Europe in Crisis
Published on: April 27, 2010
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  • PetraMB

    “A peaceful, prosperous and geopolitically boring continent that exports tedious platitudes about global governance is a far better place than any other Europe we have seen in modern times”

    Very true, very wise and all that — but I think that the EU was hoping that its export of “tedious platitudes about global governance” would increase Europe’s “soft power” — preferably to the detriment of the US, and irrespective of the fact that the “global governance” institutions Europe was championing all lacked democratic legitimacy. In other words, the world Europe was pushing for was one governed by unelected bureaucrats — just like the EU itself, which has a president and a foreign policy baronessa nobody ever heard of.

    Last but not least, from my vantage point in the Middle East, I have to say that I lost all patience with the EU’s pretensions to international power status watching how they handled Turkey’s accession talks. Of course, it’s true that if there was a EU-wide popular referendum on whether Turkey should be accepted in the EU, the result would likely be a resounding NO, but in my view, if the EU wanted to claim an international role, it had to embrace Turkey. Now Turkey has turned to the east, flirting with Syria and Iran — thank you very much, Europe.
    So, it may be unwise to gloat about Europe’s problems, but I’m only human…

  • Earl of Sandwich

    Excuse my economic ignorance, but why would using the same currency mean that Greece had the same interest rate as Germany? State bonds have different interest rates…

  • joe

    Professor Mead: I see the solution and cause of both problems as residing with Germany. Germany’s relative welath vis-a-vis the U.S. has diminished from it’s mid-1970’s level. At the same time, its long-term expenditures to revamp the old DDR is a substantial economic burden and the cost of paying for the ever-growing EU has not gone unnoticed by the German electorate. Germany thought that the Euro would consolidate and standardize European economies, but the opposite has happened. And now the ECB, though still firmly under Franco-German control, is making noises about acting independently of German wishes. Germany feels herself unsettled. The experiment of closer integration in the last ten years post-Rome has not turned out as hoped.

    Germany was the one nation that could have helped Poland and the V-4’s efforts to integrate the Ukraine into the EU political and social sphere of influence, but they refused. Probably to ensure Nordstream would go ahead as planned, but that long-term calculus obviously leaves the Baltics, Poland and the Ukraine in the lurch. There is no reason, outside of the German left’s atavistic affection for Russia, to lavish such attention on an alcoholic, ageing society that produces nothing except what it gets out of the ground.

    I see Germany now in a stage of Weltschmerz leading to, one hopes, a new Weltanschauung before it turns upon itself in an Existenzkampf.

  • WigWag

    Walter Russell Mead, meet John Maynard Keynes.

    Mead gets it mostly right in this timely and interesting post; but I think his emphasis is a little skewed. He makes it sound like German frugality is a virtue; it’s not. The willingness to save is good but if frugality is carried so far that consumer spending is kept artificially low than the nation essentially becomes a predator.

    Germany is a mini-China; it fosters a classic export based economy and does nothing to stimulate internal demand.

    The perfect example of this came during last year’s world-wide financial crisis. Barack Obama and Gordon Brown did everything they could to reflate the American and British economies and thus prop up world-wide aggregate demand. What was Sarkozy’s and Merkel’s reaction? They allowed their nations to become freeloaders.

    One of the reasons European interest rates were kept so low was that it was the only way to encourage the preternaturally stingy Germans to spend. Without these extraordinarily low interest rates, consumer spending in Europe’s largest economy would have taken a nose-dive and Germany and the rest of Europe would have be thrown into recession; unemployment rates would have gotten dangerously high.

    The result of the low interest rates needed to prop of German spending was a housing boom in Greece, Ireland, Spain, Portugal and elsewhere similar to what the United States experienced in Florida. When the bubble burst, tragedy was just around the corner.

    German taxpayers may not see it, but the economic crisis in Europe was born in their nation, not Greece. Had they been less stingy and spent more, interest rates would never have fallen so low and the whole crisis would have been averted.

    Thrift is good; excessive thrift and a policy that fosters exports at the expense of domestic demand is bad and antisocial. Germany is as much a bad guy here as Greece is.

    Back in the 1970s, the New York Daily News famously ran a headline lambasting then President Ford. It said,

    “Ford to City: Drop Dead.”

    In this crisis Merkel and colleagues get to play the role of President Ford. A headline in Der Spiegel might read,

    “Merkel to Athens: Drop Dead.”

    There’s a tremendous irony here; the legacy of the aftermath of World War I and the Treaty of Versailles is still with us. As Mead correctly notes, it was the hyperinflation of the 1920s that turned Germans so stingy. German stinginess is still consequential today not only in Greece but in the economies of nations around the world.

