More Pain in Spain; Europe Still Has No Plan
Published on: June 10, 2012
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  • How about removing all the personal self-interest? All the current EU leadership and job-holders could agree to resign if their proposed new union is adopted. They could promise to never again hold a job in a position of power, that members of their nuclear families would not, that they would not even socialize with those who have positions of patronage or power in the new EU govt and bureaucracy. It would be the equivalent of saying, “This is so important to our union that to prove we are not just saving our own skins, we will all go to a monastery if you adopt it.”

  • Kenny

    “Problem 5: The gap between Europe’s publics and its elites has grown into a chasm.

    That’s it.

    Furthermore, the status quo in Europe (and the a great extent in the U.S., too) has degraded to the point where an inordinate amount of the income & political power goes to the parasitic elite — that is, the politician, banksters, media, and the so-called intellectual class. These people make nothing and more often than not are a drag on innovation, creativity, and production.

    A solution for Europe is impossible because the elite and the hoi poli will not give up any of their privileges which true reform would require. And what is true reform? It begins with 1)ending the euro and 2) dismantling the welfare state.

    Europeans must do hard work again. And that’s hard because two generations or more of them have known nothing but the cuddles of the Mommy State. To the the French, the idea of hard hard work is like a death sentence.

    And more basically is the fact that the economic ability of Europe as a whole cannot come close to matching the promises its welfare states have made to their people.

    How do you square that circle. Answer: You can’t.

    The whole European set-up is UNSUSTAINABLE, Mr. Mead, and no tinkering around the edges will save it.

    What Europe is now doing is consuming much of it accumulated wealth to merely kick the can down the road for a brief time. This is a stupid as a farmer on the frontier or in wilderness in 1750 eating his seed corn. Said farmer may survive but he sure will not prosper.

  • Mrs. Davis

    em>Given all these factors, buying time seems the most rational thing for Europe’s leaders to do.

    Except that the longer taking the medicine is put off the greater the pain. And there is already a lot of deferred pain to be borne. Wishing won’t make it happen.

  • WigWag

    There is an aspect to the recent crisis that Professor Mead hasn’t alluded to yet: but for the free-riding that every European nation including Germany does on the back of the United States, the European economic situation would be even bleaker than it already is.

    Some aspects of this tendency to free-ride are obvious; high U.S defense spending allows European nations to enjoy more generous social programs than they otherwise would. High U.S. pharmaceutical prices subsidize innovation in the development of new medicines that both American and Europeans enjoy but only Americans pay for.

    The most important thing the United States is currently doing to assist the ungrateful and dimwitted European governments is hiding in plain sight; Americans through the large stimulus program enacted by Congress are propping up the aggregate demand that all Europeans, especially the Germans, French and British depend on.

    While the Germans sactimoniously complain about the profligacy of others, they avert their eyes from the fact that but for Obama’s willingness to accept the political price of following the dictates of Keynes, Germany’s export based economy would be in worse shape than it already is.

    Professor Mead’s hero, Prime Minister Cameron, the man who reminds Professor Mead of Churchill and Thatcher has followed a policy of austerity that has thrown his economy into a ditch. As bad as things are in Great Britain today, where would that nation be if Obama had followed the moronic policies of the current British Prime Minister? But for Obama’s policy of fiscal stimulus and Bernanke’s willingness to reflate the world’s economy would Britain even have a fighting chance today? Would Cameron even have the pathetic approval ratings he currently enjoys? It is funny, isn’t it, how Professor Mead loves to regale us with tails of Cameron’s popularity when he’s riding high but is quiet as a church mouse when the man he thinks is destined for greatness is despised for his idiocy by much of his nation.

    By it’s nature capitalism is cyclical; it follows an endless cycle of boom and bust that can be moderated only if the policies of Keynes are followed assiduously. The Obama Administration has done it’s part (imperfectly); the Europeans have not. But for the choices Obama made not only would the current economic performance of the United States more closely mirror that of Cameron’s Britain, all the EU nations would be suffering more than they already are.

    When by hook or by crook the world economy finally recovers, no doubt we will hear from the Germans and the British that their policy of austerity was correct all along. No doubt that the credulous mignons who make up the cadres of our Tea Party acolytes will be convinced; as usual they will be wrong. What will have saved the Europeans once again is America and our willingness to implement the policies recommended by a gay British economist who orbited the outskirts of the Bloomsbury Group.

