“If you gaze long into an abyss, the abyss will gaze back into you.” Friedrich Nietzsche’s infamous dictum has never had more purchase than in the current phase of the eurozone crisis. European leaders have been gazing for more than a year into the abyss of our continent’s triple crisis (banking crisis, debt crisis and investment crisis), unable to lift a finger without causing a political storm in their wretched little national constituencies. Now, after more than a year of gazing, the abyss has had enough: It has begun to gaze back into them. And it does not like what it sees.
For more than a year, Europe’s leaders have been consumed by:
- denial (“this is a purely Greek crisis that will be contained within the borders of a profligate Greece)
- anger (Germans loathing the spendthrift Greeks and Greeks despising the authoritarian Germans)
- a pointless bargaining mood that considered nothing other than the details of non-solutions (like the EFSF/ESM)
- depression (as the masses and our leaders alike became convinced that all the sacrifices are poured pointlessly into the crisis’ abyss)
What comes (according to those pathetic New Age psycho-bubble manuals weighing down our bookshops’ shelves) after denial, anger, bargaining and depression? Acceptance. But acceptance of what?
Once the abyss ran out of patience, and started gazing into our leaders’ clueless minds, a continuation of the present course can only lead to the inevitable break up of the eurozone. Our they now willing to accept this? Several policy makers in Europe and elsewhere are making noises to that effect: “Get rid of Greece”, the proclaim (ignoring the fact that a Greek exit will bring the whole edifice down). “Europe would be just fine is some peripheral countries opted out of the eurozone,” they continue. But does this include Spain? Italy? Belgium? Where does the disintegration end? And if it stops when only the surplus countries are left in the inner circle, how will Germany manage a massively appreciating currency (a sure outcome of ridding itself of the balls-in-chain that are the peripheral countries)? Cognisant of this part of the problem, the proponents of partial disintegration suggest that the rot ought to stop with Greece, Ireland and Portugal.
Alas, the notion that Spain has ‘decoupled’ was shot down yesterday just as surely as the earlier hope that the crisis would not spread to Ireland and Portugal perished in the Fall. The immediate contagion of Italy put paid to the idea that future contagion will be as slow as it was during the crisis’ first year (especially in view of the ECB’s withdrawal from the secondary bond markets). The hope that more loans and more austerity will do the trick that it failed to achieve wherever it was tried (Ireland first, Spain and Portugal later, Greece after the May 2010 ‘bailout’ even later, Italy in the next few weeks etc.) is not even entertained by those who keep mouthing its mantra. The growth slowdown in Europe’s core, combined by a similar slowdown in China, complete a snapshot auguring one outcome and one outcome alone: a German exit from the euro, once the common currency project buckles under the strain of Spain, Italy, France and who knows who else.
It was always going to be thus. Back in May 2010 I argued that the Greek ‘bailout’ will start a series of bailouts that would prove destructive for Europe’s core, possibly more so than for its basket-case periphery. It did not take rocket science to prognosticate this: A common currency area hit by asymmetrical recession, sovereign debt and banking losses (one that does not have the means centrally to attack the aggregate mountain of debt and banking losses) is bound to crash and burn if it makes the mistake of thinking of the problem (A) as one caused by the illiquidity of its member-states and (B) as treatable by spending cuts and nation-specific loans.
Which brings us to the rub of the matter: Our leaders were always going to dither until the ‘last moment’. This they have done. Now that we are experiencing that ‘last moment’, which way will they jump? Will they allow the abyss to consume us all? Or will they take a step back, implementing rational structural reforms at the level of the eurosystem (e.g. our Modest Proposal) that are Europe’s last chance to avert disintegration? So far, our leaders are busy gazing into a stirring abyss which has determined that their time is up.