the triumph of the “transcendental I” is complete. The “laws of nature” are malleable, putty in the hands of the human will. “The I is radically free and absolute in the most literal sense, that is, it absolves itself from all relationships other than those that it itself establishes.” “Indeed, the subordination of nature is necessary only because it stands in the way of the absolute unity and freedom of the I.”
“In a sense the whole wonderful world of Adam Smith is a testimony to the eighteenth-century belief in the inevitable triumph of rationality and order over arbitrariness and chaos,” Robert L. Heilbroner sums it up in The Worldly Philosophers. “Don’t try to do good, says Smith. Let good emerge as the by-product of selfishness. How like the philosopher…to rationalize selfish instincts into social virtues!”
The dirty little secret is that the nihilism that inheres in Smith’s more Fichtean ruminations and in Spencer’s completely Fichtean Social Darwinism was not only massively appealing to the Nazis, but to American businessmen as well. As Nelson goes on to explain, it “suited the tastes of the American businessman”:
The new titans of American industry indeed looked to social Darwinism to bless their victories in the market and resulting accumulation of vast wealth… The workings of evolutionary biology that Darwin had discovered must surely also be the natural law of economic affairs.
[….]
For Spencer…some force beyond human control…was still acting to ensure that the common good would be served by the individual pursuit of self-interest in the market. It was necessary only that governments stay out of the way.
Too philosophical to discuss in depth, sorry.
But the problem is not “excess freedom” but excess emphasis in the most “fundamentalist” fetishes of Capitalism: unregulated market, private property (specially that of the wealthiest ones), dismissiveness of state interference (EU is for all purposes a confederate state, even if sui generis, but a very weak one and one that weakens the member states as well). We have been kidnapped by Fundamentalist Capitalism (call it Friedmanism or Reaganism or whatever) and we are only now realizing our institutional powerlessness in this situation, the lack of effective transparency and democracy, the oligarchic nature of our governments (at state and EU levels).
So, as I see it, it’s not excess freedom but lack of freedom and democracy what is at least part of the problem.
Besides, you are right when you say that the US federal power has been largely dismantled but this is not any counter-point but if anything a confirmation that strong and genuinely democratic public institutions are much needed. On the other side, we surely need weaker private companies, which must be guaranteed not to be able to influence policy anywhere near the levels they do now. If market has to exist, it needs myriads of agents not just a handful of all-powerful oligarchs. Monopolies or oligopolies destroy market from above.
Neoclassical economic theory is so ideologically blinkered as to believe that it can transform the impossible into the possible, that man’s economic life can somehow be extricated from art, philosophy, history, theology and society. Or, as Underhill put it, if economic policy could somehow remain “resolute and free of political interference.” What a dreamer! This is an aspiration born of pure idealism, of human will and imagination, not of any objective appraisal of human existence.
All this idealism run amok can only end in tears. With Fichte, the end result was an advocacy of hyper-German nationalism.
So you tell me. What’s the difference between neoclassical theory and Nazi theory? They both reduce man from this to this. Or as Peter Adam explains in Art of the Third Reich:
The forced and tortured poses of Breker’s and Thorak’s figures look even more artificial if one compares them with nudes by Auguste Rodin. Rodin’s aim was to visualize feelings which came from within. Everything about them is full of infinite possibility and of yearning: they are human and warm. Breker’s statues are cold and self-contained. In short, they radiate a superbly tailored lifeless perfection. These statues are merely the messengers of a program imposed on life.
It looks like I’m being unfair to Underhill. His full quote was:
The theory was that of the German Bundesbank – if policy remained resolute and free of political interference, a “stability culture” could be achieved quasi-automatically.
So he sounds critical of “the theory,” but perhaps not quite as explicity and stridently as I am.
It is my position that the institutional problems are created by the theoretical problems, instead of the theoretical problems being created by the institutional problems.
This is wonderful: “Don’t try to do good, says Smith. Let good emerge as the by-product of selfishness. How like the philosopher…to rationalize selfish instincts into social virtues!”
The thing that gets me about the invisible hand, and the liberal project generally (“I” before “We”), is that the appeal is to social goodness, or outcomes which are beneficial to society generally. Yet, if we are all Hobbesian beasts at war with one another for purely selfish reasons, why is this appeal at all necessary? How can reference to these supposed ends interest or motivate us? Why not laud selfishness and greed as the ends?
