If only it were so easy. Alas, the inability of so many European governments to pay for what they wish to buy out of the taxes their citizens wish to pay remains a reality, whatever anyone might have voted. That shortfall cannot be abolished. It must either be closed, through some combination of spending cuts and tax increases, or governments must borrow the difference.
Citizens can compel their governments, by their votes, not to do anything about their debts. But they cannot compel financial markets to keep lending to them. And markets will be less willing to make new loans if governments, by their behaviour, call into question whether previous loans will be repaid. Austerity, then, is not a policy, but a condition.
So while the French may have voted, narrowly, to eject Nicolas Sarkozy from the Elysee, and while the Greeks may have voted, massively, to repudiate the two parties of the centre-left and centre-right that negotiated the country’s bailout by its European partners, it is not evident how this changes anything.
A Gallic shrug at the bond markets — more spending, financed by more borrowing — would not improve the country’s finances but rather worsen them, as lenders demanded higher interest rates to cover the increased risk of default. A Hellenic flip of the finger to the rest of Europe would not release the country from the painful adjustments it agreed to in return for the bailout. Rather, it would increase the odds of Greece being forced to exit the euro.
Of course, in many ways the Greeks would be better off outside the euro. The country’s problems do not begin and end with public debt, but rather stand at the intersection of three, related phenomena: too much public debt; a sclerotic, over-regulated economy; and membership in the euro. Because its costs are too high, it cannot compete on world markets. Because it is so heavily regulated, it cannot bring costs into line by the normal workings of a market economy. Because it does not have its own currency, it cannot achieve the same by depreciation. Instead, its economy sinks ever deeper, making its debt burden heavier still.
That was a good argument for never joining the euro. Alas, getting out of it might be even worse. Replacing the euro with a new drachma, presumably at a much lower parity, would instantly reduce the value of all assets denominated in euros: just the prospect would bring on a rush to dump these assets. Nor is this an issue only of the short term. While devaluation would allow the country to regain its competitive position, it would not come without cost, or conflict: it is a pay cut by another name.
Whatever chaos ensued in Greece, moreover, would be multiplied many times over in the rest of Europe. The minute Greece’s exit was confirmed, the attention of speculators would shift to whichever country was thought to be next — much as speculation over the likelihood of default has jumped from one country to another. Far from ending the crisis, it would simply shift it.
This is a constant, it seems to me, since the crisis began: for all the efforts to pretend there is a simple way out, that hard choices need not be made and hard times need not be endured, the reality is that all the options are bad. The United States might still be able to borrow in vast amounts because, as it is often pointed out, “America is not Greece.” But Greece is Greece, and much of Europe is not far off. So whatever the theoretical arguments over another round of Keynesian stimulus (the first having worked so well), they are resolved by the simple unwillingness of lenders to extend more credit to the uncreditworthy.
The same is true for the euro itself. There is little doubt that, as currently constituted, it has proved a disaster, making half of Europe uncompetitive and forcing the other half to bail it out. It was an attempt, as we can now see, to stretch a single currency over countries with very different economies and, more important, very different political cultures. That would have been a problem even if the common monetary authority had been backed by a common fiscal authority, as elementary theory would suggest it should have been. But with every country off borrowing as much as it liked, in defiance of their obligations under the Maastricht treaty, the project was ripe for catastrophe long before the crisis exposed its weakness.
Yet any move to fiscal union would seem years away, if not impossible, since a common borrowing authority implies a common taxing authority, and a common taxing authority implies political federation, and political federation runs up against those very different political cultures I was talking about. So, abandon the euro altogether, then? Unthinkable. Pandemonium. The end of Europe.
So no, it is hard to see how these elections change anything, really. Europe seems condemned, rather, to keep muddling along, hoping for the best, trying one thing or another, groping in the dark. Kind of like bad sex, actually.
Original Article
Source: national post
Author: Andrew Coyne
No comments:
Post a Comment