    Fortunately Obama understands recent British history a little better than Prime Minister Cameron does.

  • JJR

    There’s yet another problem: the EU as a governmental system is currently undemocratic in any meaningful sense. Thus countries are being asked not only to sacrifice more control over their economies, they’re being asked to hand that control to unelected bureaucrats.

  • vanderleun

    One could almost set this to music:

    Mead: The pain in Spain pulls Europe down the drain!

    By George, Mead’s got it!
    By George, Mead’s got it!

    Now, once again,
    How does Europe go down the drain?

    Mead: In pain, in pain!

    And where’s that soggy drain?

    Mead: In Spain! In Spain!

    The pain in Spain pulls Europe down the drain!
    The pain in Spain pulls Europe down the drain!

  • MarkE

    The concept of millions of European minds finding solutions that the elites can’t find, reminds me of the anglo-american tradition of “muddling-through.” Maybe they will discover common law. Maybe they will lose the hang-up with fraternity and equality, and settle for life, liberty and the pursuit of happiness. Maybe the Brits and Americans will rediscover them too.

  • Kolya

    Buying time may be the equivalent of borrowing even more weath that cannot be repaid – it will make the eventual bust worse. I think democracies are best served having their crises early and often.

  • Verinder Syal

    Isn’t the basic bargain that is required is that the Germans subsidize the Club Med countries indefinitely?

    Will the Germans accept that? Will the other countries accept the implied hegemony?

    Everything else is an exercise in kicking the can down the road.

  • Corlyss

    Europe has no plan because they still have not come to grips with the fact that their Plan A is a dismal failure. “Hole” and “digging” and “stop” come to mind here.

  • Corlyss

    Re: Problem 5. The answer to dwindling democracy is not less democracy. It’s more democracy. The know-it-alls making grandiose policy do not represent the voting know-nothings who have to live with the policies. Economist Charlemagne painted a ominous picture of the restless peons becoming sans culottes in the face of deaf elitist technocrats. I root for the peons because the technocrats have proven unworthy of the roles they assigned themselves.

  • Jim.

    Professor, all you’ve done is give 5 good reasons why buying time will only result in running out of both money and time.

    People look at these crashes as the end of the world. They’re not. They’re painful in the short term, and for some people their expectations may never get readjusted to the drawbacks of a non-Eurocentric world. That’s going to happen either way, though — either sharply and quickly, or fuzzily and slowly. The advantage of the sharp, quick way is that you don’t have the “lost decade(s)” that will result from the slow and fuzzy path.

  • Mark Michael

    Niall Ferguson’s PBS documentary, “Civilization: The West and the Rest” discusses what he calls the “six killer apps” that he claims are the reason that the West surged way ahead of the other cultures. They are:

    1. Competition
    2. Science
    3. Property-owning Democracy
    4. Modern Medicine
    5. Consumerism
    6. Protestant Work Ethic

    Human culture is so complex that it’s not reasonable (at least for me & my limited ability to understand and explain things!) to accurately & fully explain a comprehensive set of traits that lead to a peaceful, productive, happy society in a single (or even a dozen!) comments. BUT, I’ll toss in a few ideas that come to mind whenever I read one of these kind of posts about the struggles of the eurozone and its single currency, the euro.

    Re: the role that the Christian religion has played in the ascendency of the West – (1) the Protestant Work Ethic and the concept of a (2) Civil Servant rather than a Civil Master, a Princeling, or your Majesty

    Ferguson came close to putting his finger on what I think is one of the key features of the West when he discussed the Protestant Work Ethic in his PBS documentary – combining it with the first killer app, Competition.

    He explained that in America we adopted the separation of church and state as a national principle that prevented the Political Class (PC) and the elite of the Religious Class (RC) from ganging up and enforcing a top-down, coercive caste-like structure on society.

    America has literally hundreds of separate Protestant denominations that are fiercely independent and compete for members across the country. He visited little towns in Kansas, Nebraska, and other states noting how many churches they had. (About one per thousand population. If that prevailed throughout the country, there’d be 310,000 churches in America!)

    He noted that the Protestant Work Ethic was alive and well in America by sitting and talking with several Protestant ministers and church people. They viewed hard work at any profession or job, no matter how menial, as honorable and pleasing to God, and it gave the worker status in the eyes of his fellow Christians.