The moral attitudes of dominant and privileged groups are characterized by universal self-deception and hypocrisy… The reason why privileged classes are more hypocritical than underprivileged ones is that special privilege can be defended in terms of the rational ideal of equal justice only, by providing that it contributes something to the good of the whole. Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups is usually applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.
–Reinhold Niebuhr, Moral Man and Immoral Society
► Hobbes with his “beasts at war with one another for purely selfish reasons” provides us with every bit as preposterous a picture of human nature as does Adam Smith. One must take into account that Hobbes was a royalist and an apologist for the Ancien Régime, and almost everything he wrote was with the intent of persuading the people to surrender their freedom to the king, to give moral and intellectual legitimacy to “the leviathan,” as he put it.
Completing his degree in 1608, Hobbes became the tutor for William Cavendish on the recommendation of Wilkinson. The Cavendishes were one of the great royalist families of Stuart England, and through them Hobbes entered the highest echelons of society and participated in discussions of the great political, theological, and intellectual issues of the day. With only a few interruptions he stayed with them for the rest of his life.
[….]
…Hobbes became more interested in Roman historical writing. According to Aubrey, he bought Julius Caesar’s “Gallic Wars,” and he read Tacitus’s account of the Cataline conspiracy, which was the topic of another early essay. He showed some admiration for Brutus and Cassius, but he had little sympathy for democracy and republicanism and continued to stress the importance of the sovereign’s monopoly of force and the dangers of anarchy and civil war.
[….]
…Hobbes wrote “Human Nature” and “De corpore politico,” which circulated in royalist circles although they were only published ten years later as the first two parts of the “Elements of Law.” The work was dedicated to Newcastle and intended to bolster the king’s claims to sovereignty. Miller and Strong have argued that Newcastle hoped to convince the king to use Hobbes as a weapon in the debate with parliament and that these works were a demonstration of what he could do. Events, however, soon made such words superfluous. Parliament was so obstinate the king dissolved it, and when he was forced by fanatical exigency to call a new one, the Republican and Presbyterian members attacked his ministers. Mainwaring was sent to the Tower for supporting the doctrine Hobbes had laid out in his manuscript. Fearing he would be next, Hobbes fled to France.
[Hobbes argued that in order to avoid violent death in the war of all against all] one must be willing to covenant with others, giving up one’s right to all things and being content with as much liberty against other men as one would allow others against oneself.
[….]
Peace, Hobbes believes, is only possible if humans are convinced they will suffer a violent and painful death if they break their covenant.
–Michael Allen Gillespie, The Theological Origins of Moderity
It all sounds kind of like Naiomi Kline’s “Disaster Capitalism,” using the threat of some sort of Armageddon to frighten people into submission, no?
► The greatest significance of Adam Smith to the economic history of the world was not in any power of economic explanation but in offering a “scientific” doctrine by which the many losers from all this radical change could be persuaded to accept their fate without active revolt—-an act of rebellion against the market that in many cases might have been to their individual advantage.
–Robert H. Nelson, Economics as Religion
At least Hobbes stipulated the obvious corollary, that if the Leviathan unilaterally breaks this contract, that restores this state of nature, and the people who are no longer part of the contract are absolved of all obedience or reverence.
But today’s hypocrite Hobbesians, even as they turn state and corporation into pure predators and parasites, still deamnd obedience and even “loyalty” from those who are nothing but victims and prey.
I’ve even asked this swine a few times, e.g. in the context of the health racket bailout: “What do the non-rich get from the very existence of these criminal elites? Why shouldn’t we just get rid of them? Isn’t it totally irrational to tolerate their existence?”
I never received a coherent answer.
Yeah, “optimal outcomes” resulting from egocentric behavior are about the worst travesty we’ve got going for western culture. Never mind that self-interest gets you the worst possible outcomes in (Game Theory) Prisoner’s Dilemmas, and nobody would dream to think that trying to act only in your own self-interest will automatically help others as well in any other context — but for some reason, when we’re talking about economics, everything is possible.
A nice, if horribly underappreciated economist is Gabriel Tarde.. Bruno Latour has recently written a short exegetic work called The Science of Passionate Interests that is quite interesting in that regard.
“Never mind that self-interest gets you the worst possible outcomes in (Game Theory) Prisoner’s Dilemmas”
That never struck me! The disconnect is insane, and yet there it is, right in front of our faces, hidden in plain sight, so to speak.
Thanks for bringing that to my attention.
