About the Euro Crisis: The Experts Are Wrong, the German People Are Right

The great and wise tell us that the European unification project — of which the Euro is now center state — is good.  And the foolish German people are short-sighted and foolish to oppose aid to Greece that’s necessary to preserve it.  They’re wrong.  The German people are right.

From Eurointelligence’s coverage of the crisis:

  • “The main criticism of Merkel is … that she allowed a xenophobic climate to build up in her own party.”
  • “The more worrying development is the resurgence of German nationalism and euroscepticism, a trend Merkel tried to exploit for her own political benefit.”
  • “Greek aid is unbelievably unpopular, with 86% opposed according to a poll published last Sunday. Come to think of it, there are not many issues in a democracy on which 86% of the people agree on.”

Jürgen Habermas (sociologist and philosopher) said (source):

Such a lack of solidarity would certainly scupper the whole project. Of course, Merkel’s statement was intended at the time for domestic consumption in the run-up to the important regional election in North Rhine-Westphalia. But there can be no better illustration of the new indifference of the new Federal Republic than her insensitivity to the disastrous impact of her words in the other member states. Merkel is a good example of the phenomenon that “gut politicians who were ready to take domestic political risks for Europe are a dying breed”.

In fact the system is rotten to the core and doomed to fail.  A common currency without a strong nation cannot function, for reasons well-understood at the beginning (see this post from July 2008).  Europe’s leaders gambled that they could build this structure from the top down.  But Europe remain separate nations where it counts, in their people’s minds and hearts.

What does this tell us about the crisis?

  • This means the Europe’s economies remain distinct units.  God Himself could not set an interest rate and level of the Euro that would work for both Germany and Greece.  Here lies the cause of crisis.
  • This means the central government, the EU and European Central Bank, remain foreigners.  They lack legitimacy, and as such cannot impose harsh measures.  Here lies the current problem, the rock on which the current prescriptions will fail.
  • The massive EU and IMF loans will merely allow private investors to roll out of their bonds as they mature, with the debt moving onto the EU and IMF balance sheets — to suffer the eventual default (in some form).  This bailout means that private investors again avoid the consequences of their foolish decisions, as SOP in our new system of State Capitalism.
  • If the Greeks were cut loose from the Euro, their government could take the necessary harsh steps, buffered by the tools that have worked for others (in various combinations):  IMF aid, fiscal austerity, currency devaluation, and monetary expansion.

Germany’s people know this, and rightly oppose bailout plans primarily designed to protect banks and other institutional investors.  They want capitalism and free markets.  Which means allowing the Greek people to re-build their financial system on firm ground — and giving them (not banks) aid to mitigate the shock.  They’ll decide how to do so, and gain the resulting rewards (or pain).  They cannot do this in the European Economic and Monetary  Union.

The Greek crisis is just another chapter in the ongoing transition from the dying post-WWII economic regime.  While the process will take years to complete, the sooner we open our eyes the sooner we can look for the facts and wisdom with which to build a new system.

Originally published at Fabius Maximus and reproduced here with the author’s permission.  

Opinions and comments on RGE EconoMonitors do not necessarily reflect the views of Roubini Global Economics, LLC, which encourages a free-ranging debate among its own analysts and our EconoMonitor community. RGE takes no responsibility for verifying the accuracy of any