    He said that Catholicism in Europe did not stress the work ethic in the manner that Protestant churches do. Also, in northern Europe where they were Protestants, the governments established state churches, which they subsidized. The ministers where paid by the state, and they did not have to compete for members with other churches in a serious way. They had monopolies – and soon behaved the way monopolists behave over time.

    Ferguson did not discuss it, but most cultures do not place much social status on work, especially not on menial work. The Chinese bound the feet of their upper class women in order to show others that they had enough wealth that their women did not have to stoop to such a humiliating thing as working.

    In India, the lowest caste is the Untouchables. They are relegated to the most undesirable of work – garbage collection, etc. that no higher-caste members would ever stoop to perform.

    Christianity, though, as Christ taught his followers in the New Testament, elevates the lowliest work to the highest level.

    This is reflected in our Political Class terminology: we call government bureaucrats “Civil Servants”. We don’t call them Civil Masters, or Princes, Princelings, Your Lordship, Your Majesty.

    In fact, our Founding Fathers went out of their way to try to prevent the use of any of these titles that would convey a Master-Servant relationship between the government workers and the private sector workers. A president is “one who presides”. We evolved Robert’s Rules of Order to a fine degree to give our democratic governing bodies a clearcut set of rules for running a meeting of equals. These types of meeting proliferated across 19th Century America when government only spent 3% of less of our GDP and 97% was left in the private sector.

    Re: the biblical basis for this cultural trait – Jesus washing the feet of his disciples at the Last Supper

    John 13:3-17 (NIV): “Jesus knew that the Father had put all things under his power, and that he had come from God and was returning to God; so he got up from the meal, took off his outer clothing, and wrapped a towel around his waist. After that, he poured water into a basin and began to wash his disciples feet, drying them with the towel that was wrapped around him.

    “He came to Simon Peter, who said to him, ‘Lord, are you going to wash my feet?’

    “Jesus replied, ‘You do not realize now what I am doing, but later you will understand.’

    “‘No,’ said Peter, ‘you shall never wash my feet.’

    “Jesus answered, ‘Unless I wash you, you have no part with me.’

    “‘Then, Lord,’ Simon Peter replied, ‘not just my feet but my hands and my head as well.’

    “Jesus answered, ‘A person who has had a bath needs only to wash his feet; his whole body is clean. And you are clean, though not every one of you.’…

    “When he had finished washing their feet, he put on his clothes and returned to his place. ‘Do you understand what I have done for you?’ he asked them. ‘You call me ‘Teacher’ and ‘Lord,’ and rightly so, for that is what I am. Now that I, your Lord and Teacher, have washed your feet, you also should wash one another’s feet. I have set you an example that you should do as I have done for you. I tell you the truth, no servant is greater than his master, nor is a messenger greater than the one who sent him. Now that you these things, you will be blessed if you do them.'”

    In the retail business, the mantra is, “The customer is always right.” This lines up nicely with the Christian doctrine of viewing yourself as a servant of others. A “saint” behaves selflessly. He does not view it as demeaning to put the needs and desires of others above his own.

    In fact, studies of people who work in our highly competitive industries show that they view the Golden Rule as an important practical guide for their workday – how they run their companies.

    Surveys of employees of regulated monopolies and government offices show the opposite: they tend to put their own organization’s well-being and goals ahead of those of their customers or users. In other words, our “civil servants” are more prone to behave as “civil masters” than are those in private industry.

    NOW, for me a key question is, “WHY has America hung on to this ‘servant trait’ so long? What is the motivation?”

    My simple answer is its adherence to Christianity more closely than Europe’s adherence to it. Europe is said to be a “post-Christian” continent.

    I’d claim (maybe controversially) that nearly all of the secular totalitarians of the 20th Century knew about the Christian concept of servanthood, the ideas of Adam Smith and his metaphor of the “invisible hand” of the marketplace, saw the material success of those countries that embraced the Protestant Work Ethic, the Servanthood principle, democratic governance, the rule of law – AND REJECTED IT OUT OF HAND!

    Most of the 20th Century totalitarian dictators were intellectuals. Surely most were quite familiar with Great Britain, the United States, Canada, Australia and our form of governance, yet they rejected it for one that consisted of nearly polar opposites of every key trait across the board.

