A certain Mediterranean nation has taken up top-of-mind awareness of the planet these days with this brouhaha over 323 billion euros worth of indebtedness. Dissecting the “what now?” is being quite well looked after with social, political and economic experts and analysts all weighing in with thoughts on outcome scenarios of what most now believe is one of the most poisonous deals ever made at one of the most crackbrained and insane economic summits of all time.
It is quite obvious by now that Greece is really not the problem but merely a symptom. It is obvious that the perceived toxicity of Greece is hiding an underlying political-economic caustic that the Eurozone is either trying its best to dilute with rhetoric on rogue states or react with other equally corrosive elements such as um… bailouts cobbled together in a nuthouse to reach some sort of fission-neutral fiscal equilibrium.
To figure out why, one must start with fundamental issues related to the difficulties that arise when the attempt at a common fiscal policy for Europe clashes with diverse fiscal traditions within its member states. Some are cavalier in their understanding of individual responsibility to pay taxes while others are straight laced orthodoxy in that department. Some like to purchase expensive cars on lease without really caring too much about how they are going to pay their monthly installments. Some might want to borrow for infrastructure development whose ROIs are iffy and not well thought through. Whatever the differences, one thing is clear: Bad money management habits that are relatively small but spread across an entire nation’s psyche can do more harm to a country’s economic stability than a few big ticket errors. When Eurozone was created, everyone was looking at the big picture and no one really cared about these teeny tiny things.
One must wonder what sort of lunacy prompted fairly rational human beings to rest the Eurozone on 17 struts that are unequal in size, strength, physical composition, angle of alignment and bearing capacity. Even a person with the intelligence of a nit would tell you that this is engineering insanity. Is it that surprising then that torques, tats and spats will abound? Is it that shocking that people will necessarily have to go 15 rounds on who is shouldering what burden, who is piggy-backing on whose efforts, what is going to kick a prop out of kilter, who is going to repair the damage and, most importantly, if all of this is worth the few Euro more?
Well at the start, back in 1992, it seemed a jolly good idea to many Europeans. Europe united, if not under one flag, then under one currency. Money becoming less expensive, intra-union trade opportunities increasing, production increasing… the positives was both infinite and stratospheric. For a while, sure, euphoria generated the type of growth surge in member countries that would have been unimaginable before. Gradually, borrowings started to increase, productivity started to decrease, unemployment started to increase and some of the nations were staring down the barrel of a fiscal machine pistol.
One might think that the Eurozone, being under many flags would have anticipated this sort of thing and put in checks and balances to prevent it from becoming a reality and ensure that debt doesn’t spiral out of control.
They did.That particular control instrument was called the Stability and Growth Pact (SGP) and it mandated that national debt should be no greater than 60% of GDP and a government deficit should be no greater than 3% annually. However, the two biggest economies of the Eurozone, France and Germany broke this pact in 2004 and instead of being punished for it, they rewrote the rules. Therefore, for six years starting from 2005, countries such as Greece no longer needed to follow the SGP. This, I call the first great crime of the Eurozone and it was not a sprat sized economy like Greece that was the culprit but its two largest. That politically unpunished, economically suicidal crime single handedly resulted in the misery that was later visited upon the Eurozone culminating in the 2015 summit debacle.
Greece didn’t cause this problem. It was collateral damage of what France and Germany did. The sharks blew it first and the minnows reaped the suffering. By 2010, Greece was gasping for oxygen and Spain and Portugal were not that far behind. The Eurozone went into panic stations. They had to save their hides whatever the cost. They pumped the country full of Euros in 2010. That was one of the most selfish of all fiscal moves ever perpetrated by anyone ever. By doing what they did, they were not attempting to save Greece but the Euro and they fed the Greeks to the fiscal sharks to achieve it.
No surprise that 2015 happened. No surprise that the new bailout package is the brainchild of viciously deranged human beings. This time around, the country that Eurozone was instrumental in mortally wounding back in 2010 is going to be murdered. The way? Cannibalize whatever is left that is of any worth in the country and deal with the human fall out in the same way that the world deals with a country like Chad or Somalia.
Italy knew this back in 2013. Mediobanca, Italy’s second biggest bank in a humungous tome came close to calling for a withdrawal from the EMU and a return to the Lira. In that report, they indicated that Italy would be far better off outside EMU.
Speaking about Italy in 2013, Ambrose Evans-Pritchard of the Telegraph says “Everything comes down to the national mood in the end. There was a time when the cause of Europe was unquestioned in Italy, but the long slump has taken its toll”.
Well, that spat has already happened with Italian Prime Minister Matteo Renzi wading into Wolfgang German finance minister Schäuble during the Eurozone summit. If I were Eurozone, I would be thinking of what to do when, not if, Italy leaves. Such has been the conduct of its larger economies.
That conduct has been blasted by Nobel Economist Paul Krugman who said recently that the EMU demands are “madness” on every level.
Indeed. At present, the Eurozone and its currency are its greatest poison. It’s greatest waste. Its most dangerous adversary. If it is to remain at least reasonably credible in the eyes of the world, Europe must rid itself of them both and go on with life as it did before this disastrously failed experiment in common collectives.
So, if things move in accordance with what stupidity can set in motion, this would be the third time in a hundred years that they have allowed their superiority complex to destroy Europe. This time would not be much different from the others. In their insanity, they will not only crash the rest of Europe but also pull their own house down upon their heads in the process. Tragic.