Archive for November, 2010
Another EU debt crisis and another inadequate bailout with more strings attached. In the coming year we shall almost certainly see more Club Med countries attacked by the bond markets, and told by their Eurozone/IMF masters that the only alternative is to accept dramatic cuts and to slash ‘unaffordable’ welfare spending. In the absence of fundamental Eurozone reform, piecemeal fire-fighting will fail.
Ireland’s pre-emptive drastic austerity measures taken last year were meant to have solved its problems. Harvard’s Kenneth Rogoff told the New York Times that “if you want to escape default, the Irish path is the only way to go”. The aim of public expenditure reduction was to reassure the financial markets that the government was serious about cleaning up the damage to the banking system caused by the collapse of the country’s huge property bubble. According to Jean-Claude Trichet, speaking earlier this year, Ireland’s cuts provided a role model for Greece.
But now it’s all gone wrong. Self-imposed austerity has meant that Irish GDP has contracted by over 10% since 2008 and its GNP even more so; the latest unemployment figure stands at 14% and rising; the budget gap is enormous and the country’s largest banks need bailing out. As in the past, with jobs disappearing, the young are emigrating.
At the heart of the crisis is double denial: in Ireland, while the Finance Minister, Brian Lenihan, has spent weeks denying that his country needed help, Ireland has turned increasingly to the ECB for money it could not find on acceptable terms elsewhere. Denial too in Europe: the Eurozone and the IMF have come to the rescue with a package of €90bn (to which Britain, whose banks hold nearly half of Irish banks’ debt, has contributed about €10bn). But the stringent conditionality imposed will push a stricken economy deeper into misery.
Eurosceptics claim it’s all the fault of the euro: if only Ireland had kept the punt and could devalue, they argue, all would be well. The argument is faulty for two reasons. First, there are numerous examples of countries with their own currencies which have been pushed into IMF receivership: Mexico in 1995, Asia in 1997, Russia, and so on. Secondly, Ireland is devaluing ‘indirectly’ through pushing down wages: that’s what the phrase ‘internal devaluation’ means.
No, it’s not the euro that’s at fault; the problem is that Europeans don’t want to accept that currency union means genuine economic and political union. In the USA, the individual states may have considerable autonomy (just as Canadian provinces or German laender do), but their economic survival is ultimately the responsibility of the federal government which issues bonds and can borrow on international markets. Think of what would have happened to Louisiana after Katrina had it been dependent on selling its own dollar bonds to the international market to raise money!
Others will argue, not without reason, that Europe has no polis, no shared political identity and culture. They tend to forget that until the mid-19th century, Americans identified far more with their home state or region than with Washington—and some still do. A shared political identity needs to be forged; it is the product of a vision which transcends local boundaries. At the moment, economic crisis is eroding any sense of European community we might have. That’s what ultimately could kill the euro.
 http://www.nytimes.com/2010/06/29/business/global/29austerity.html?_r=1&sq=if%20you%20want% 20to%20escape%20default&st=cse&adxnnl=1&scp=1&adxnnlx=1290434558-Nc2uIzAqCkib8Yb+o/ZaA