  • Luke Lea

    Let’s say Greece defaults on its debts. Does that trigger another sub-prime type crisis?

  • Igor Dabik


    I am incredibly curious what your opinion is on the possibility of shuttle diplomacy to assure accession of Macedonia into NATO, while the likely crisis enflames Greece’s public image and diplomatic legitimacy? Even if it is a sentence, or two I am very curious to hear what your opinion on this is, because I can’t find a link to the correspondence email address you use for this blog.

  • Andrew P

    There is only one solution for the EU. The EU Federal Government must acquire the same direct taxing, spending, and borrowing powers that the US has. They must take over some of the fiscal burdens of individual states, and harmonize those obligations on a uniform EU-wide basis. EU Federal taxes of some kind need to be imposed. Things like defence expenditures, social security, and deposit insurance need to be completely taken over by the EU. That will free up enough cash for most of the individual states to pay down their debts. Greece will default anyway, but doing this will prevent all the others from defaulting.

  • Bill

    I’m not saying you’re wrong. But given our own economic and fiscal problems, there’s not much we can do about this ourselves. We’ll live with the consequences. We might as well enjoy the show.

  • WigWag

    “Let’s say Greece defaults on its debts. Does that trigger another sub-prime type crisis?”
    (Luke Lea)

    Luke Lea asks an extremely provocative questions. If the crisis in Europe worsens, will the European Central Bank (which is dominated by French and German officials) respond as capably as the Federal Reserve did when the recent crisis hit in the United States?

    I think it’s far from clear that it will; Bernake and company did an absolutely brilliant job for which he does not get sufficient credit; it’s an open question whether the European Central bank even has the tools to get the job done.

    One of the biggest problems is that a substanital portion of Greek Government bonds are owned by Greek Banks. As the default risk on the bonds rises, the solvency of these banks will be increasingly called into question. If this leads to a run on the Greek Banks it could literally be calamitous.

    It’s important to remember that it’s not just Greece that is experiencing difficulties. As Professor Mead pointed out, interest rates on government bonds are soaring in Ireland, Portugal, Spain and even Italy. A Greek default would almost certainly spook investors and the bonds of those nations would also decline to “junk” status. If that happens, the same scenerio with the banks of those nations could play out; this would be disaster not only for Europe but for the economy of the rest of the world as well.

    Anyone old enough to remember the last bank run during the Great Depression in the United States can tell you; there are few things as scary.

  • historical observer

    Somewhere, the old Nationalsozialisten of the 20’s are smiling.

  • RobM1981

    I disagree with the statement, “German taxpayers may not see it, but the economic crisis in Europe was born in their nation, not Greece. Had they been less stingy and spent more, interest rates would never have fallen so low and the whole crisis would have been averted.”

    You cannot blame Germany for Greece’s gluttony. Germans save because of cultural reasons, but they also very much enjoy the fruits of their labor. Aside from the statistics which clearly show that Germans consume far more than Greeks, have you been to both countries?

    German affluence stands in stark contrast to Greece’s entitlement culture.

    To say that the German’s don’t consume enough is foolish. They work harder and longer than the Greeks, specifically to fund this lifestyle.

    Greek laziness – including the entitlements that nobody works to fund – is in no way caused by German industriousness.

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  • Mike M.

    Just imagine how much worse the situation in Europe would be today had the United States taxpayers and military corps not elected to take responsibility for their continental defense and become the sole protector of world trade across the seas and oceans for the last six decades. It’s the primary thing that has allowed the European uber-welfare state to be able to last as long as it has, and even so we now see that it isn’t going to last for very much longer.

    Despite Napoleon, the history of British imperialism, and the two World Wars, I’m not terribly concerned with the ultimate fate of the E.U. The entire concept was born out of a desire to oppose and compete with the United States in the first place, and besides, the passive pacifist that predominates in the European scene today isn’t remotely comparable to the ruthless and aggressive European of two generations ago and beyond.

  • jack carlson

    History is repeating itself. Europe will be unified politically when a charismatic leader arises who can overcome all these divisive economic issues. It is inevitable. He/she (probably a he) will be hailed as some sort of messiah, but it will be an illusion, a powerful one, but still an illusion. Europeans will NOT be happy with the end result of going down this road.

