Europe: Utopia’s End

Until today, I thought that break-up of the Euro, or the European Union itself, would happen when pigs fly. Now I hear wings flapping.

With the Greek crisis, we see the chickens of the much-vaunted “European social model” coming home to roost. Greece was just like the other main-line Euro nations, only more so: ever expanding state hand-outs and subsidies, bureaucratized over-regulation in the supposed name of social solidarity gumming up labor markets and hobbling economic growth, unwillingness to pay the taxes necessary to prop up this shaky system, and hence running up unsustainable debt. (If any of this rings an American bell, it should.)

Papandreou

The music stopped when the Greek government woke up to find it could no longer borrow by selling bonds (except at eye-watering interest rates) – because bond investors had woken up to Greece’s inability to repay. So Prime Minister Papandreou said the days of wine and roses were over. And the people said, “No! We won’t stand for it!” They would accept neither cuts in government profligacy nor higher taxes. And so they went into the streets violently protesting.

For months, the other Europeans, mainly the French and Germans, tried to bail Greece out with new loans to help it pay its old loans. Though the thrifty Germans in particular resented that they, with an (early) retirement age of 65, should pay so spendthrift Greeks could retire at 57.

Greek public opinion blamed the mess not on themselves, but on the bond market, for its unwillingness to throw good money after bad, and upon the other European nations – Germany, in particular! – that were bailing them out! As thanks for their pains, Germans are now hated in Greece.

And, like so many other Europeans (the French especially), the Greeks also hate the free market, and the whole idea of business and commerce. They think it’s grubby, vulgar, and immoral. They think the wealth they want redistributed falls down from the sky; they don’t understand the concept that it must be earned before it can be distributed. (Does this ring any bells too?)

Defending the indefensible in Athens (Cryptome.org)

And the bailouts weren’t even enough to keep Greece solvent. So the next step was last week’s deal, allowing Greece to pay only 50% of what it owed. The suckers who had lent to Greece would be screwed. Did the Greeks appreciate this gift? No, they went back into the streets to protest – effectively, against paying any of their debt.

The 50% nonpayment deal, finally, appeared likely to actually solve the problem. And to this point Papandreou had seemed almost a hero, trying to do the right thing in spite of literally violent opposition. But now, suddenly, he has declared that the deal will go to a referendum — in a couple of months – prolonging the agonizing uncertainty, at a minumum. And Greeks would almost certainly vote against the deal. Papandreou’s referendum move is just stupendously irresponsible, and potentially sets in motion not only Greece’s national economic suicide — expulsion from the Euro and maybe the European Union – but possibly the destruction of both altogether – not to mention the whole world economy. (Italy, with a good slug of Greek debt, burlesque Berlusconi holding the reins,  and wobbly even before this, could be the next and much bigger domino.)

Papandreou evidently pulled his referendum stunt to save the electoral prospects of his Pasok (socialist) party. Yes, even in this extreme Gotterdammerung situation, the jockeying for political advantage could not be put aside. One must ask, if this is the price Papandreou must pay to get re-elected, why would he want to keep his office and thereby preside over the resulting disaster? But meantime, Papandreou’s gambit has provoked an imminent parliamentary vote of no-confidence which, if it succeeds, will collapse his government, and going down with it, immediately, would be the recently agreed 50% deal – leaving Greece to just default willy-nilly on its debt – with the further consequences I’ve mentioned above.

What a horrorshow. And all because Greeks could not restrain their appetite for free lunches that of course, in the end, are never free.

I might have to change the name of this blog.

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5 Responses to “Europe: Utopia’s End”

  1. Basil C. Demetriadi Says:

    It looks as if your sources are mostly newspapers and TV reports; some of what you say is wrong but most of what you say is correct. To put right what is wrong would take a long time and many pages of arguments and attempts to explain things as they really are. So I will just congratulate you for expressing an opinion on a very convoluted situation. However, blogs are not just a “mental exercise”, we should make sure what we say is correct before offering it to the public. Also, the situation is very fluid right now and has already changed in some ways, making some of your comments and conclusions obsolete. Better wait for some time and then write again, after things have stabilized.

    [FSR comment: The above is written by an Athens resident who is also the world’s foremost numismatist in the sphere of ancient Greek coins.
    My main source of information about the Greek situation has been The Economist magazine, which has covered it in depth; I believe my viewpoint about it pretty much coincides with that of The Economist.]

