The British press is obsessed with Cameron’s veto and its effect on Europe. But that is largely irrelevant to the big story: in truth, the euro is commiting suicide.
If the German debt-brake law is adopted by all 17, it will be impossible for any country to engage in serious counter-cyclical fiscal policy (and existing ‘automatic stabilisers’ are clearly not enough). Adjustment at the periphery (deficit countries) will need to take place via further economic contraction, assuming there is some level of national income low enough to create a current account surplus (foreign savings deficit) equivalent to the domestic private savings surplus. Otherwise the government account must be in deficit by definition. What Merkel & Sarkosy are saying is in effect that a balanced budget can only be achieved through a drastic resditribution from wages to profits.
As most economists recognise, the problem is not one of fiscal profligacy. Rather, the problem is about recycling Germanys current account surplus in a manner which strengthens productivity growth on the periphery. The German surplus, achieved in part by holding German real wages below productivity growth for nearly a decade, is mirrored by the Club-Med’s deficit.
The “structural adjustments which appear to be on the table” require “radical resocialisation of the Greek population” only in the sense of telling them (and other perphreal populations) to accept even more drastic real wage cuts.
I am strongly pro-euro, but I fear that for most Europeans, the euro will become identified with stagnation, unemployment and the end of ‘social Europe’. That is the real tragedy being played out.
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George, if this latest agreement was all that Europe would ever see, in terms of the ongoing evolution of a "united states of Europe," then clearly it would be insufficient. But it seems just as clear that the overall trajectory of where Europe is heading is towards more and more integration and unity. The next step will have to be some form of transfer union. But these things take time. And the final form of it likely will require a change of governments in key countries, especially Germany. So for the time being, this is progress!
It's important for eveyone to take a deep breath and realize that Europe is in the process of deciding how united it wants to be. And that process is going to take many years, possibly DECADES, just as it did for a young America which took many decades from its founding to cease being a collection of regions and to become one nation. Indeed, a full 70 years after its first government in 1789, America fought a bloody and bitter civil war over “states rights” (and the related issue of slavery), which at its core was a violent disagreement over the powers of central government and member state integration. Young Europe today can best be understood by realizing that it is in its Articles of Confederation stage, entangled by many contradictions and tensions as it continues to fashion its union and decide how integrated it wants to be. But none of these challenges and tensions amount to the level of those that led to a civil war in the United States.
Also, your level of rhetoric becomes overheated when you write: "in truth, the euro is commiting suicide.
If the German debt-brake law is adopted by all 17, it will be impossible for any country to engage in serious counter-cyclical fiscal policy (and existing ‘automatic stabilisers’ are clearly not enough)."
Surely you are aware that in the United States of America today, 49 out of 50 states have some sort of balanced-budget requirement (some states by statute, others it's in their state constitutions)? This is a price that Europe will have to pay in order to have a true political and economic union. It seems to me that leaders such as yourself should prepare your readers for this eventuality.
Thanks for sharing your insights and thoughts, as always.
Steven Hill
http://www.Steven-Hill.com http://www.EuropesPromise.org
I think in Europe's case the creation of a political and economic union faces unique problems. It is an project ideology born out of war to end wars between already old and established nation states and empires. It is not a collection of desperate peoples needing unity or face destruction.
The Europe project is just another arrangement in a long line of such for Europeans. Federal States of Europe will mutate into something for sure. But what that sure is, well history shows us events control the outcomes.
The debt crisis is being managed to force closer union. The big question is can the leaders of the new Europe ride the tiger or will they be consumed by events they can't control.
My take on the situation is there are too many institutions wanting to command the ship and too many divisions at the leadership table.
It is also clear Brussels does not have the legitimacy to take power or the public appeal to win power. So it is a German led Europe for now.
martin nangle
http://martinnangle.blogspot.com/