  • John Koch

    That Germans are frugal, or “stingy”, I don’t doubt. I’m stingy myself, and my ancestors on my father’s side were all of German descent. But neither I nor any of my ancestors actually experienced hyper-inflation; they emigrated to America before 1880. There’s something in the German character, even in those who emigrated to the U.S 150 years ago, that inclines toward thrift. And it’s a good thing, not a bad thing. I was never a high earner, and I’m retired now, but with a comfortable home, some savings, and no debts at all.

  • Scott

    Greece’s problem is their’s not the EU’s…There defaulting does not impact the Euro, it impacts mightily Greece’s ability to sell bonds in the future. Since they can’t print money and debase their currency like the US, they will have to reform government spending…Tsk Tsk…

  • Nate

    Its a good thang that the United States of America care.

  • Matty

    Greece is essentially one of those peasant societies where many people long to get a civil service job to escape back-breaking, insecure laboring and agricultural jobs. Therefore, the public sector gets too big. Its also one where almost everyone cheats on their taxes, so that same public sector is starved for funds.

  • george

    “Why, Germans ask with some force and logic, should German taxpayers who cannot retire until their late sixties pay the bill so that Greeks can retire at 55?”

    Perhaps “overpowering force and logic?” The greeks acted like they had a stolen credit card. Why indeed should germans scrape so greeks can spend? Why should the US be pouring $ into the IMF so greek civil servants can strike for higher pensions when we don’t have any? Good for the germans! Its about time someone imposed some discipline on the PIGS and the euro-elite who think the only inexhaustible resource is other people’s money.

  • Mark Buehner

    I question why a Greek default necessarily affects Portugal, Spain, et al. On the other hand, a Greek bailout way well encourage the other nations against making critical spending cuts.

    If I were Germany, i’d silently write off Greece as an object lesson and work with the other nations to hopefully create a fire break before Greece defaults. Similar to the Bear Stearns failure, Greece defaulting may get everyone’s attention finally. Its a lot easier to point to Greece’s failings as what not to do than to bail them out so they continue until the next collapse. Its not a few tweaks of the screwdriver were talking about here- these nations need a complete reality adjustment about the size of their public sectors. We could learn a lesson as well the way things are going.

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  • noahp

    I commend the analysis of Mark Steyn which I have not seen refuted and which seems to be unmentionable in polite company: there is no way Greece can repay its debts without massive immigration of workers into Greece. There are simply not enough young Greeks on tap to generate the wealth to repay it. This is true throughout the EU (also Russia and Japan).

    But I guess the bond market continues out of institutional momentum if nothing else.

  • mtl

    “Germany and the Scandinavian countries plus the Netherlands in particular seem to have a gift for good economic management. Spain, Portugal, Italy and Greece don’t manage things as well, by and large.”

    modest disagreement…

    foreign debt as a % of gdp…

    (i give the germans tremendous credit for their 1990 integration of 16 million easties, with 64 million westies. to gauge their economy against another is an apples to oranges event.)

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  • Phil

    I have been accused of having a hyperactive imagination, and being prone to hyperbole; BUT there is something here that needs to be added…even if only to promote discussion.

    The natural political tendencies of the PIGS, ie. promising too much and a willingness to sign promissory notes, is almost a hallmark of the USA’s political class. If this European slow motion train wreck is not, or cannot, be stopped, the USA is no longer in a position to underwrite, guarantee, or finance anyone or anything.

    This sovereign debt crisis could be the vehicle that ends the hegemony of Western Capitalistic Civilization. The next thirty months will be critical. It could be called a financial collapse varient of the domino theory of changing political paradigms.

  • Dave Coffin

    A small, poor, corrupt European state is about to go bankrupt. Why is that a big deal? The richest, most populous American state is broke, yet few worry that it will sink the dollar or cause the United States to break up.

  • “Central banks exist precisely to puncture this sort of bubble”

    Exactly the opposite. They CREATE the bubbles. If centralization is bad (and it is awful) then centralization, monopolization, and cartelization of money is awful too.

  • John Barker

    Jack Carslon

    I think you are correct and the European messiah will be announced with the clicking of heels and snapping of rifle bolts.

  • Peter

    Blame Germany for the financial mess that Greece is in?

    Come on.

    That’s like blaming the industrious ants for the winter plight of the irresponsible, happy-go-lucky grasshoppers.

  • Patrick Carroll

    If you’ve Mark Steyn’s recent warnings, you’ll note that Europe’s going to stagger from this political/financial crisis into a political/demographic one.

    Most of the European countries along the Mediterranean have average native female fertility rates of about 1. In other words, the native population is going down by half, each generation.

    To sustain their welfare states, these countries are importing masses of Muslims and telling them they can work and be taxed, but they’re not particularly welcome beyond that.

