The Finance Ministers of Europe had a meeting last weekend to deal with (1) the bailout of Spain's government, (2) a two-year extension for Greece, and (3) a common banking system for Europe. The result of all that brain power was nothing, saying they were in "no rush." After all, they have been in a crisis for three years, and the world is still alive.
My first thought is that they are irresponsible to delay resolution of this thorny, long-running problem. However, from their perspective, they have already made a great deal of progress. Everybody knows that a tighter political unification is essential, but as politicians, they know they cannot get too far ahead of their voters, who are largely opposed to political unification. Besides, Angela Merkel said she is confident they have the crisis under control.
The Finance Ministers point to what they have accomplished during this three-year crisis. They have created the EFSF (European Financial Stability Fund), the ESM (European Stability Mechanism), avoided "Grexit" or the disorderly exit of Greece from the Eurozone, and began the process of quantitative easing. Give them credit for having accomplished that much!
Along the way, Greece is nearly in a depression. Spain is heading that way, and God help us if Italy gets worse. Austerity is the medicine for nations drunk on entitlements. The Greeks who still have jobs are being asked to work a sixth day each week at no additional pay. The Spanish have cut the salary of all public employees and retirees.
The nations of southern Europe, which generally have a higher level of entitlements, are now objecting to more austerity, arguing their failing economies need stimulus, not austerity. This is the "Keynesian option" of large deficit spending to kick-start a failing economy. I agree that the Keynesian option is a fine economic tool but only when the country is NOT already drowning in debt. That option was forfeited, when those nations used good economic times to expand entitlements, rather than to reduce debt.
When the various European members come to the aid of a weak member, they impose conditions on the bailout. This "conditionality" has become a dirty word in Europe, especially Spain, who has just refused to accept any additional bailout if any additional conditions or austerity measures are imposed. The Spanish government says the people have suffered enough and will not tolerate any additional austerity. So, what happens when the government is out of money -- when the bond markets shut them out? If the fifth largest economy in Europe defaults, all other member nations will be severely impacted. It reminds me of the Cuban missile crisis -- who will blink first? Will the Europeans bail out a member nation without demanding more austerity? It is high drama, indeed.
I'm glad Merkel and other European leaders think the crisis will be contained, but it also reminds me of Nero fiddling while Rome burned.
My first thought is that they are irresponsible to delay resolution of this thorny, long-running problem. However, from their perspective, they have already made a great deal of progress. Everybody knows that a tighter political unification is essential, but as politicians, they know they cannot get too far ahead of their voters, who are largely opposed to political unification. Besides, Angela Merkel said she is confident they have the crisis under control.
The Finance Ministers point to what they have accomplished during this three-year crisis. They have created the EFSF (European Financial Stability Fund), the ESM (European Stability Mechanism), avoided "Grexit" or the disorderly exit of Greece from the Eurozone, and began the process of quantitative easing. Give them credit for having accomplished that much!
Along the way, Greece is nearly in a depression. Spain is heading that way, and God help us if Italy gets worse. Austerity is the medicine for nations drunk on entitlements. The Greeks who still have jobs are being asked to work a sixth day each week at no additional pay. The Spanish have cut the salary of all public employees and retirees.
The nations of southern Europe, which generally have a higher level of entitlements, are now objecting to more austerity, arguing their failing economies need stimulus, not austerity. This is the "Keynesian option" of large deficit spending to kick-start a failing economy. I agree that the Keynesian option is a fine economic tool but only when the country is NOT already drowning in debt. That option was forfeited, when those nations used good economic times to expand entitlements, rather than to reduce debt.
When the various European members come to the aid of a weak member, they impose conditions on the bailout. This "conditionality" has become a dirty word in Europe, especially Spain, who has just refused to accept any additional bailout if any additional conditions or austerity measures are imposed. The Spanish government says the people have suffered enough and will not tolerate any additional austerity. So, what happens when the government is out of money -- when the bond markets shut them out? If the fifth largest economy in Europe defaults, all other member nations will be severely impacted. It reminds me of the Cuban missile crisis -- who will blink first? Will the Europeans bail out a member nation without demanding more austerity? It is high drama, indeed.
I'm glad Merkel and other European leaders think the crisis will be contained, but it also reminds me of Nero fiddling while Rome burned.