  2. Lee Says:

    Krugman’s Op-Ed on the Greek situation says it better than I can. He gives the flip side of The Economist‘s talking points.

    [FSR comment: Krugman’s position seems to be that whatever spending a government does, it’s good, and should never be cut, only ever increased. Sorry, I don’t agree.]

  3. Lee Says:

    No one agrees with the position you ascribe to Krugman.

    [FSR: I think it’s a fair reading of what he wrote.]

    Money is not wealth; rather it is the oil that keeps the economic engine lubricated. Without money, a person who sells computers who wishes to buy broccoli must find a farmer with an interest in computers; or a other parties so as to orchestrate a multiparty trade. With money, it is not necessary to find a trading partner who simultaneously happens to be looking for what you sell, because money is a universal good that can be traded for computers or broccoli. The mortgage security debacle sopped up a tremendous amount of oil from our economic engine. People with computers and broccoli are having trouble making a living, not because they are bad at business, but because it is hard to sell stuff if there isn’t enough money flowing.

    If the European Central Bank cannot keep the economic engine lubricated, then the Euro deserves to fail. Fortunately, Mario Draghi, the new president of the European Central Bank, appears to understand this, and is easing money.

    [FSR: Europe’s problem is not money flow, it’s inability to pay debts.]

  4. Lee Says:

    When unemployment is significantly higher than a reasonable rate it means that there are unemployed people who want to create (and consume) more wealth but are unable to do so. What’s stopping them?

    If they had jobs creating wealth then the could afford to consume wealth. If they had the money to afford wealth consumption then employers would have ample incentive to hire them to produce the wealth. What’s stopping them?

    The problem is the money flow. Bernanke is the reason we don’t have bread lines in this country. If Greece, Italy, Spain, etc. cannot get money flow from the Germans then the Euro deserves to fail.

    [FSR comment: It’s the standard leftist delusion that money, or wealth, somehow just “FLOWS.” From somewhere. Government. Created out of thin air. Well, government can print money; but that doesn’t create wealth. Wealth is only created by production of goods & services people are willing to pay for. Europe’s problem is insufficient productivity of that kind, to sustain all the consumption it wants to have, in the form of “social” subsidies. The Greek railroad collects 100M Euros in fares and pays out 400M Euros in salaries. That’s the problem in a nutshell. There comes a point where such a country can’t continue borrowing money to do that, because the loans can’t be repaid. The balloon busts.
    Borrowing for investment is one thing. Borrowing to keep running a Greek style railroad is something else.
    Why don’t they have enough wealth-creating jobs? One answer is, why work when you can have a goof-off government job — or can collect an income from the state without even pretending to work? Which is too true in too many cases in Europe. Another is that European countries tend to be tangled in “social protections” for job holders that make them difficult and costly to fire — which makes businesses reluctant to hire. They are also tangled in red tape that makes it likewise difficult and costly to start and run a business. Reforming all these anti-productive policies is what Europe needs to do. But voters hate it. They refuse to grow up.
    That’s “what’s stopping them.”]

  5. Lee Says:

    If a “delusional leftist” posts here that wealth is created out of thin air, I’ll help you fight him/her off.

    The government builds our roads here in the USA and, for the most part, we use them free of per-use charges. If the Greeks use their railroads the way we use our car roads — for the bulk of commuting — then the fact that they are mostly paid for by general taxes is not the problem.

    I haven’t seen any news reports about Greeks just pretending to work, or getting paid even without pretending. I suppose someone has found an example and printed it in a right-wing trade rag, but perhaps you could give me a citation with statistics?

    Yes, I agree that employee protections can make business somewhat less efficient in producing goods per dollar (or euro), and that that’s a trade off that is not to be made lightly. But Germany has those too, and is not in the same boat as Greece. The US doesn’t have as many employee protections, but we are hurting; we would be hurting much, much more if it weren’t for our quantitative easing — printing and later destroying an entire year’s gross domestic product worth of the dollar.

    [FSR: By “pretending to work” I mean make-work government jobs that exist only to give people paychecks, and Greece does apparently have a lot of this. Thus, the railroad; it’s been calculated that it would actually be cheaper to carry the passengers by taxi. I’d say that is a problem. More, Greeks also do not believe in paying the taxes they supposedly owe, and the government does not believe in trying to collect them.]

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