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Europe Is Still Hip Deep In The Bad Stuff

Combined intervention by the world’s central banks and an open door policy by the ECB to European banks wanting to borrow lots of money fast calmed the world’s markets this month.  We are no longer having to think about whether the international financial system might melt down over a long weekend, and the relief plus continuing good if not spectacular news from the US economy made December a much better month than the world feared.

But if Europe dodged the charge of an angry bear last month, it is still hopelessly lost in the woods.  The proposal for a new, souped up fiscal union treaty has bogged down in the usual horsetrading, favor swapping and generally ineffective European legislative process.  More profoundly, the core cultural problem at the heart of the economic problem remains: northern and southern Europe are different places that need different rules, and the euro requires them to live and play as one.

The New York Times takes a look at life in Greece under the austerity regime and the piece shows why Europe isn’t fixed.

The piece leads with the usual agitprop:

The free clinic here opened about a year ago to serve illegal immigrants. But these days, it is mostly caring for Greeks like Vassiliki Ragamb, who was sitting in the waiting room hoping to get insulin for her young diabetic son.

Four days earlier, she had run out of insulin and, without insurance and unable to pay for more, she had gone from drugstore to drugstore, pleading for at least enough for a few days. It took her three hours to find a pharmacist who was willing to help.

“I tried a lot of them,” she said, gazing at the floor.

Roll your eyes if you must, but keep reading.  This isn’t all weeping widows and flinty eyed neo-liberal technocrats.  The piece goes deeper.  The Greek health care system was corrupt and dysfunctional before austerity; now with the money gone it works less well than ever.  The habits of behavior and the low level of personal and professional morality that made the old system a nightmare don’t change when the money is gone.  Poverty does not automatically make people magnanimous or wise.

However, as Greeks wrestle with a deep recession, holes in the welfare state and a host of changes being forced on them by foreign creditors, their resentment grows: at their domestic political class, at Germany, at evil foreign bankers, at the IMF, at capitalism and Adam Smith, at the history of modern Greece, at rich Greeks, poor Greeks and the media.

Will that resentment find some kind of constructive outlet and be channeled into an agenda for social and national change?

Probably not.

Will it lead to political incoherence, demagoguery and public pressure for wacky quack cures and quick fixes that don’t fix?

It probably will.

European elites tried to construct a glittering cosmopolitan tower without grounding their structure in the mud and the mire of real people, real culture and real life.  They designed a technocratic government for a population that fears and distrusts technocrats.  They build a German style financial order for cultures who hate Germany. They thought that if they ignored the resulting problems and resentment resolutely enough for long enough, the problems would all go away.

They were wrong, and now they are having to live with the results.  Both the economic and the political foundations of liberal capitalist democracy are under attack across much of Europe today.  Keeping the euro in place requires aggressive fiscal and government reform in countries like Greece, Italy, Portugal and Spain.  But in some if not all of these, the political will for reform isn’t there.  The institutions that could implement reform don’t exist.  The attitudes in the population that could make reforms work don’t exist.

Many European leaders quietly accept that the Greeks will fail and that sooner or later a new drachma will be born.  What they still fight is the idea that the Italians won’t change much either.  Prime Minister Monti will say whatever he must to keep the funds flowing, and the Italian parliament will pass any law if a gun is pointed to its head, but no power on earth can make those laws work.  Italians have more than a thousand years of cultural experience resisting the demands, sensible and otherwise, of foreign overlords.  Behind the technocratic new government, the old factions and alliances are constantly at work: imposing facades of reform programs will be built, but somehow the termites will have hollowed them out.  As we’ve observed before, trying to force reforms on Italy is like trying to nail jello to the wall.

If Europe had tried to design the best possible currency regime for the people it had, it probably would have designed two different currencies: a neuro for the hard charging north and a seuro for Club Med.  Instead, it designed a currency for an idealized European public that did not exist: more disciplined in the south and more generous in Germany than the actual Europeans are.

Europe’s core plan now seems to be to make the south disciplined enough so that the Germans become more generous: that is, under much worse conditions Europe’s leaders are doubling down on the original bet.

We shall see.

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  • Cromwell

    Italian 10-yr yield is back over 7% — admittedly in thin markets — and they’ve a bargeload of auctions tomorrow and Thursday.

