Who Is Talking Europe Into Crisis?
Nothing seems more fashionable these days than to talk Europe, the EU, the euro zone and the ECB into crisis. Not just any crisis, but abysmal, cataclysmal, disastrous. No (negative) qualifier seems strong enough to describe how Europe - once again! - is not getting its act together.
There is a lot of humming and ho-ing and rolling of eyes about the discord inside Europe. Same procedure as usual it seems: when the going gets tough, the Europeans run around like headless chickens, pick at each other (can headless chickens still pick????) and agree only to do nothing. As now, in the case of Greece.
Really? Take a step outside the box of long cherished concepts - i.e. the concept that Europe does not work and will fail - and take a fresh look at Europe, the EU and Euroland as it really comported itself throughout the financial crisis cum recession that we have just about survived.
- 1st cherished Euro-skeptic concept: the ECB is a heavy super tanker and can't act in a crisis.
August 2007: the biggest financial meltdown in recent history is about to hit financial markets, and which central bank stepped up to the front and acted with the emergency injection of 190 billion euros? Not the Fed but that big, inefficient supertanker called ECB. The Fed, the BoE and other central banks took much longer to swing into action.
- 2nd cherished Euro-skeptic concept: Europe and particularly Germany doesn't come up with new ideas, but just follows the US lead.
While the USA started printing money like there was no tomorrow - because many feared there might not be a tomorrow - and loaded one stimulus package onto the next, Europe (as in continental Europe) was once again slow and sluggish in its response.
Germany came up with the (initially) much sniggered at "Abwrackprämie". Ok, ok, this doesn't sound like a miracle cure for anything but bad throat ache; but when it was niftily re-named "cash for clunkers", it was promptly copied by almost any country from the USA to Egypt.
- 3rd cherished Euro-skeptic concept: The European labor market is too inflexible; it cannot absorb recessionary shocks as well as the US.
Ahhh ... maybe so. But what has happened so far? More than 5 million jobs lost in the US labor market since 2008 and a jobless rate of 9.7 percent. EU unemployment stands at 10 percent - bad and disconcerting enough, true, but with far fewer jobs lost. Germany, the favorite example for how European labor markets don't work, limped through the recession with a relatively stable jobless rate of 8.1 percent.
Yes, you say, but that's only because of its very expensive short-shift arrangements, which are subsidizing jobs and sweetening it for companies so they don't have to lay off staff. True. But, it's worked, hasn't it? So much so that other countries - including the forever Euro-skeptic UK - are copying it!
No Blank Checks
Back to Greece: what has really happened? The EU Summit in Brussels has told the markets what they should have really known all along: we will not let any EU country default or flounder. But we will not write any blank checks for anybody. So let's just wait and see what the Greeks and their austerity program can achieve, shall we?
Fair enough. Let's!
Why wasn't that enough for the markets and for all those die-hard Euro-skeptics on the other side of the big pond (or the narrow Channel)?
Maybe because they don't want to hear that the Greek problem will be solved. Like they didn't want to hear that Austria was NOT about to default last year. And like they don't want to hear that Spain, Portugal or Italy won't default either and nobody, repeat no-bo-dy will leave the euro zone and start printing Drachmas, Liras or Pesetas again.
The EU won't allow a member country to default anymore than the US will allow Idaho or California to default. Why? Because they can't afford to. Period.
And Greece, Spain, Portugal or Italy won't leave the euro for one simple reason: because they can't afford to. If you think Greece has trouble NOW getting refinancing from the markets, what do you think would happen to the first drachma bond?
Here's my humble opinion from inside Euroland: Europe, the EU and the euro zone are not on the brink of an abyss. They are simply dealing with the expected problems inside the biggest currency area in the western world. And they will deal with them.
Europe works, the EU works, Euroland works ... it just does not work like the USA or like Britain (yes, I know that is in Europe and even in the EU, but let's face it, Lady Britannia does not often behave as if she were, does she?).
Just because we have many opinions and many interests to cater for, many compromises to hammer out, it doesn't mean we don't solve any problems. Just not always in the way, pace or profit-margins the markets expect or would like to see.
And then, cynically speaking, just ask yourself sometimes that basic question, when the next euro crisis makes the headlines and shakes the markets: Cui bono? Who profits from it?
And you will come to the conclusion that often -not always, but often enough - the tail does wag the dog. The markets (or certain segments of the market) have a position and THEN they decide on the crisis to defend that position.