The Eurocycle

The Eurocycle
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In the great debate over What’s To Be Done with the European Union, analysts have generally floated two long-term options, both fairly revolutionary and neither particularly endearing.

The first would be some manner of dissolution of the entire enterprise, beginning with the slow, “managed” exit of the EU’s most basket-casey members, such as Greece, Spain, and Italy. What would remain would be some smaller, snobbish rump grouping of Europe’s wealthy elite, similar to what the EU actually started out as, back in the “Coal and Steel Community” days. This would obviously liberate the continent’s wealthy powers from getting bogged down in future messes like the present one, where endless bailouts are required simply to keep the lesser states economically solvent, and where traditional powers of sovereignty, such as the ability to raise or lower currency values, are denied, unnaturally warping the natural pattern of European trade and commerce.

Trouble is, no one seems to know if a single state departure — let alone wider breakup — is even possible under the largely one-way street of EU law, or if there’s any way such a divorce could be conducted without ushering in even greater economic turmoil in the short term. The mere departure of Greece, for instance, supposedly the Union’s most expendable member, has been almost unanimously characterized in apocalyptic terms for the larger European bond market, and in turn the global economy.

The other option would be to swing widely in the other direction, and make the EU stronger, tighter, and even less escapable than it already is. If we’re looking at American analogies, this is the one that views the current EU system as the failed Articles of Confederation — too loose, too informal, too deferential to local sovereignty — while an “EU-plus” would be more like the modern federal system. The basket-case economies would become less of a problem under such a regime because their single most troubling and potentially erratic powers would be stripped; proper federalism could introduce the concept of a single European budget (as opposed to merely an EU budget) dictating everything from its members’ defence bills to health care spending, along with continent-wide policies governing banking and taxation.

The problems with this solution are not unlike the first — namely, it’s difficult to envision a scenario in which such a sweeping shake-up of the status quo would even be legally possible, let alone promptly implemented. European voters have consistently rejected several attempts to impose a revised EU constitution upon their member states, and this was in happier times asking significantly less sacrifice. European nationalism remains stubborn — many have argued  even more so during the current crisis — and the 27 diverse, independent countries of Europe are vastly different from the 13 British colonies of 18th century North America. To demand an even greater loss of self-government simply on the basis that it will help the Eurocrat (which is to say, mostly German) elite more effectively redistribute taxes to distant foreigners is destined to be a hard sell.

Nevertheless, German chancellor Angela Merkel has now officially come out in favor of the latter plan, calling for a European “political union” last week. Though she’s been predictably scant on the details of what exactly this would entail, her willingness to at least openly tout the proposal is significant, at least in so much as it indicates the resolve of the leading light of the EU establishment has not wavered from the overall justness of the project she’s been called upon to save.

And saving looks to be what she’ll be doing a lot of in the near future. On Saturday, Germany led the wealthy nations of Europe and various international monetary organizations in approving a staggering $125 billion bailout to recapitalize failing Spanish banks, making it the fourth consecutive EU member to receive an ample cash handout following Portugal, Ireland, and Greece. As this was essentially a public-private transfer, the banks were mostly receptive to the terms of the loan, agreeing to a reasonable schedule of repayment and interest — which is certainly more than we can say for the EU’s next bailout recipient.

On Sunday, Greece is poised to hold parliamentary elections for the second time in two months, after May’s vote failed to generate anything but an almost comically unworkable legislature (I made a Canadian analogy on the Facebook page). With billions of pre-approved Euro-loans already heading their way, apparently one of the big campaign issues in that country is simply whether or not to put up with the strings attached. The front-running, far-left party of media darling Alexis Tsipras has been making the rather breathtaking argument that no, Greece should simply get foreigners’ money without having to agree to structural reforms or austerity measures, something even his nominally socialist predecessor wasn’t so entitled as to assert. Should such a character become prime minister, one can only imagine the deranged tone future negotiations would begin to take as a staid Euro elite is forced into playing chicken with a young radical to ensure the fiscal survival of a country that seems absolutely determined to commit suicide.

In such a context, you can forgive the Chancellor for having fantasies of President Merkel — and the United States of Europe.




^ 18 Comments...

  1. ThePsudo

    Obviously, the moral issue of slavery has no parallel in the European example. But systematic cohesion vs. separation due to economic differences is a tidy summary of both dilemmas.

  2. Zulu

    I see the Euro crisis as part of the growing pains of the European Union as a consolidated, geopolitical power. In a world where regionalism is the future, it's less possible that Europe will remain divided than become more united. Rise of nationalism and economic crises are setbacks that I think Europe will overcome. The greatest long term obstacle I see isn't the PIIGS, but Europe's demographic decay.

  3. bificommander

    Only tangentially related, but I thought J.J might like to know: I'm a Dutch lefty (so by American standards, I'm probably a communist) and I've been thinking of the validity of my political views in light of this crisis. I have always been in favor of higher taxes for the wealthy, and low taxes and/or subsidies for the poor. I still feel that way on a national level. But I find I have trouble feeling that way internationally, i.e. richer E.U. countries like the Netherlands subsidising the poorer ones like Greece. So I'm trying to figure out if this is a reflection of genuine differences between the situations, hypocrisy on my part, or an indication that I wasn't giving the more conservative political views on the domesitc level enough credit.

    A significant difference between the international and domestic solidarity is, IMHO, that whatever benefits the Greek government offers would never apply to members of other nations. It's a bit weird to have to speed up raising our retirement age from 65 to 66, later increased to 67, in order to balance our budget, then fund a nation that doesn't want to raise its retirement age from 58. Its not paying for ones own safety net, it's paying for someone elses. And you're cutting fabric from your net to add to theirs. It's probably true that the average Greek didn't have much knowledge of the deficit spending, nor much to say about it if they did know, and weren't among the select few that really profitted from it. But the taxpayers from other nations had even less to say about it, so they are not the more logical choice of footing the bill here.