    The moral arbiters of society were wedded to the governing elite. There was no “separation of church and state”. Private property was abolished; the state owned everything communally, except for incidental things.

    They established monopolistic cultural institutions that were enforced by state coercion. You either submitted and were a good serf or were an outcast and a leper who was punished severely.

    The Political Class (PC) joined forces with the Religious Class (RC) in a monopolistic ganging up on the ordinary citizens. Free press, free speech was abolished. Speech codes, hate speech laws were adopted.

    After all that super long preamble, what about the topic at hand? “How to ‘fix’ the eurozone crisis with its newer currency, the euro?”

    America, Great Britain, Canada, et al were on the gold standard from the early 1800s until the 1930s and the Great Depression. The government’s role in our economies was tiny compared to what it is today. Economists estimate it at around 3%. Yet, in America, after the adoption of the limited-liability public corporation in the 1870s, our GDP grew in real terms at 4% per year, faster than nearly any period after the adoption of government-run fiat currencies.

    Yet, if you listen to Keynesian economists, they describe going back to a commodity-based currency as the worst passible thing we could ever do. They paint those 130 years on the gold standard (with exceptions for wartime, such as the War of 1812 and our Civil War -when “greenbacks” were issued – inflation was 35% over those 4 years) as utterly horrible.

    They blame the gold standard for every ill American society experienced over those 130 years almost. (Well, not quite, I exaggerate.) They blame the “panics” on the gold standard, the “depressions” on the gold standard, etc. A Paul Krugman says incessantly that the gold standard leads to “liquidity traps” – which are the “black holes” of any economy.

    In other words, the great majority of both the European elite and the American elite refuse to even give one second’s worth of serious thought to the century plus we spent on the gold standard as having something to contribute to the solution to the eurozone crisis.

    Why is that? Nothing they’ve proposed is even remotely practical or to the benefit of the average citizen of the eurozone. Nothing. YET, they stubbornly, stiffneckedly, bitterly cling to fiat currencies, monopolistic government-run central banks, and top-down control of as much of their economies has they can hang onto.

  • Otiose

    There’s an embedded assumption that deeper political cooperation enabled by and through deeper fiscal integration would solve the Euro and Europe’s problems.

    Actually neither the political nor fiscal cooperation is the key to fixing Europe. The problem is that the governments have for too long run fiscal deficits supported by debt accumulation and then in order to raise the natural ceilings on debt they systematically co-opted their banks and banking systems to raise debt levels even higher.

    With notes coming due and no means to pay the governments are looking for an out (Germany) that allows them to keep their current standards. This is a mark of desperation.

    Since sources of new funds (debt) are running out they are resorting to monetization both direct and via the banks. This eventually will fail probably due to seriously higher inflations rates and bring about a messy denouement.

    The Euro is not the problem and hasn’t been. The political organization isn’t either. The US has wide differences among the states and will soon (again) have a state or two go bankrupt without the mess we are seeing in Europe or any impact of the dollar.

  • Jacksonian Libertarian

    Buying time = kicking the can down the road = maybe the horse will learn to sing = let’s all be like Detroit

  • Anthony

    “People want to succeed and economies want to do well” (economies are living organisms) may be applicable to Europe. Yet your five problems speak to enigma facing continent – subtly discounting international imperatives that remain ineluctable. The 27 sooner or later must reckon with…

  • thibaud

    Funny that there’s nary a mention of that minor fact that a collapse of Europe will also pretty much put the kibosh on any nascent US recovery for years to come.

    Has VM, or any of the euro-haters here, bothered to consider that, should Romney get elected in November, a European collapse would tie his hands in the economic realm, leaving him absolutely no choice but to massively stimulate the economy with more deficit spending?

    Have you noticed that Romney, understanding the likelihood of such an event, wisely told TIME’s Mark Halperin that he would NOT slash spending in teh midst of such an economic crisis? Here’s the anti-stimulus party’s candidate saying that “of course” (!) he would stimulate the economy with deficit spending like any good and rational Keynesian:

    TIME/Mark Halperin: Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

    Mitt Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.

  • doc feelgood

    people still seem to not grasp at all the complexity principle of interconnectedness of this entire planet. So much babbling on the myth of sacro-saint independence, the obsolete provincial decision-making gimmick.

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