  • joe

    Yes, the Euro elites designed a currency for a Germanic/Nordic type culture, but the Latin countries agreed to operate within its monetary policies. Eurocrats forsaw that probably some of the Med countries would run a deficit over 3%, even Germany and France did in the early oughts. What took them by surprise was the level and extent of rapacity by Spain, Italy, Greece and Portugal’s banks. They literally borrowed as much as they could to rebuild infrastructure for political purposes, flood the domestic lending market and finance oversea acquisitions for the multi-nationals.

    We expect politicans to receive perks, kickbacks and steal. Our only demand is they moderate their baser instincts and not affront common decency. The Eurocrats thought the PIGS et al would pinch from the till (even though they said they would not), not mortgage the shop.

  • Ulysses S. Rant

    Excellent points, Dr. Mead.

    Every technocrat in Europe should read those last several paragraphs every day. Your column reminds me of the late Senator Moynihan’s observation that culture matters most. Many in the past have tried to “paper over” cultural differences with printed money, much like the ECB seeks to do now. Nearly all have failed.

    There is no answer for the woes of Spain and Italy that doesn’t involve wholesale entitlement and employment reform. It really is that simple. What isn’t simple is what will happen to the swaps market should any of these Club Med countries (including Greece) default on their unsustainable debt and/or seek to denominate it in another currency.

    2012 is going to be an interesting year.

  • Luke Lea

    “But if Europe dodged the charge of an angry bear last month, it is still hopelessly lost in the woods. ”

    Nice overview, well expressed. Even if the Eurozone falls apart, as seems inevitable, Europe as a whole could still do well. In some respects they do better than the US: healthcare half as expensive, less exposed to low-wage imports and offshoring of investment, greater ethnic homogeneity intrastate which makes them more willing to finance redistributive welfare programs, greater willingness to substitute leisure for GDP, higher real hourly wages (especially when you give a proper evaluation to leisure). In the US we sacrifice welfare to state power, democratic values to empire. At least in my judgment.

  • Corlyss

    I fully expect Europe, under German domination, to shape up or else devolve into an old fashioned war of the have-nots against the haves. Maybe Maggie and GHW Bush were right to fear a united Germany after all.

  • Jacksonian Libertarian

    I would be more hopeful for Europe if I were seeing TEA Party rallies seeking to limit government. Instead we only see OWS, Labor, and Socialist demonstations, seeking more handouts from the bankrupt welfare state. It is clear the Europeans will have to learn the Socialist lesson (Socialism is great, until you run out of other peoples money), the hard way.

  • Harold Seneker

    One has to agree, Greece is hopeless. (I like the Greeks; we went there on oiur honeymoon. But they have been led down the garden path, and now they have to deal with the consequences.) Portugal, too, is very reluctant to clean up its act.

    But Spain has been biting the bullet (as has Ireland which everyone seems to have forgottern). Spain’s outgoing socialist government substantially cut the budget and otherwise introduced austerity, and the incoming center-right government ran on a platform of blood, sweat, toil, and tears. I cannotspeak to Italy,but there has always been more to Italy than meets the eye, for reasons this article has touched upon. (There is a standing European joke: In Switzerland they ask how much you pay in taxesw (which is public record); in Italy, they ask, You pay taxes?!)

    So, I think, much hangs on Italy, where they have changed governments and otherwise acted as though they understand the lesson being taughtby Greece. Yes, we shall see, but there may be ore hope than you think that Club Med may yet learn something from the north Europeans who come south with their money in wintertime and buy their real estate.

  • Patrick Carroll

    @Luke Lea: European health care will kill you. Arabs from North Africa are being imported to do work and pay taxes so infertile retired Europeans can continue to enjoy their socialist utopia. Said Arabs are not integrated into the rest of society and are radicalizing. Europeans are currently on holiday and won’t be back until the middle of January, and after that they’ll still have more than a month of vacation coming in the new year. European productivity (apart from Germany’s) has been sliding for years. In the US we still – by a slim margin – value thrift and independence over extravagance and bondage, and if the US is an empire, it is so with a lighter touch and the provision of more benefit than any empire in history.