    Hence the “youths” burning cars in Clichy, pretty much every night of the year.

    By 2050, “old” Europe will be functionally Muslim, and actually functionally pissed-off Muslim.

    What involvement should the US have with this entity?

    Sorry to take the negative view, but I think we should be disentangling ourselves from Europe right now. Let them wage their upcoming religious wars without us. I’ll be sad to see “old” Europe go, but the Louvre, at least, is getting a lot of its inventory circulating internationally. So, then the lights do go out, not all will be lost.

  • Johndoe

    It is clear that this writer has never put foot in Europe. The “latin”countries plus Greece” as he states have been boring for 20 years at the German rates thanks to the Euro. Sorry but the Euro only exists since 2001. And its predicessor the EMS system did not offer the same Eurobor rate your talking about, each countries central bank decided on monetary policy untill 1999 without any European interverence. And the EMS failed miserably because of political differences between states, the thing is in Europe people talk about unity but never put their actions to it. Germany blew up the EMS system and now they will also blow up the Euro, simply because they are too arrogant to when bad time arises to pay the bill..strangely during good times they did not complain to export to Spain and Italy or Greece.

    Besides Germany is the number 4 country with the highest debt to GDP ratio in the Eurozone, so Ms Merkel should be lowering her tone a bit. And to claim that all the “latin countries”‘ (latin countries in Europe? even a Spanish person would laugh about this) is way to simplistic. Spain boomed untill 2007, during that time it created half of all the jobs in the EU, while the economy is only about 15% of the total EU market, it posted superavits year after year and by that paid its debt until debt was 40% of GDP, (now standing at 53%, still very much under the average EU level of 84% or the American 83%).

    But hey who am I to say something…the miserable smart wall street guys and economist and financial reporters who could not see any financial crisis coming, are now suddenly yelling fire!

  • Laura

    I used to attend a Lutheran church run entirely by Germans whose forefathers probably landed in the USA by 1900, and certainly long before the Weimar years. They could squeeze a nickel till it screamed, yet they were willing to spend big money to fund buildings that were important to them. Thrift is a German national characteristic, and is probably the result of living in a bitterly cold climate, as in tough years, the savers would have a higher survival rate than the spenders.

    In sunnier climates like Italy and Greece, there is more of a tendency to think that you will scrape by somehow whether you save or not. I don’t feel the least bit sorry for the PIGS, they have NOT been victimized by German thriftiness.

  • EconRon

    There is a simple lesson. No one can spend more than they take in.

    Why is this simple lesson lost on so many?

    Mr. Carlson, Maybe we can give them Obama.

  • Leo Hylan

    The United States is not and never will be a “Eurasian” power. The half-century American Century is OVER. As the US and its component states slide “inexorably” into decline and default,Europe will make its peace with a resurgent Russia. Russia is actually a part of Europe. Mr. Mead’s article struck me as strange. California(just one example) is in the same shape as Greece.Can we stop daydreaming away our own extraordinary mess? I’m not “gloating ” about Europe’s problems because I’m aware of our own.

  • Steve White

    While the focus of Prof. Mead’s article is on economics, this is another scene in a long-running play between northern and southern Europe that has gone on for centuries. We have essentially the old Roman empire versus the Gauls and Teutons, or if you prefer the old Carolingian empire (north and northwest) versus Italy and the Byzantines. While the north apparently has the upper hand in terms of political and economic power at present, this is an old, old dispute.

    The EU as a pan-European entity is never going to work, because it tries to incorporate old, old cultures that at some basic level are incompatible. The modern 21st century gloss that is post-Christian, post-capitalist, quasi-socialist, and fairly hedonist doesn’t hide the divide. It isn’t savings rates or inflation or public sector unions that are the problem, it is the Teutonic vision versus the Greek/Latin vision. It is work for the sake of work versus la dolce vita. Yes, I’m over-generalizing, but I hope you get the point.

    The EU began to struggle when it moved away from being a trade union to being a more encompassing political structure. The current economic mess will make that increasingly clear. If the Euro fails as a currency, the EU will fail shortly thereafter as a political union.

    Europe will not succeed as a single entity. Germans and Greeks are not the same.

  • Matt Book

    I have to disagree that a fragmented Europe is automatically worse than a political union. The EU has become increasingly undemocratic, authoritarian, and hyper-secular. These anti-values embolden liberals in the US who are actually gullible enough to believe all of this, and the EU example exerts a corrupting pressure on our society. I would be happy to see such a platform crumble and the Euro-elites have to find real jobs instead of instituting techno-feudalism. I prefer the US poor and free to rich and centralized out of existence.


