The Eurozone is in trouble. Deep, deep trouble. It has been for more than a year now. Tons of money and words beyond count have been expended in the effort to keep the Euro afloat despite the great gashes torn by the sovereign debt loads of Spain, Italy, and, the mother of them all, Greece.
Bankers have wept and wailed. Politicians have viewed with alarm while making promises that all will be well in the sweet bye and bye. Emergency meetings have been held, recently on an almost daily basis. Special funds have been established. Experts from the European Central Bank and the International Monetary Fund have developed plans, made demands, issued words both threatening and reassuring.
Still the "crisis" rolls along, a tsunami. And, like all tsunamis, the wave was not self-created but rather is the result of tectonic forces.
In the case of the Euro-debt tidal wave, the underlying tectonic forces are found in the nature of national politics. National political dynamics whether in Germany, Greece, France, or Finland are the cause of the seemingly economic disaster.
The economics of the current Eurozone are easy to understand. Greece and the other so-called PIGS borrowed money, a lot of money. More money than could be repaid without causing pain and misery within each state's population. For some years, the payments could and were made--sometimes with more borrowed money. With the onset of the Great Recession four years ago, the assorted PIGS led by Greece had more and more difficulty meeting extant obligations. As a result, the cost of borrowing more money on the international market ramped up. Ramped up a lot.
The economic slowdown around the world assured that the PIGS, again led by Greece, would have to make tough choices between meeting sovereign debt obligations or meeting domestic obligations ranging from salaries to pensions, from housing subsidies to underwriting the costs of medical treatment. The money to do both simply did not exist.
Absent the Eurozone, Greece would have done something many states have done in the past. Athens would have defaulted on its sovereign debt. Walked away from it. Given the bankers and other holders in due course a haircut. For a period of time, Greece would have had difficulty borrowing on the international market, but that would have passed.
Argentina took the default route a few years back. Today it is in better economic shape than it has been in more than three quarters of a century. Default like currency devaluation imposes only short term costs while usually providing the basis for long term benefits. Greece would have been able to do the same had the Euro not existed.
The common currency, the Euro, like the countries which use it, the Eurozone, exists as a tribute to a concept which owes much to idealism. The Euro, the Eurozone, the European Union are all tributes to High Minded and Lofty Thinking. The notion which propelled all was that of creating a federated Europe, thus preventing future conflict both violent and economic. The visionaries who created the European Union, the Euro, and its zone were convinced that a new, supra-national Europe would put the final nail in the coffin of nationalism and all it spawned for once and all.
Insofar as the EU is concerned, the visions have not yet been so challenged by real world forces as to discredit the dream, at least not entirely. The same cannot be said for the Euro.
The Eurozone was created as a monetary union but not a fiscal one. This has meant that the countries of the zone cannot have a common tax, or a common limit on public expenditures, or a common policy on wages and pensions. More importantly, the zone cannot provide for the orderly and automatic transfer of wealth from richer countries to poorer ones as is the case in another federal union, the one called the USA.
As a result, the Eurozone as an entity could not head off profligates like Greece before the crisis occurred. Nor could the Eurozone as an entity assure the automatic coverage of Greece's "overdrafts" from a common treasury.
Back in the Nineties, when the Euro and its zone were under construction, the assorted Deep Thinkers did debate whether or not the zone would be restricted to a monetary union. The downsides of this limited approach were understood. The overarching concern of the politicians involved in creating the zone had to be sure their respective national legislatures as well as the public which elected each would accept and support the new currency and the mechanism behind it.
In short, an accurate understanding of the limits of democratic acceptance put a necessary constraint on the ambitions of those creating the Euro. It was believed by these people as well as the national elites who welcomed the new expression of European integration that the Euro and its zone were but an intermediate step on the road to full federalism.
Even in its limited form, the monetary union was not greeted with universal hosannas and paeans. There were hard fights in the countries which opted to join the zone. Some states, most notably the UK, decided to stay out in the cold.
The force at work in the UK and within the opponents of the zone was democratically expressed nationalism. "Not to worry," murmured the Eurocrats, "federalism will come. Good times along with the European Union and its parliament will work wonders on the reactionary nationalists."
The Eurofanatics might have deprecated those who opposed the Euro along with those who were against the expansion of the European Union's sway in terms similar to those employed by President Obama and others of his ilk regarding people living in "fly over country," but in doing so they forgot that the hoi polloi had the franchise--and were willing to use it. The Great Recession exacerbated the already growing sense of frustration infecting many in Europe.
The frustration was the product of being, as one Irish woman put it during the vote on the Lisbon Treaty expanding the authority of the EU, "over governed." The climate of frustration over the attitudes and behavior of the political, media, and academic "elite" of Europe was enhanced by the ever growing and ever more evident presence of non-Europeans on the local soil.
The tone deafness if not blatant ideologically predicated stubbornness of the elites with a constant message of multiculturalism and end-of-nationalism stimulated the rapid growth of nationalist political parties across Europe. From Norway to Italy, from France to Austria, people in growing numbers saw and felt themselves to be strangers in a strange land, powerless pawns subject to dictates from Brussels and under siege by hordes of newcomers.
The push back was and will continue to be strong. Election after election with few hesitations have shown the increasing strength of nationalism and the parties which traffic in this commodity. The message has not been lost on the current occupants of elected office.
The American Treasury Secretary and his British colleague have warned the politicians of Europe to take immediate and decisive steps to end the market turmoil caused by the Greek sovereign debt. Both men made this abundantly clear when they sat in with the European finance ministers this past week. Both have good reason to be worried, very worried. A melt down in the European financial sector will have adverse consequences for both the UK and US. Great adverse consequences for two national economies not yet recovered from the Great Recession.
The European politicians did not need the Anglo-American warning. They are perfectly well aware of what is going on. It is just that they and their bosses in Berlin, in Athens, in Paris cannot do anything given the mood of the respective electorates.
The average German and counterparts in the Netherlands, Finland, and even France are not thrilled by the prospect of never ending bailouts of the "improvident" PIGS. The average Greek or Italian or Spaniard is equally disenchanted with having the quality of life beat down by remote bureaucrats from Brussels or the IMF. Undoubtedly, all hands would be quite willing and able to express their disapprobation come the next election.
The elites both in and out of government overlooked the basic truth here. The elites in their ideological fervor have far outrun the limits of general public approval. At the same time, they had forgotten the "unenlightened" members of the hoi polloi have a leash and collar on each and every elected proponent of European togtherness and multiculturalism called elections.
The Greek default crisis served to remind national politicians that the public was willing and able to administer a mid-course correction to policies of which it disapproved. The reminder has taken the form of apparent indecisiveness in the highest circles of European leadership--starting with Chancellor Merkel. Ms Merkel and the others are not indecisive; they are afraid of the costs of making a decision.
Ideals are wonderful. No one should neglect to have them. However, in the world of politics, particularly the politics of the world, it is critical that ideals not be decoupled from the realistic appraisal of what will be both accepted and supported by the majority of the politically articulate within society.
The creators of the Euro and its zone ignored this precept. As long as the world generally and Europe in particular enjoyed prosperity without precedent, all went well regardless. But, as was inevitable, the good times stopped, the dues collector came around. Unfortunately, in the case of the Euro, it looks as if the dues will be collected not only in Greece or in Germany but everywhere, even in the US.
Simple. National publics are like armies as General George Patton once observed. "They are like pieces of cooked spaghetti. You can't push them. You can only pull them along, slowly."