    In other words – and I’m telling you this as a person who grew up in Ireland before moving to the US and who still has family in Europe – your takes on Europe and the US are completely [mistaken].

    At least in my judgment.

  • ErisGuy

    “They designed a technocratic government for a population that fears and distrusts technocrats.”

    Their fear is well-founded. “Technocrat” is just a name.

    The founders forgot to staff the government with technocrats, preferring corrupt politicians and their cronies.

    Technocrats have real degrees, not primary degrees in management, the humanities, or the social sciences. They attend other universities than the Sorbonne. Their attitudes are not those of bureaucrats and politicians.

  • pashley1411

    What will happen with the Euro depends on the depth of commitment of voters to the European superstate.

    My surmise, admittedly very distant, is that the EU is a construction of the elites that, when voters are given the opportunity, will turn down, including the political parties that are Europhile.

    So when the costs are tallied, the voters will dump politicos too closely associated with asterity in favor of that ole time liquor, easy money.

  • Snorri Godhi

    Obvious as the cultural differences are between Southern and Northern Europe (and, to the trained eye, within the South and within the North), I am still unable to understand how replacing the euro with funny money is supposed to help Southern Europe. Why do you think they wanted to join the eurozone in the first place?

    Luke Lea: “In the US we sacrifice welfare to state power”
    There is no trade-off: the welfare state IS state power.

  • SenatorMark4

    Yet another great article describing how things are broken. You have a great eye for discerning the little things that are causing the problems.

    However, when you say “Both the economic and the political foundations of liberal capitalist democracy are under attack across much of Europe today.” don’t you really mean that EVERY politician of every stripe prefers to attack the golden goose because it gets votes? When democratic countries believe that taxes should be public record (Switzerland?) but don’t think that government payments to individuals should be public how can we ever reach an agreement. Of course people will vote for more money! Would they vote for more ‘income,redistributed’ if they got a 1099-GOV with it?
    Our stupid leaders are railing against the banks and suggesting that home loan principal be reduced. If I do that myself with my bank I get a 1099-C. Is it fair that working people get reports for every dollar but government can wave a magic word wand and change tax money to ‘income, redistributed’ and that is not reported at all?
    1099-GOV 1099-GOV 1099-GOV
    Only when we know where money is going will be be able to manage it.

  • Mike

    Hi from an American in Germany. I would spell the southern Euro “sewer-o”, but we’re “neuro-tics”.

    I hope that the whole charade is only to buy enough time for the banks to rearrange their portfolios, so that the re-cap later will be less painful. It’s cynical, but the only alternative is to believe that Europe’s leaders are in cloud-cuckoo-land.

    I wouldn’t be so quick to speak in north-south terms though. Greece is hopeless, but the others were in reasonable shape before 2008 and could be so again, and are salvageable. They certainly don’t deserve Greece around their necks.

  • TMLutas

    So how much money is the EU still spending to ensure that improperly curved inexpensive bananas do not sully the palates of Europe? How many other regulations could be cut tomorrow and result in both cutting the deficit, improving the quality of life for the people, and enabling the creation of more jobs?

    This is the sort of legal action that needs to be done in Greece and the rest of the troubled economies of the EU. Some small government parliamentary grouping needs to introduce statism prune backs that would not pass but would be useful because it would identify exactly who is holding back the economies of these countries.

  • RAlazar

    “If Europe had tried to design the best possible currency regime for the people it had, it probably would have designed two different currencies: a neuro for the hard charging north and a seuro for Club Med. Instead, it designed a currency for an idealized European public that did not exist: more disciplined in the south and more generous in Germany than the actual Europeans are.”

    Where to begin?

    (1) “Europe” (its top politicians) *did* try to design the best possible currency regime for the people it had, and decided that the political advantages of unity (as a “counterpoise” to–that is, opponent of–the United States) outweighed the difference between the northerners’ neuroticism and the southerners’ seuroticism. There is no reason to think they would decide the reverse even now.

    (2) What the southerners lack is not “discipline” (the Cosa Nostra is very well disciplined, just not very public-spirited) and what the northerners lack is not “generosity” (just an unlimited willingness to be exploited).

  • Andrew Allison

    Another perceptive essay on the problem with Europe can be found at

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