    Still, I can't really blame the Greek protesters. Many of them are alreadly unemployed and with little prospect for a job in the private sector. It's hard to swallow when foreign politicians demands that you get less unemployment benefits and the government fire a whole bunch more of people to compete with you, just so in a few years you may get a job in a profitably private sector again. Maybe. If you're lucky.

    All in all, I haven't figured it out yet, but I can say I'll be slightly less dismissive of conservative complaints that tax money used to help the poor is just an unfair burden on the taxpayer used to fill a black hole (or any paraphrasing thereof). I guess I can at least see where this is comming from.

    RIght now though, I actually hope the far left Greek party wins. The current system of support isn't working. The Europian countries are essentially loaning Greece money to pay of their existing debts. They can't pay off those existing debts on their own, so why would we expect they can pay back the Europian Loans in a few years? It's not going to be thanks to a booming economy, the austirery measures will make sure of that for the next few years. Right now Greece would probably better of by either being a lot more generous and giving them the money for a fresh start, or not giving them anything, let the country go bankrupt, give them a bit of money to leave the Euro and return to the Drachme and restart the country with a clean slate of debt, more or less as the Argentinians did. No one will lend them money for a while, but they won't be burdened with paying back the debts either. The money now earmarked for loans to Greece can be used to support the banks that get in trouble due to the money lost on old loans to Greece.

  4. Xel

    I would only like to point out that there are poorer countries in EU like Poland, Baltic Nations or Slovakia, who are getting EU subsidions (not bailout aid!) and are doing quite good.
    So the Greece and other southern-states should first look on themselves, before claiming it's all bankers and Germany fault.

  5. ThePsudo

    Maybe you feel that way about international welfare because people ought to have equal treatment, but there is no such moral obligation to treat nations as equals. For example, they are not composed of identical quantities of people; if people are the atomic unit of society, then nations should be treated proportionally, not equally.

    In other words if nations are equal then people aren't, and if people are equal then nations aren't.

  6. Puddle

    That's a pretty good way of putting it. Also, it's like the difference between a person donating to a charity fund where it could be going to someone whose house just burned down, and donating to someone you personally know just unrelentingly, repeatedly, brought it on themselves and will do so again. The kinds of policies bificommander talks about simply don't scale upward.

  7. Andrew

    So, what's with all the yellow highlighting in the last few months?

  8. Bob

    And I notice it's only when talking about Europe and the EU.

  9. Jake_Ackers

    Well the US Constitution was made to deal with the fact the Article of Confederation was so weak. Since the US was a confederacy under the Articles, secession was legal. That's why the US turned into a federation with the Constitution. In much the same way the EU is a confederacy. Only problem is that the EU laws are being shoved down the throats of everyone even if the people don't want it which is not much different from a federation. Tons of laws are passed that Americans don't want, yet still get.

    Honestly, there is no reason to have the EU as powerful as it is. It's main purpose is for a currency and free trade agreement to facilitate trade and commerce. It's all the extra laws from the EU that is hurting unity. Even West and Central Africa seem to be working their problems out.

  10. ThePsudo

    I'm familiar with the history. "Confederation" and "federation" didn't have different definitions until the South started threatening secession and used that terminology to make a distinction in power. In the federalist and anti-federalist papers, they used the terms interchangeably.

    I'm not familiar with the EU's revenue mechanism. Can they tax directly (as under the US and Confederate Constitutions) or can they only request money from their member nations (as under the Articles of Confederation)?

  11. drs

    “The Articles appear a fairly apt comparison here, as the Confederate Constitution was very similar to the original US constitution.”

    No, it was very similar to the actual US Constitution, not the Articles. Our host even did a comparison.
    http://www.filibustercartoons.com/CSA.htm

  12. guest

    The real problem with Greece is systemic corruption.
    They deliberately cooked their books to even get into the Euro Zone.
    Why should that fraud be anything other than punished and why should those who did not commit fraud pay for those who did?
    While I am not in favour of enforced suffering there are only two options – indefinite hardship for Greece with no structural reform; or lengthy hardship for Greece with some structural reform which might see them eventually come out the other side.

  13. Guest

    But did every Greek participate, or are the majority being punished for the tax-free extravagance of the rich and powerful? Who stood to gain the most from going into the Euro? Why should those who did not commit fraud pay for those who did?

  14. Guest

    Sadly citizens pay for the mistakes of their political leaders and moneied class every day in numerous ways.
    The reality is that someone will pay – the only issue is, does it come in the form of bailouts from other countries who have carefully managed their economies and citizens who have saved and paid their taxes or from the citizens of the country who has not? (Or possibly some combination of the two)
    Seems a pretty easy answer to me.

  15. A. Apolis

    Ah yes, the Northern Irish Peninsula, that's one geographical feature I'm sure familiar with.

  16. Colin Minich

    Well the pro-bailout party won the day. Now it's going to get interesting just how they'll continue to interact with the larger powers, especially Merkel and her pro-austerity measures. Oh and Hollande…cannot forget him.

    Fun times in the European economy. Sometimes I almost pity it.

  17. bеstеssays

    The euro cycle of the economic and all other fields of the life are very important and necessary. Its impact and consequences are rightly mentioned and ensured. It is pertinent and productive with the skills and abilities. The range of the times and all objectives are ensured and primal.