Socrates drank the conium – but the convulsions will be felt everywhere

In the Theatre of the Absurd the playwright utilises the bizarre, an element of   surprise, copious vagueness and frequent non-sequiturs, blended in with dramatic shifts in mood and some great confrontations, in order to throw helpful light on our commonplace, ordinary lives. In contrast, Europe is writing a different script. One that I tend to think of as the Ritual of the Absurd. In that Ritual the actors are not personifying roles. Instead, they impersonate them in the context of pieces that lack any dramatic quality but are packed with scapegoating and ritualistic sacrifices which many anthropologists associate with degenerate communities.

Take for example the hapless Portuguese prime minister. For months now he has been betting his political career on a defiant stance against the prospects of an EFSF ‘bailout’. Since at least January, it had become clear that the ‘bail out’ is inevitable. Trichet’s ECB postponed the inevitable by actively buying enough Portuguese bonds to prolong Socrates’ act for as long as there was a chance of a EU comprehensive solution. When our great leaders connived to undermine all hope for such a solution, Trichet pulled the plug. Terrified by the endless demand for liquidity by Europe’s banks, that is the result of the ongoing euro crisis, he decided to force the pace. With two moves (stopping the Portuguese bond purchases long enough to drive interest rates beyond 7.5 per cent; and foreshadowing an interest rate hike for the eurozone as a whole) he pushed Portugal over the edge. It was like shouting from the ECB’s rooftop: “Let the main games begin!”

Socrates’ behaviour is indicative of the degenerate state of European politics. Once it was clear to him that his bet had not paid off, he tabled a set of austerity measures in Parliament that he knew the opposition would vote down, thus paving the way to an election and freeing himself up to drink the conium. Rather than a form of poison, the conium (i.e. the request for an EFSF bailout) offers Socrates a second chance. The  opposition, having pretended to loathe Socrates’ austerity measures, must now convince the Portuguese electorate that its rise to power will not come hand in hand with even fiercer austerity measures. There is no chance it will succeed. Thus the conium gives Socrates a modicum of hope.

Meanwhile in Europe’s centre, the Ritual of the Absurd takes its highest form. Germany and Finland pretend that they are reluctant to extend a helping hand to Portugal, the IMF-EU-ECB troika is threatening Greece that the April ‘bail out’ installment may not be paid (citing Athens’ failure to reach its tax revenue targets) and, most comically, Athens and Lisbon are pretending to fear that their respective ‘bail outs’ are in question. In reality, the ‘bail out’ payments to both Portugal and Greece are foregone conclusions; for if they are not made the euro system will come crashing down within hours.

In short, nothing is as it seems. Europe is caught in a web of obfuscation of its own making. Entangled in this self-made web of ritualistic subterfuge, Europe is utterly incapable of facing down the crisis. Alas, reality is waiting around the corner. Trichet’s interest rate move will go down in history as the man’s second grave error – the first one being his stupendous mistake of raising interest rates in July 2008; a sure sign of a central banker out of his depth. This time round, the interest rate rise (which he fully intends to build upon in the next couple of months) is an even graver error. By itself it will do nothing either to stem inflationary pressures in Germany or to alleviate the crisis in the banking sector or the periphery. Except that it comes with a silver lining: The quicker it helps spread the malaise to Spain the greater the chances that Europe will wake up from its slumber, cut a hole through the web of obfuscation that it has so idiotically created, and head for a rational resolution of the crisis. Or so one hopes…

4 Comments

  • I have seen you speak a couple of times on Greek television and once on the radio in Athens, and I found myself agreeing with your understanding of the soverign crisis in Europe. However, I’m confused as to what you feel the solution to this situation is.

    It sounds like you are in support of the ECB easing credit, not tightening it. I don’t see how the ECB, or anyone else for that matter, can possibly know what the proper interest rate should be across the entire eurozone. The idea that a central bank can set interest rates more effeciently than the market is as absurd to me as the idea that a central aggricultural planning committee can set the price of staple commodities.

    Also, do you believe that the solution is closer integration or exit from the eurozone for countries like Greece and Portugal? If you think it is closer integration, then what changes do you want to see to the european infrastructure?

  • I totally agree that the rate hike that was implemented is grossly inappropriate. Another manifestation that the one-size-fits-all monetary policy is inapproproate for countries with non-synchronized business cycles, especially when the periphery is living through the worst crisis it has had in the last 50-60 years.
    I personally think that this is a case of cost-push inflation and certainly not demand-side one, so that limits its possible upside. Unless the MENA crisis drags on for too long and inflation gets out of hand. But wouldn’t it be more approprate to actually wait and see where the situation’s heading at least…??

    • Right, but my point is that no one knows what the appropriate rate should actually be. People seem to take it as a given that a central authority needs to manipulate money markets and set a risk-free rate. Creating a Eurobond market, as many suggest as a means out of this crisis, would only create a deeper pool of liquidity within which the ECB could swim. It does nothing to address the misallocation of capital that is inevitable whenever one manipulates the benchmark interest rates of an economy. Even in the US, having a federal funds rate set by the Fed screws up everything.

    • Quite so. This is why we so desperately need a surplus recycling mechanism; one that does not just operate as a fiscal transfer system but one that challels idle savings (both savings of Northern Europeans andof non=European sovereign wealth funds) into productive investments within the deficit zones (not all of which lie in the periphery). In our Modest Proposal it is the European Investment Bank that has been assigned this role.