While we’ve been distracted this past week by claims of Cherokee ancestry and Obama’s new status as “the first gay president,” the status quo in Europe has finally reached the end of the road. The only question now is whether the leaders over there realize this and are prepared to take the necessary steps to save their countries—and the signs aren’t promising.
By “status quo,” of course, I mean the overarching, overbearing welfare state apparatus found nearly everywhere on the continent, and also the cessation of much national authority to the technocratic EU government in Brussels. It’s a grand dream, really—the idea that a “United States of Europe” could be created, based on social democracy, multiculturalism, and other cherished principles of the Left. But when they tried to implement this dream through their transnational government and a common currency, the euro, Europe’s leaders, like all utopians, forgot the realities on the ground.
Take Greece. Greece is traditionally one of the smaller, poorer economies in Europe, but in recent years it has benefited from membership in the EU and the use of the euro. Wealthier nations, such as the UK, France, and Germany are able to invest in it, which helps it pay for public projects and thus maintain a much higher standard of living than it normally would. Simply put, Greece for the past decade or two has been a welfare state in every sense of the word. And it was a fun little deal while times were good. The global economic slump of the past few years, though, has caused the government’s high debt and precarious finances to catch up with it. To prevent a total national collapse (which would also hit the aforementioned investors hard), EU leaders cut a deal with the Greek government earlier this year, in which it got a bailout package of 130 billion euros from Brussels (in addition to other, previous aid packages); in return, Athens was required to go full austerity, drastically cutting expenditures and raising revenues (i.e. taxes) across the board, in order to repay this loan in a timely manner. In other words, a country which for the past generation has enjoyed relative prosperity by kicking its expenses down the road was now required to pay for everything itself. Right now. What could go wrong?
Plenty, of course. Between then and now, but especially over the past few weeks, Greece threw a very violent fit. In between periodic riots, national elections were held on May 6, and the two coalition parties, the Conservatives and the Social Democrats (and that right there should tell you all you need to know about European-style conservatism), who had signed off on the deal, took a shellacking, totaling less than a third of the vote. A much larger share went to fringe parties on the left and the right—including the Greek Communists and something called “Golden Dawn,” a neo-Nazi extremist group which has as its logo a modified version of the swastika and which advocates putting immigrants in work camps and turning the Turkish border into a minefield. As if that wasn’t bad enough, talks for forming a new government with either side of the spectrum have collapsed—proving how much they have in common, both the far left and the far right are adamant that the bailout deal with the EU be scrapped because it’s too detrimental to the Greek people. So now there will be a new round of elections next month, in which “Golden Dawn,” the Communists, and others are widely predicted to get an even larger share of the vote. So it might not be long before we see a black-shirted torchlight parade through downtown Athens. Either that, or civil war. It’s kind of 50/50 at this point.
Regardless of what happens, though, Greece’s exit from the euro is only a matter of time, and probably not much time at that. All of these bailouts have been bankrolled, more or less, by Germany, which is currently just about the only state in Europe with a decent economy. In fact, it’s practically the only thing holding the Eurozone together at all. But Deutschland’s pockets aren’t infinite, especially not now, and it wants a return on its investment, demanding that the Greeks either undergo a thorough restructuring of the economy, including a continuation of austerity, or drop the euro as its currency. Given that the Parthenon pols have basically responded by calling the Germans latter-day Nazis and such, it’s not hard to see which way the wind is blowing. A month ago, you couldn’t find anyone among the elites who would admit that any Eurozone country could depart from it; now, it’s being openly discussed.
So why is this such a big deal? Well, that’s the tricky thing—after reading numerous articles on the subject, I have concluded that no one really knows what would come next. It will probably cause short-term havoc. Over the past week, a major bank run to the tune of over a billion euros has taken place in Greece, as citizens anticipating a change in currencies have been withdrawing their money. This is not something you ever want to see, for obvious reasons. It’s also not too hard to imagine that European unity will be severely fractured by this process, especially since Greece is hardly the only nation in such deep trouble. Ireland, Italy, Portugal, and Spain are all in similarly dire financial straits, and are likely to demand bailouts themselves in the near future. Indeed, Italy just had over two dozen of its banks’ credit ratings downgraded, and Spain is now seeing the first signs of a Greece-style bank run. Their economies are also much larger than Greece’s, though, and the other EU nations combined don’t have the resources to bail out even one of them, let alone all.
This isn’t the real problem, though. The real problem is that their populations show no more interest in facing the reality of austerity than the Greeks do. This is true on both sides of the money transfer, and if you want proof of that, just look at France, which had its own round of elections the same day as Greece. The new Socialist president, Francois Hollande, has proposed a domestic policy that includes a 75% income tax on the rich and a reduction in the retirement age, among other things. The point isn’t that these suggestions are idiotic, it’s that a plurality of Frenchmen would rather embrace them than face up to the reality that the welfare state is officially unsustainable. And as long as that mindset persists, we will not see any progress made in Europeans’ efforts to combat this international crisis.
More likely is a slow disintegration of the euro, as country after country is forced to stop using it; at which point they’ll all return to their individual currencies and the EU is left with considerably less leverage over any of them. What we’re really seeing here, then, is the return of the sovereign nation-state, for better or worse—possibly much worse, depending on how unstable the situation continues to be. As the Chinese curse goes, “May you live in interesting times.”
Monday, May 21, 2012
My Big Fat Greek Meltdown