Geoffrey R D Underhill said: “ Neither national nor global institutions were up to the job and remedial action was required at great public expense and risk. Banks were bailed out and bonuses preserved.”
This in the headlines this morning:
The Irish Times and broadcaster RTE said Finance Minister Brian Lenihan will go to court to seek permission to pump another €3.7 billion ($4.85 billion) from the National Pension Reserve Fund into Allied Irish Banks.
Notice where the money’s coming from and where it’s going, a perfect confirmation of what Underhill is arguing.
Argh! Isn’t that outright robbery of the worst kind, some sort evil “Robin Hood” taking from the poor to give to the rich?
I would really approve summary trials with death penalties for such rotten politicians. They are the worst of the worst!
Just can’t get enough of these inane and misinformed ‘analyses’ of the euro, can you?
Please. Americans. You do not understand Europe nor the euro. You are embarassing yourselves with this endless drivel that interests nobody in the Eurozone, where the large majority of people is quite content using it.
Yeah, it’s the “Americans,” right?
It’s precisely that kind of desperate attempts to externalize the issues that lies at the core of this mess.
Your Europeans vs. Americans narrative is fiction, as most of the vocal and active critics of the current EU policies are in fact European, many of whom are hardly anti-EMU.
I am a European citizen and I am not too content with the euro. It is fine to cross the border (something I seldom do anyhow) and be able to purchase without changing currency but the downsides are also important, notably high unreported inflation, prices approaching those of Germany… when our salaries are less than half and our “welfare” is ridiculously non-existent (getting public housing is nigh on impossible, mostly there’s no welfare besides brief unemployment benefits, healthcare and pensions, all of them paid by us the workers, essentially).
I would be a lot happier with a much devalued euro, which would at least allow European companies to compete in fair terms in global markets, getting us a salary that could purchase our own products, and not just Chinese, German and Dutch ones.
Besides, Underhill is reported as Dutch or at least living and working in Amsterdam (the name does seem Anglosaxon).
Did you bother looking at the blog this post came from? It’s called “VoxEU”And it’s full of critiques of the eurozone and what to do about it.
The US has been running a monetary (and fiscal, and political) union for a few hundred years. If you’re too smart to listen to what we have to share, fine. Don’t listen.
But the article is from the E.U. So take your absurd nationalism somewhere else.
That smug attitude got you folks in trouble, and so long as you think you thoroughly understand Europe and the euro, you will fall deeper and deeper into trouble. Without an understanding of Monetary Sovereignty, your path will lead to bankruptcy. And then, we’ll have to institute Marshall Plan II, to save you from yourselves — again.
Rodger Malcolm Mitchell
I believe we can learn from the Americans!
Well honestly for the current situation in Euroland you can blame our governments in EU, the banks or whatever but let the Americans outside guys because they have nothing to do with our mess in EU .Thx
No “Marshall Plan II”. First the USA is no better position (even if the cracks in the system may have slightly different aspect) and second this can only be solved from inside: with a social and political revolution of some sort.
And anyhow, who is buying Spanish bonds? The USA? Germany? The ECB? Nope, China is, the same one buying US bonds. Why? Because that’s their “Marshall Plan” of sorts: that way they keep their markets afloat a little longer.
The EU always was a bankers’ fantasy. In partnership with the fiat dollar, it eliminated any constraint on global usury and speculation except for the ultimate constraint: meltdown. Of course, meltdown isn’t really a problem for bankers and corporate monopolists, since it is managed by bailout and austerity. The whole thing is about looting.
Anyone who understands Monetary Sovereignty would have seen the euro crisis from the very beginning. In June, 2005, I spoke at the University of Missouri, Kansas City, and said, “Because of the Euro, no European nation can control its own money supply. The Euro is the worst economic idea since the recession-era, Smoot-Hawley Tariff. The economies of European nations are doomed by the Euro.”
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The single biggest economic problem facing the world is lack of understanding of Monetary Sovereignty.
.
Rodger Malcolm Mitchell
Right. So that’s why the US (and US States and Munis) are doing great, and Eurozone countries are the only ones in trouble. All because of the “sovereignty issue”.
I guess if you gave munis the right to print their own money they wouldn’t be in trouble either, no. But i’m not entirely sure that we should conclude from that that “you are right”, because it seems to me you’re oversimplifying just a tad</I..
