This blog was initially established to discuss the global crisis of 2008 and, in particular, to promote our Modest Proposal for Resolving the Euro Crisis. As Version 4.0 of the Modest Proposal is being prepared (and will be published early next week), it is perhaps time to take stock of almost four years of Euro Crisis.
The Eurozone Crisis used to have three components. Now it has developed a fourth; possibly the most toxic.
As we all know, it all started with a banking crisis, which caused investment and liquidity to fall into a hole, which spawned a public debt crisis, which in turn reinforced the investment crisis, the result being more bank failures and higher public debt. In its infinite wisdom, the Eurozone decided to treat this multiple crisis as if it were just a debt problem, and to implement savage budget cuts and mammoth tax hikes. Incomes fell sharply reinforcing all three of the sub-crises: banks fell deeper into their black hole, debt to GDP ratios rose and, naturally, investment crossed into negative territory.
Our Modest Proposal, from its first version in 2010, identified these three crises and urged Europe’s leaders to deal with them in an integrated fashion; to avoid dealing with the debt problem as if it were independent of the banking malaise or of the dearth in investment; to desist from pretending that Greece’s crisis was separate from that of Ireland’s, Italy’s or indeed Germany’s. The Modest Proposal offered three simple policies, which could be implemented without Treaty changes, without fiscal transfers, even without troikas, haircuts or bank account confiscations (recall Cyprus).
Three and a half years passed and Europe remains in denial, committed to the same toxic remedy. While there has been movement along the lines of the three policies that we prescribed back then, Europe’s leadership always made sure that its baby steps in that direction would be cancelled out before there was a chance of making progress. On debt, they insisted on funding the EFSF-ESM with CDO-like eurobonds that came with the domino effect built into them. On direct bank recapitalisations, they chose to make these conditional on a banking union project which, naturally, ended up as the red herring that our leaders pretend to be chasing after; a ploy by which to avoid breaking up the cosy link between national politicians and local bankers. On investment, apartt from some interesting ideas from Mr Draghi (on how the ECB could incite the money markets to treat more kindly investment projects in the Periphery) all we have had was the re-labelling of unspent (pitiful in sum) structural funds as a ‘Growth Pact’. The only policy on which Europe has shown remarkable decisiveness is universal, self-defeating austerity.
Of course, by now, everyone sees that this policy is the century’s greatest own-goal. So, the only way of continuing with its implementation is by turning to authoritarianism; by turning nasty; by bending the rules of democracy; by persecuting the weak so that the less weak fall into line; by winking to the neo-nazis and closing down public broadcasters (re. the Greek government’s social policies and closure of ERT); by cutting the meagre support that the unemployed and the sick receive – all in the name of reform and efficiency.
In short, Europe’s governments must increasingly rely on authoritarianism in order to ‘maintain course’, both in the manner in which they treat their citizens and in the manner in which the treat each other; the Northern governments their Southern counterparts in particular. Thus we have the fourth crisis: the crisis of European democracy. And the longer Europe remains in denial about the systemic nature of its crisis the larger the democratic deficit and the more Europeans will look at Europe as the problem (rather than the solution)
It is for these reasons that we believe that the Modest Proposal for Resolving the Euro Crisis needs an update. Version 4.0 is thus just around the corner.