NEVER BAILED OUT: Europe's ants and grasshoppers revisited

15/12/2011 by

A new take on Aesop’s tale, tailor-made for our ‘European Moment in History’, at a time when Europe’s collapse is being guaranteed by the dominance of the wrong narrative. What follows is an attempt at an alternative take; one that is more in tune with a decent future for Europe.

Once upon a time a Greek called Aesop told the story of the industrious ant and the profligate grasshopper.

Over the past two years, the Greeks have earned an international reputation as Europe’s grasshoppers, with the Germans in the role of the ants. Alas, the Greeks’ reputation has now spread westwards and even northwards (toward the Emerald Isle) as all sorts of non-Greeks are painted with the same paintbrush.

The now infamous bailout packages for Greece have propagated the view that the eurozone is divided simply between northern ants and southern grasshoppers. That with the warmth of the euro’s summer days behind us, now that the easy money from Wall Street and the City have disappeared, a winter of discontent has descended upon us all due to the grasshoppers’ idleness.

Thus the dominant story in Europe today is that, in the frozen mists of this awful winter, the southern grasshoppers are knocking on the northern ants’ doors, cap in hand, seeking one bailout after the other. The ants, understandably, are coy and will only respond if the grasshoppers promise to change their ways. In short, the stocks that the ants accumulated for the heavy winter are being endangered by hungry, careless grasshoppers who resist changing their profligate ways.

The problem (for those seeking to understand a Crisis) with attractive allegories is that the latter can be as much of a help as a hindrance. In this post I wish to argue that Aesop’s timeless tale, however appropriate it may seem at first glance, contributes more to Europe’s current problems than to their solution. My reason is simple: The ants and the grasshoppers are to be found in both Greece and in Germany, in the Netherlands and in Portugal, in Austria as well as in neighbouring Italy. But when we assume that all the ants are in the north and all the grasshoppers in the south, the remedies we introduce are toxic.

Yes, it is true, the Crisis has placed a disproportionate share of the burden on the back of Europe’s ants. Only Europe’s ants are not exclusively German or Dutch or Austrian; and nor are the grasshoppers exclusively Greek, Iberian or Sicilian. Some ants are German and some are Greek. What unites Europe’s ants, north and south, east and west, is that they struggled to make ends meet during the good times and they are struggling even more now during the bad times. Meanwhile, the grasshoppers, both in the north and in the south of Europe, lived the good life before the Crisis and are doing fairly well now, keen as always to privatise the gains and distribute the pain (to the ants).

So, in my take of the famous tale, if Aesop’s tale is the one we want to use in order to understand the eurozone debacle, we better get our ants and our grasshoppers right!

The Greek Ants: Hard working couples, holding two low productivity jobs (e.g. supermarket checkout assistants) before this Crisis, but who traditionally found it hard to make ends meet due to low wages, exploitative working conditions, a rate of inflation (for their lowly basket of goods and services) much above the official average (especially after the euro’s introduction boosted food and basic goods prices), massive pressure from banks et al to take loans out in order to provide for their kids that which the TV tells them no kid should be without and which their meagre wages cannot afford etc. Come the Crisis, members of their family lost their jobs, the rest lost parts of their earnings, bank loans were called in, taxes rose, they have to contemplate living without electricity (as the State tries to squeeze more tax out of them through the electrivity bill) the family’s prospects collapsed. Moreover, they are being painted as the villains of the (euro, even the global) piece.

The German Ants: Hard working but relatively poor people, in high productivity growth industries (e.g. VW factory workers), struggling to make ends meet both before and after the eurozone crisis. Their increasingly productive labour, and low, stagnant wages, meant that profit rates in Germany skyrocketed and were converted into surpluses whose size grew speedily partly due to a redistribution of income away from the German ants and toward their employers and partly because of the country’s greater net exports (which accelerated the cheaper German labour was becoming). Once created, these surpluses sought higher returns elsewhere, due to the low interest rates these surpluses induced in Germany. It was at that point that the German grasshoppers (the inimitable bankers whose aim was to maxinise gain in the short run out of zero effort ) looked south for a good deal.

After years of higher interest rates and large deficits, the eurozone’s south had managed to decrease the interest rate differential with the north. However, the differential was still there; especially for personal and credit cards loans where it was huge. Thus, German capital (produced by the German ants’ hard, cheap labour and directed by the irresponsible German grasshoppers) flowed south in search of higher returns. What happens when money floods in unexpectedly? Bubbles form. It is that simple. In Spain they took the form of real estate bubbles. In Greece the bubbles manifested themselves in the form of public debt, as the Greek grasshoppers (also known as Greek developers-) found it easier to grab the German capital flows via the accounts of the state, whose administrators were only too keen to shower the Greek grasshoppers with procurement contracts.