Apart from all philosophical consideration, I would say that problems could be anticipated for two main and simple reasons. a) EU countries were allowed to fudge their national accounts and disregard Treaties rules like the Stability Pact. There is always a strict cause effect relationship between non compliance and financial crisis. b) When the EURO was created they started to think in terms of single currency replacing all and single market but they forgot to get EU bonds and common issuance. That’s a big mistake because it’s hardly sustainable to have a single currency but different underlying assets and to have a single money printing but several bond issuances. That’s alone make ECB open market operations a nightmare with a single interest rate for the EURO but several interest rates for the underlying and collateral assets… So the solution to the conundrum is to have more Europe in all financial and technical aspects and the issuance of EU bonds is for instance just another needed step forward and towards integration. It simplify things and most likely will save money…
Perhaps te problems in Euroland are not that the integration has not progerssed far enough, but rather that it as not a ‘good marriage’ in the first place. The National vested interests which arraged the Union had little consideration for the interests of their citizens.
The European Union went too far. It does not allow Greeks to be Greek or Irish to be Irish. In the interests of this so called stability, the Union attempts to sqweeze all people into the same mold. That does not work, specially when the culture of these various countries has been so agressivly independant for centuries.
This is only a small example of what we will suffer under “The New World Order”. The plan cannot work in the long run, but the suffering we will all enjoy till it fails, would gladen a sadists heart.
I do not think that there is such a cultural problem, Paul. In this sense, “national” states are surely infinitely more oppressive of their minorities, which find in EU some breathing air (for the first time in almost 200 years Basque or Catalans can travel through their countries without being stopped by police at an arbitrary line running through the middle of it, for instance) and even some legal protection. Nobody is impeding the Irish from being Irish or the Greeks from being Greek, not at all.
The problem is ONLY political and specially economic. Actually it is more likely that “privileged” nations like Germans or Dutch feel menaced by EU than unprivileged ones in the cultural and identity aspect. The most clear example is surely the British/English.
The issue is whether Europeans can be Europeans, as citizens of a union that cares for their well being and where we can influence politics and economics through our vote. The problem is that EU does not care about Europeans well doing (is not designed for it but for business, big business specially, and that alone can’t but fail, specially in bad times as the ones we are living). EU needed a social charter and institutional mechanisms to equalize welfare through the subcontinent and guarantee workers rights, and not just capitalists’ “rights” (privileges). This was flatly rejected by the most well-off states and what we have is a EU that is not any union but just the old “common market” with some extras (notably the common currency).
So the tendency of the EU now is to become a German Empire in which most of the other states are nothing but colonies, markets and cheap labor pools for the corporations of core Europe, specially North Europe. And this so-called “debt crisis” is nothing but a manipulation in order to deepen this colonialist approach of Germany (plus) to EU. With the corrupt and subservient complicity of peripheral governments.
For instance, the Irish government for example should not have bought toxic banks, which are largely of German capital and/or owe money to Germany and Britain – if nationalization was to be done, it should have been done without paying, at least paying a real value not a nominal one, and without assuming the debts – i.e. after due bankruptcy. What is happening now is that the corrupt Irish government, pressed by core-EU members, is making the Irish people pay for private debts. This is a total abuse, totally unacceptable. It is by all accounts better than banks go bankrupt, the government guarantees private accounts up to a limit of, say, €6000 (what should be relatively cheap and socio-economically critical) and the debt problem is sent to creditors (who assumed their risks willingly) in Germany and Britain mostly. That would be logical, it is within the powers of the Republic of Ireland (EU cannot legally force Ireland to buy toxic banks), and would put each one in their proper place.
Sadly, by means of bullying, blackmail, likely corruption, the core EU states, specially Germany, are managing to impose these colonialist policies to Ireland, which is now like the European Haiti. Hopefully the new government will reject this year’s toxic measures as fraudulent and start anew, maybe via outright bankruptcy (which is the only way out in the mid-term anyhow).
Eventually the problem will reach to Germany and the other creditor states. There’s no way out of that because all is nothing but a pile of speculative junk. Sadly by then most of the banksters will be runaways in some tropical paradise with our money instead of being in jail as they must be.
That smug attitude got you folks in trouble, and so long as you think you thoroughly understand Europe and the euro, you will fall deeper and deeper into trouble. Without an understanding of Monetary Sovereignty, your path will lead to bankruptcy. And then, we’ll have to institute Marshall Plan II, to save you from yourselves — again. Rodger Malcolm Mitchell
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