The situation in Europe may have frightening implications for our economy, but we are fortunate to witness an “older brother” live through the endpoint of the social democratic model before we get there. There is time to avoid their fate, provided we learn from their example and get off the sauce.
Western leaders have promised more in benefits than can be squeezed out of their citizens in taxes. Entitlements, as currently designed, are simply unsustainable. (Unfunded public pension liabilities are an even larger problem!) If we’d addressed it 10, 20, 30 years ago it would have been easier. Clinton was the one perfectly positioned to do it, akin to Nixon going to China, but… alas. We wait much longer and we’ll be in the same trap, enjoying the same social unrest.
Daniel Hannan in Eurocrats are terrified of democracy:
Borrowing a phrase from C S Lewis, I think of this phenomenon as the EU’s “hideous strength”. Brussels has a bizarre power to make politicians break their words, split their parties and betray their voters so as to keep the project going. Again and again, it makes good men do bad things…
One of Papandreou’s supporters, a socialist MEP called Anni Podimata, argued that a referendum would bring catharsis. It’s a good metaphor. Catharsis is the purification and emotional renewal that comes at the end of a Greek tragedy. Greece has been through the hubris – the boom years, when the markets pretended that Greek and German debt were interchangeable – and is now suffering the nemesis, but the catharsis has been artificially stayed. Greece won’t begin to grow again until it leaves the euro, writes off its debts and prices itself into the markets.
Eurocrats are prepared to pay any price rather than admit that the single currency was a mistake – or, more precisely, to expect their peoples to pay, since EU officials are exempt from national taxation. The peripheral countries are to suffer poverty, unemployment and emigration, the core countries perpetual tax rises, so that supporters of the euro can save face.
It’s chilling to write these words, but EU leaders are evidently prepared to vitiate Greek democracy and wreck the Greek economy rather than allow the euro to break apart. Yet even if they succeed in Greece, they may find that their efforts are for nothing. Italian bond spreads yesterday were back at the level that usually triggers bail-outs. We are about to see quite how far the Brussels apparat will go in defence of its privileges.
Rich Lowry in Europe’s Humiliation sees “history come full circle” with China now in a position to dictate terms to those who similarly “shamed” them a century+ ago:
The Europeans share a misbegotten single currency that is amplifying the inherent problems attendant to the practice of spending money that you don’t have. Perhaps the Greek crisis can be contained, but what if Spain and Italy spin out of control? Europe is trying to fund a “bazooka” big enough to fend off doubtful markets but doesn’t want to — and perhaps can’t — fund it all by itself. Germany is Europe’s economic powerhouse, yet its public debt–to–GDP ratio is already larger than ours.
This is where China and its $3.2 trillion in foreign reserves come in…
[Europe] chose a comfortable, if bankrupting, social democracy and a vast experiment with a single currency. The euro was supposed to be the vehicle and symbol of Europe as a world power, and instead is laying bare its debt-addled decay.
For the United States, listing in a similar direction, the turnabout in Europe’s global position should be of the utmost interest — as a cautionary tale.
Gerald O’Driscoll in Why We Can’t Escape the Eurocrisis warns the US to not be smug since our economy is so integrated with Europe’s and we’re on the same tragic-jectory:
The underlying dilemma is that governments have promised their citizens more social programs than can be financed with the tax revenue generated by the private sector. High tax rates choke off the economic growth needed to finance the promises. Economic activity gets driven into the underground economy, where it often escapes taxation.
Nowhere is this truer than in Greece, which has a long history of sovereign defaults in the 19th and 20th centuries. There is a bloated public sector, and competitive private enterprise is hobbled by regulation and government barriers to entry. Successive Greek governments ran chronic budget deficits, and the Greek banks lent to the government. Banks in other EU countries, such as France, lent to the Greek banks.
In Greece and elsewhere in the EU, the banks support the government by purchasing its bonds, and the government guarantees the banks. It is a Ponzi scheme not even Bernie Madoff could have concocted. The banks can no longer afford to fund budget deficits, yet they cannot afford to see governments default. Governments cannot make good on their guarantees of the banks…
The sad fact is that there is not enough money in the EU to pay off the public debts incurred by the governments…Greece is the first of other sovereign defaults to come. With last week’s bailout, the EU leaders might have bought time, perhaps a year. But at some point, the ECB will cave and monetize the debt, leading to euro-zone inflation.
…of course, the U.S. has its own large and growing public debt burden. We have not gone as far down the road to entitlements, but we are catching up. If you want to know how the debt crisis will play out here, watch the downward spiral in the EU.
The editors at NR in Goodbye Greece believe the only question remaining is whether that nation’s default is orderly or chaotic:
Unhappily, the Europeans aren’t much in funds these days, which has them appealing to China for assistance in their bailout scheme. Which is to say, not only would the deal make Athens entirely subordinate to Brussels, it would make Athens entirely subordinate to a Brussels that is partly subordinate to Beijing. That may be too high a price even for the pension-loving, debt-ridden, bailout-begging Greeks to pay.
And we would not blame them. Membership in the European Union as currently constituted is plainly incompatible with national sovereignty. In fact, the European project has quickly proved to be not only incompatible with national sovereignty but positively hostile toward it, its consolidation of transnational power and its running rough-shod over ancient nation-states exhibiting a degree of vigor and energy shocking even to the most suspicious Euro-skeptics. This incompatibility has come to a head now over fiscal questions, but it might have come to a head as easily over questions of national defense or immigration — questions in which the interests of a France or a Finland are very different from those of a Bulgaria or a Cyprus, but which in any case will be decided in accord with no country’s national interest but in accord with the interests of the bureaucratic elite in Brussels…
There is very little reason for Greece, Spain, and Portugal to share a single monetary policy with Germany and France — their public finances, labor conditions, balance of trade, and other economic fundamentals are radically different, and cannot be brought into harmony without something approaching a soft dictatorship. The business cycles of the members of the European Union are not coordinated, and neither are their economic interests. Less competitive nations such as Greece suffer particularly from sharing a currency with highly productive nations such as Germany, because it takes away the option of using currency depreciation to make one’s exports more attractive on world markets. (Germany, a strong exporter, has benefited from this arrangement.) There is some wisdom in human traditions, and it turns out that the Germans and the Greek have separate countries for a reason — one of them being that they are separate peoples…
…[European elites] neglected to account for the fact that important, fundamental cultural differences — including language, family habits, and religion — mean that a Bulgarian factory worker or a Latvian financialmanager cannot simply relocate to London or Paris the way an American worker can move from anywhere in the country to Houston or New York with relative ease. The formal, legal barriers to European integration are not the only barriers, nor even the most important. As it turns out, there are not many Europeans in Europe, which is mostly populated by French, Germans, Swiss, Italians, Greeks, Poles, etc. Wishful thinking will not make it otherwise. Such realities can only be ignored for so long. The appetite of the Greek people for further austerity measures is limited, as is the appetite of the German people for expending their own hard-earned capital to prop up their careless, spendthrift neighbors. Nobody in Europe has much appetite for continued economic chaos. The best outcome and less likely outcome would be to have the economically stable northern European countries break away to form their own union. The second-best and more likely outcome is for Greece to leave the eurozone, voluntarily or involuntarily. Either scenario would probably entail a default and would bring about massive economic disruption, and not just for the Europeans.