Wednesday, September 28, 2011

Wheels Coming Off The Europe Train

Almost every day on the BBC – well, no – every day, there is another report on the slow motion train wreck of the Eurozone courtesy of Brussels, Berlin and Paris. OK, Greece has something to do with it, but frankly all the handwringing largely seems to attempt to take attention away from the appalling lack of leadership in the European community.  I actually was told the other night at a café on Rudaki Prospect here in Dushanbe that the entire mess is entirely the fault of Greeks and immigrants (since the speaker was German, I assumed the reference to immigrants meant Turks).  Just close the borders and let every country decide whether the rules for the EU need to be followed if they happen to be inconvenient or disagreeable for a particular country. The speaker was a Phd professor of agricultural economics.  A Very Serious Person.

What crap. Let’s leave the Greek default (which I said would happen) aside and look at the culprits during the past year or so.  We can start with the OECD report last year.
Distilled to its core, it says that some people (presumably five or six economics academics from Pluto) believed that inflation was coming in less than a year. Maybe. The solution was to raise interest rates soon to head off the possible rise in inflation,  which was supported by vague premonitions of something or other.  What about the progressively weakening recovery?  Well – on the slim chance that inflation may rise then kill the recovery with high interest rates.  Oh – and throw in the usual ‘fiscal austerity’ as an added anvil.
And who bought into this – with gusto I might add?  The European Central Bank decided to raise interest rates and became a proponent of fiscal austerity also because, as we all learned from Economics 101, economic growth is the direct result of fiscal austerity in a depressed economy as long as trade surpluses are the norm. For everyone.  What is wrong with these people?
These are bad – but when the IMF steps in, better put away the good silver and call out the riot police.  They not only promote and force fiscal austerity in a time of depressed economies, but clearly don’t care about the pain index.  It’s like they are playing a board game. Somehow, the pain felt by the Greeks is just desserts for cheating to get into the euro zone and trying to compete in the European trade game that was fixed by Berlin to forever favor Germany.   Let’s let the Greeks twist in the wind and conveniently forget that the brilliant economic minds in Brussels were completely fooled by those crafty Greeks way back when the Euro zone really, really wanted to expand.  Sooner or later, given the very stark realities, several countries, including Greece, are going to drop out.
And the Turks, of course, with an average 8% growth rate, are increasingly looking at the EU as an institution that is flailing and faltering and which is not a club they are desperate to join.  If Germany has its way, they will never be able to join despite commitments by the EU.  My suggestion to Ankara – keep pretending that you really want to join. Just don’t do it.
In the meantime, Greece will have a default (a write-down I think is the politically correct term). Then comes Ireland, Italy and Portugal.  The European experiment is coming off the rails.

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