A Knife in the Dark

Europe Faces the Cutting Blade

Recent and forthcoming events in Europe represent a watershed one way or the other.  At the moment, things are on a knife-edge.  Will Greece stay (in the Euro) or go?  What will be the outcome of either scenario?

One the one side are the eurocrats, the endless ranks of  European bureaucrats and functionaries who not only sit in seried rows in Brussels, but who have been insinuated into every European nation, government, bureaucracy.  They are the political elite of Europe.  The privileged class whose entire existence depends upon the continuation of the grand experiment that is European monetary union.  To them the continuation of the Euro-zone represents all their hopes and dreams.  They are certain that should the Euro unravel, life as humanity now knows it will end.  Their watchtower warnings are heard on every hand.
 

Faced with a choice between increased government funding of Greece (presented as an easing of "austerity" and a "pro-growth" policy), on the one hand, and Greece sticking to the already agreed austerity regime, on the other,  in a heartbeat they would go for more spending, euphemistically called "collectivising Greek debt".  Lenin would have approved the term.  It would be painless for them, after all.  The costs of more and more European financial aid for Greece (and Spain, and Italy, and Ireland) would be born eventually by (other) tax payers.  For the eurocrats this represents effective zero-personal cost.  (Tax rates for eurocrats are maintained at a favoured, concessional rate.)  Turkeys don't vote for an early Christmas.

But pro-austerity forces (mainly in Germany) reason that to continue to fund the largesse of Greece is to throw good money after bad.  Better for Greece to get out now, before every country in Europe catches the Athenian malaise. These folk reason that if Greece is to get out from under the crushing mountain of debt and dependency funding, it has to exit the euro, devalue its currency drastically, and have a light at the end of the tunnel to help the electorate accept the bitter medicine.  At the moment, it is all pain with no hope of gain.  If you care for Greece, let it exit the euro.

Which way will it go?  Will Merkel blink? Will Greek voters decide that the risks of leaving the euro are too great and that Merkel is not bluffing?  In the forthcoming re-election, will they conclude that the radical left Greek party Syriza is a bridge too far?  Who knows?  It is a hard call.

The downstream options are: either the euro-zone collapses, resulting in a forced restructure into a much smaller euro-zone, or Germany's return to the Deutschmark and the disillusion of the euro entirely; or, European governments double down on lending to Greece, radically increasing debt their own countries, causing a long, slow, lingering decline of European economies.  (This latter option, of course, is the Obama solution for the US.)

What do the tea-leaves tell us?  Christine Lagarde, head of the IMF, but also a member of the eurocrat class, recently participated in an extended  interview with the Guardian.  It's vehemence is startling.

The International Monetary Fund has ratcheted up the pressure on crisis-hit Greece after its managing director, Christine Lagarde, said she has more sympathy for children deprived of decent schooling in sub-Saharan Africa than for many of those facing poverty in Athens.

In an uncompromising interview with the Guardian, Lagarde insists it is payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country's austerity package. Using some of the bluntest language of the two-and-a-half-year debt crisis, she says Greek parents have to take responsibility if their children are being affected by spending cuts. "Parents have to pay their tax," she says.  . . . Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right." (Emphasis, ours). 

Now, is this emphatic, blunt warning simply to help persuade Greek voters that Europe is not "bluffing"  at the far-left political parties in Greece are arguing?  But, should they not heed the warning, will the IMF and Europe blink, unable to have Greece go over the precipice?  It's hard to tell.

But, let's all be very clear here.  The simple root cause of the problem in Greece is reckless government spending, funded by borrowed money.  That state is now bankrupt.

Jürgen Fitschen, joint head of Germany's biggest bank, Deutsche, described Greece as "a failed state … a corrupt state".

That about sums it up.  But such corruption becomes characteristic when governments move from "tax and spend" to "borrow and spend", and the people allow themselves to be bought off, their votes being suborned  by bribery on a grand scale.

It is not a Greek problem.  It is a Western malaise.  Greece is just the avatar of our future.  Unless . . . .  Unless the calamity and the lessons are so graphic and painful that a generation will arise saying, "Never again."

We watch with great interest, knowing that He who sits in the heavens is constantly weighing men and nations. Ignore and break His law, and calamity eventually follows.

Postscript: Daniel Hannan recently was in Auckland and participated in an extensive interview on the European malaise with Leighton Smith.  It provides a fascinating insight from a European parliamentarian who believes the European experiment has failed dismally, and the monetary union will eventually be dismantled. Listen here.