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  • LoachDriver

    Reading the comments posted by various persons, I particularly appreciate PetraMB’s, as well as Professor Mead’s essay is practically an Foreign Economics or Int’l Policy & Economics course all by itself.

    Thank you one & all, including those as ignorant as I, with but an ancient B.A. in History, Univ. of Kansas, 1965.

  • srp

    There is an unfortunate tendency to extend old-Keynesian ideas to situations where they don’t apply. Even if you accept the theory, the idea that savings are a problem is only supposed to be relevant during periods when aggregate demand is inadequate, i.e. actual output is below “potential output.” Between 1992 and 2000 and between 2003 and 2008 that was not the situation in Europe or the world economy. So claiming that German thrift is some sort of economic problem is wrong-headed.

    Any individual who saves more than he spends is simply exchanging output he generates today for claims on others’ output that he can exercise later. If you sum up a whole bunch of individuals like that you get a group that is running a “trade surplus” and accumulating financial assets (promises by others to provide immediate access to output in the future). Sometimes these people all live in the same place and we call them a “nation” or a “country.” But the fundamentals don’t change much.

  • John

    “A nation cannot prosper if its members are not fully aware of the fact that what alone can improve their conditions is more and better production. And this can only be brought about by increased saving and capital accumulation.”

    Ludwig von Mises

  • Luke Lea

    re: consequences of Greece defaulting. I haven’t kept up, but doesn’t that world propped up by credit default swaps still exist? Warren Buffet said they were really hard to unwind.

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  • Smoking Frog

    Earl of Sandwich “Excuse my economic ignorance, but why would using the same currency mean that Greece had the same interest rate as Germany? State bonds have different interest rates…”

    The Greek interest rate wouldn’t necessarily be the same as the German rate, but it would be lower than without the euro, because Greece by itself could not inflate the euro by much, whereas it could easily inflate its own currency.

  • Steph Houghton

    The problem with WigWag’s analysis is that Keynes was an inflationist crank. It is over lending, not under spending that causes the boom and resulting bust. Yes Germany should have done more to alleviate the situation cause by the inflationary boom, but the Germans’ savings were not the cause of the boom or the bust.

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  • SC Mike

    Mark Buehner is right, Greece is busted:

    “Other euro nations were complicit in allowing that abdication, and now the bill is coming due. If a debt restructuring is inevitable, then it’s far better to accept the pain now and get it over with. German and French banks would take losses, but those would be more bearable now that the world economy is recovering. If the banks do falter, then our guess is that European taxpayers would rather spend their money recapitalizing those banks instead of backstopping the retirement benefits of Greek civil servants.”

    How can Merkel ask Germans to tighten their belts so that the Greeks can enjoy earlier retirement and substantial public sector employment at relatively lucrative wage rates?

    Most of the other Euro nations can muddle through a Greek default.

    The missteps of US domestic policy — Fannie and Fred buying up and underrating poor quality mortgages — encouraged foreign bond and pension funds to ignore reality and chase what turned out to be ephemeral yields. It let the Goldman Sachs et al. to package and sell the F&F crap because there were willing buyers and there had not yet been any defaults. The rest is hysteria.

    Let Greece fail, give Spain, Britain, and Italy a chance to mend their ways, and stock your cupboard with enough Feta and olives to get you through a year or two of turmoil.

  • Malak

    Good riddance to another EUtopian disaster. Better a lesson learned earlier than later.

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  • Tania


    If you don’t have respect, anybody will take you in serious…

    I Hate you yankees, you think that you are the top of the world and you are only the sons of our criminals.

  • Everyone needs to get this correct… (REPOST ON TWITTER, FACEBOOK)

    America is controlled by the 3 privately owned states (district of columbia, the city of london, and the vatican.) Each has it’s own flag, pays no taxes and has it’s own laws. All 3 are part of an interlocking “ONE” called “City Of The Empire” Or “Black Sun”.

    When you pay taxes it goes to The Bank Of London and straight to the vatican. These 3 privately owned tiny nation states are owned by 13 families that rule the entire planet militarily, financially, and spiritually. Without a doubt. OPEN YOUR EYES AND YOU WILL SEE IT.

    They control the markets, the religions, the media, and they rob you of your wealth. Wake up. Time to wake everyone up. Nothing will change until the people SEE the TRUTH about their miserable extistence that has been dictated to them by these CREEPS

  • Greece is looking close to collapse, how this will effect the European economy is anyone’s guess…Total collapse or storm in a tea cup?

  • Well i think that it does have a HUGE effect on europes economy…

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