I can only respond from a UK perspective - and, as you know, we
have our own special brand of uncertainty this very day. However,
in rough outline I think the problem is as follows:
1. Ultimately, there cannot be a functioning monetary union
without closer fiscal coordination; I suspect an overwhelming
majority of people in Europe, including national politicians, is
unwilling to hand fiscal authority to Brussels.
2. Having a single currency and monetary policy for 'peripheral'
and 'core' Europe always has been long-run untenable given the
institutional and social rigidities which inhibit inter-regional
adjustments.
Points 1 and 2 imply the EUR has been flawed from the outset.
The current crisis is clearly laying bare its conceptual
weaknesses, and these are getting increasingly difficult for the
governing elite to gloss over. Nonetheless, as goes the EUR so goes
the entire post-war European project - so the stakes are high.
3. It seems clear that the outlined bailout for Greece is at
best a temporary bolstering of liquidty for a borrower that is
actually undergoing a solvency crisis. Furthermore, the risk of
contagion will likely remain whatever happens to Greece, simply
because several of the peripheral economies are non-viable as
currently structured. (Incidentally, the guys actually being bailed
out are not the idle Greek public servants, but French and German
banks whose largesse has made idleness so rewarding for so
long.)
4. The pure idiocy of getting Spanish, Portuguese, and Irish
taxpayers (not to mention you generous folks in the US of A) to
bail out Greece is starkly apparent. As for the less profligate
burghers of Bavaria, I cannot speak for them but I can imagine why
they would be unhappy.
So in sum we have a governing elite that can see the post-war
project potentially unravelling and some of whom probably know in
their hearts that bailing out Greece is at best a temporary
palliative which is unlikely to stop the rot either for the PIIGS
or for the EUR itself; nonetheless - they feel they must "do
whatever it takes" (where have we heard that before?). It's notable
that over the last 24 hours some of the more recalcitrant elements
of the German press have clearly received the memo and fallen into
line behind a bail-out which 48 hours ago they were vehemently
opposing. On the other hand, the people who get to vote for those
elements of the elite who are in public office (a small proportion,
it has to be said) are unhappy and angry. An interesting
'stand-off'.
Personally, I would be surprised if the bail-out did not pass
over the required parliamentary hurdles. But the situation is
extremely volatile, and with Europe being something of a headless
chicken anything is possible. Whatever happens over the next few
days will most certainly not draw a line under the rapidly evolving
debate about the long-term viability of the European Union and of
the EUR as both are currently structured - a debate the elite does
not want to acknowledge, let alone lose.
Steveh -- Thanks for your analysis from the UK perspective --
I'm an American who travels to the UK on a fairly regular basis,
and have recently spent some time in Germany -- and my take is
almost identical to yours, but I don't live there as you
do.
Posted by pthoreson on 6th of May 2010 at 02:20 pm
Thanks, I really appreciate that insight, Steveh. And, yes, it
really is a concern for the French and German banks, it seems the
French picked up on that a while back but the Germans have been a
bit slow.
Having the bailed contribute to the bailing does indeed seem
difficult to believe.
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I can only respond from
Curious to know....
Posted by steveh on 6th of May 2010 at 02:08 pm
I can only respond from a UK perspective - and, as you know, we have our own special brand of uncertainty this very day. However, in rough outline I think the problem is as follows:
1. Ultimately, there cannot be a functioning monetary union without closer fiscal coordination; I suspect an overwhelming majority of people in Europe, including national politicians, is unwilling to hand fiscal authority to Brussels.
2. Having a single currency and monetary policy for 'peripheral' and 'core' Europe always has been long-run untenable given the institutional and social rigidities which inhibit inter-regional adjustments.
Points 1 and 2 imply the EUR has been flawed from the outset. The current crisis is clearly laying bare its conceptual weaknesses, and these are getting increasingly difficult for the governing elite to gloss over. Nonetheless, as goes the EUR so goes the entire post-war European project - so the stakes are high.
3. It seems clear that the outlined bailout for Greece is at best a temporary bolstering of liquidty for a borrower that is actually undergoing a solvency crisis. Furthermore, the risk of contagion will likely remain whatever happens to Greece, simply because several of the peripheral economies are non-viable as currently structured. (Incidentally, the guys actually being bailed out are not the idle Greek public servants, but French and German banks whose largesse has made idleness so rewarding for so long.)
4. The pure idiocy of getting Spanish, Portuguese, and Irish taxpayers (not to mention you generous folks in the US of A) to bail out Greece is starkly apparent. As for the less profligate burghers of Bavaria, I cannot speak for them but I can imagine why they would be unhappy.
So in sum we have a governing elite that can see the post-war project potentially unravelling and some of whom probably know in their hearts that bailing out Greece is at best a temporary palliative which is unlikely to stop the rot either for the PIIGS or for the EUR itself; nonetheless - they feel they must "do whatever it takes" (where have we heard that before?). It's notable that over the last 24 hours some of the more recalcitrant elements of the German press have clearly received the memo and fallen into line behind a bail-out which 48 hours ago they were vehemently opposing. On the other hand, the people who get to vote for those elements of the elite who are in public office (a small proportion, it has to be said) are unhappy and angry. An interesting 'stand-off'.
Personally, I would be surprised if the bail-out did not pass over the required parliamentary hurdles. But the situation is extremely volatile, and with Europe being something of a headless chicken anything is possible. Whatever happens over the next few days will most certainly not draw a line under the rapidly evolving debate about the long-term viability of the European Union and of the EUR as both are currently structured - a debate the elite does not want to acknowledge, let alone lose.
Steveh -- Thanks for your
Posted by puma on 6th of May 2010 at 02:27 pm
Steveh -- Thanks for your analysis from the UK perspective -- I'm an American who travels to the UK on a fairly regular basis, and have recently spent some time in Germany -- and my take is almost identical to yours, but I don't live there as you do.
Thanks, I really appreciate that
Posted by pthoreson on 6th of May 2010 at 02:20 pm
Thanks, I really appreciate that insight, Steveh. And, yes, it really is a concern for the French and German banks, it seems the French picked up on that a while back but the Germans have been a bit slow.
Having the bailed contribute to the bailing does indeed seem difficult to believe.