The precise form of the southern bubbles does not matter. They would burst asunder anyway, once the massively larger bubbles created by our transatlantic uber-grasshoppers (Wall Street) popped. What does matter is that the German ants could see that their hard work was not translating into a better life but into more drudgery and less purchasing power.

Never bailed out

Come the Crisis, the German ants were then told that they must tighten their belt again, at a time when they are falling deeper into a poverty trap. They were also told that their government is sending zillions to the Greek government. Since they were never told that the Greek government is not allowed to use this money to cushion the blow against the Greek ants (indeed, that the loans were given on condition that the blow against the Greek ants would be maximised so as to minimise the pain of the Greek and German grasshoppers), they were mightily puzzled: Why are we working harder than ever, taking home less than ever? Why is our government sending money to the Greek grasshoppers and not to us?

Meanwhile, the Greek ants were both desperate and indignant. The grasshoppers of both countries pointed the finger at them, calling them all sorts of names. Their puzzlement hit record levels when told that they had, in effect, threatened (through their profligate ways) to bring down civilisation-as-we-know it. They scratched their heads, thinking that there must be a mistake since they never had any good days during the supposedly good times. They had struggled then and they are struggling now, admittedly far more desperately. As for the bailouts, they simply cannot see them, as no one tells them that the mentioned zillions end up in Europe’s bankrupt banks, where they duly fall into bottomless black holes. And when they see Germans calling them thieves, corrupt, spendthrift, over-reachers, it is not hard to reach into collective memory for moments in history that make it ever so easy to become anti-German.

A less Aesopian take

Before the euro was established, a remarkable experiment took place simultaneously in Greece and in Germany.

In Germany, government, employers and the trades unions agreed to try to restore German competitiveness, employment and growth by reducing German wages and, thus, squeezing German inflation below that of the European average.

Meanwhile in Greece, the government of the time struggled to prepare the country for accession to the eurozone by also squeezing real wages, taking advantage too of the influx of migrants into the country.

The German experiment worked a charm and kept working even after the euro was created. Real wages fell and fell. Unemployment was slashed. The gleaming factories produced more and more for less and less. German goods flooded the markets and, at the same time, Germany’s success caused money to become even cheaper, flooding the surrounding eurozone countries, including Greece. Germany’s ants worked harder for less while Germany’s grasshoppers laughed all the way to their bank.

The Greek experiment worked well also, until Greece entered the euro. Once inside, the flood of cheap money from the outside, from Germany as well as from Wall Street, allowed the Greek grasshoppers, and their political allies in government, to borrow from the German ones (the banks) as if there was no tomorrow. Every time the Greek ants asked for some of the benefits of being in the euro, they were either paid off with cheapskate public sector jobs, paid for with borrowed money, or were told to go to the banks and borrow directly. On the back of European structural funds and rivers of borrowed monies, the Greek grasshoppers, in alliance with some German ones, got fatter and fatter while the Greek ants were struggling to make ends meet.

And then Wall Street collapsed for reasons of its own. When the collapse crossed the Atlantic, hitting the banks first and the eurozone’s public finances later, it was the Greek grasshoppers’ state that went belly up first. Someone had to be blamed. Europe’s grasshoppers found it convenient to fall back on the scoundrel’s last refuge: nationalism. Suddenly a war of words between Greeks and Germans, Northerners and Southerners, was staged that hides a terrible truth: No one was ever bailed out except for some of the grasshoppers of both the north and the south.

Moral of the story (All Aesop tales have one!)

Many think of Aesop’s parable as a morality tale whose purpose was simply to warn against sloth, laziness and an unhealthy disregard for the future. Alas, it was more than that. Aesop was sounding the alarm bell against both the grasshopper’s spendthrift ways and the ant’s extreme parsimony.

Today there is another wrinkle that needs to be added to his moral: That, when the ants and the grasshoppers are distributed across the division separating surplus from deficit nations within a badly designed monetary union, the stage is set for a depression that sets all against all in a vicious spiral from which only losers can emerge. A stage from which no one can be bailed out (even those who, like Germany, can bail out themselves, by leaving the eurozone, will be committing a form of slowburning, long run, suicide.

Our only option: To subvert the dominant narrative. Recognising the co-existence of neglected ants and over-pumpered grasshoppers throughout the eurozone is a good beginning.

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