Beyond the Economics of the Madhouse

Both the Economist and the Spectator this week have discovered a banal but obvious truth: that there is pain in Spain, yea, even so far as the word itself.  It’s not true, though, that the pain in Spain falls mainly in the plain; the pain falls everywhere, mountain and plain alike.  The pain is the euro. 

The euro crisis is a rolling comedy of false hopes and deeper errors.  And I’ll tell you this much – you ain’t heard nothin’ yet.  Writing in the Spectator, Daniel Hannan, one of my favourite observers on the European farce, rightly points out that that the troubled economies of Greece, Ireland, Portugal and Cyprus amount together to less than 5% of the Community’s economy.  Greece, in other words, was a sideshow. 

Spain is different; Spain is the main act.  Here the banks are massively exposed.  Not only would a crash swamp the whole of the European economy but a rescue package would drink deep, ‘twoud drink the cup and all.  Drawing again on my Shakespearean well, it may be the point where German taxpayers cry hold, enough! 

There is a form of madness here that I find almost impossible to comprehend. Economics and finance, I freely and wholeheartedly confess, are well beyond my comfort zone.  But at least I can understand the basics, which is more than Spanish politicians seem able to do.  Here is a truth I cannot make any simpler: Spain’s present economic woes are all down to the euro. 

Before the great crash of 2008 the country was running a surplus.  The national debt had been reduced to 42% of Gross Domestic Product.  This is where the real lunacy comes.  With the economy beginning to overheat one sure way of taking the pressure off is by raising interest rates.  But the Spanish could not do that because they were locked into the asylum of the euro.  Spanish governments thus had to apply the interest rates set by the European Central Bank (ECB), low even for the north, catastrophic for the south. 

Again as Hannan points out, in the decade prior to 2008 Spain actually manage to run a negative interest rate.   There it was - money for the taking, and how it was taken.  If you have been to Spain recently you can’t possibly have missed the results, a property crash that makes Ireland’s look like a picnic, unsold, half-completed developments everywhere, waste on a massive scale.  The banks did well, though, hugely over fulfilling their bad debts quota. 

So Spain is drowning because of cheap credit.  What’s the solution according to the gnomes of Brussels?  Why, more cheap credit. Mariano Rayoy, the country’s prime minister, was given a £100million loan to prop up the country’s troubled banks, a great ‘triumph' by his insane lights.  It was a ‘triumph’ alright for every household in Spain, which found they were now carrying an extra debt burden of £15000.  There has to be another solution.  Yes there is – another bailout.  The petrol dump is on fire.  Hurry; pour in more petrol. 

Now do you really want to see something scary?  Well, it’s this.  The Spanish government has to borrow at 7% to prop up banks that can borrow from the ECB at 1%, so they can lend the money back to the Spanish government at 7% so it can bail them out.  Confused?  Yes, I am too.  The expressions vicious circle and downward spiral might have been invented to explain such a crazy scenario. 

For Spain, though its politicians are blind to the truth, Europe is the problem, not the solution.  The prognosis, as the Economist reports, is bleak.  The economy is in serious recession, the public sector is cutting spending and the private sector is reluctant to invest.  Unemployment is among the highest in the Continent, with one person in every four out of work.  High unemployment, falling demand and low investment impacts on tax receipts, which in turn impacts on Spain’s ability to meet its debt repayment targets.  Weak banks, more bailouts, more and more austerity; down and down the spiral goes.  Wilkins Micawber would understand: the result is indeed misery. 

Then this really is the economics of the madhouse?  No, it’s far too insane for that.  

Greeks Bearing Gifts

There is a wonderful, almost divine irony in the fact that Greece, of all places, turned out to be the Achilles’ heel of the European Union, the weak spot that may in the end lead to the death of the whole mad project of a one-size-fits-all currency.  So much nonsense has been written about the Greek debacle that is easy to lose sight of some basic facts.  To begin with it had nothing to do with international currency speculation and everything to do with Greeks bearing gifts…to themselves. 

It’s easy to understand the anger of the Germans, now faced with paying the bill for the way in which the Greeks have pampered themselves, effectively at their expense.  Greece created one of the most madly extravagant welfare and benefits systems in the whole Continent.  The working day often finishes at 2.30pm.  Retirement provisions are absurdly generous, with some people able to stop working at the age of fifty-three.  Add to that a culture of corruption, symbolised in the words “fakelaki”, meaning envelopes containing bribes, and “rousfeti”, meaning political favours, then a bad situation became cancerous.

The revealing thing in this is that many Greeks themselves, at least those who are not communists and anarchists, recognise the depths of their own blameworthiness.  Commenting on tax evasion, something of a national sport, one newspaper headline jeered with heavy irony: “No taxes – we’re Greek.”  In public hospitals doctors often refuse to treat patients until the “fakelaki” is forthcoming.  The private sector has all but been destroyed by an ever expanding bureaucracy.  Loukas Tsoukalis, a professor at Athens University, has said that Greece has a capitalist system with a Soviet state.

The fact that Greece was allowed to join the euro at all when it clearly did not meet the preconditions for membership can be put down to what I would call the ‘Byron Illusion.’  When Lord Byron went to fight and die in the nineteenth century Greek War of Independence he went not for a living nation but for a dead idea, an idea nurtured in generations brought up on the classics.  The Greeks continued to play on the romance of the ancient past in their application for euro membership, something that seduced Europe’s leaders, many of them also educated in the classics.

But Greece of the modern age is not the Greece of the ancients, not the Greece of Plato and Pericles.  Writing in the New York Times, Robert D. Kaplan rightly argued that it is far more the child of Byzantine and Turkish despotism.  The EU, preoccupied with balancing France and Germany, ignored not just economic facts in the rush into the euro but far deeper historical fractures between the north and the south.  Greece is not the ‘cradle of democracy,’ a label that is no more than a shallow pretence.  In the modern age it has more often been the nursery of despotism. 

So forget irresponsible bankers and wicked speculators.  The whole of the sovereign debt crisis was based on one simple truth: it’s impossible to overcome centuries of cultural, economic and political differences in the illusion of monetary and political union.  Europe is not one; Europe will never be one.  History is not fooled. 

Lessons of History

Everything in history occurs twice, so said Hegel and Marx.  Actually history very rarely repeats itself, at least not in the way we expect.  One would be wise not to read the lessons of history because the lessons are invariably wrong. 

After the Second World War the politicians and bureaucrats, washed up on the shores of a European desert, thought that the best thing to do was escape from the past; to escape, as they perceived it, from the nationalism that had brought the Continent so low. 

Out of the ashes arose a new phoenix - the European Community, carrying on the wing the ideal of a more perfect union.  It was nothing of the kind; it was an arrogant fantasy from the outset, one that sought to turn a geographical expression into a political reality.  Nationalism, like a wicked genie, was forced into a bottle.  Latterly democracy, an embarrassment for the Euro elite, was likewise being forced into a bottle, but both have burst forth in springtime of anger. 

My attention was drawn to an article by Ed West in the Telegraph recently, with a particularly apt headline – Europe’s post-Nazi stress disorder has brought it to ruin.  It’s a timely reminder of the realities of history and the blindness of the architects of the grand illusion.  The military historian Anthony Beevor is quoted, airing the obvious;

The great European dream was to diminish militant nationalism. We would all be happy Europeans together. But we are going to see the old monster of militant nationalism being awoken when people realise how little control their politicians have. We are already seeing political disintegration in Europe.

In that same article a panicky open letter published in the Guardian is also quoted, written in the dawn of Golden Dawn, the fascist heavy metal brigade which is on the threshold of entering the Greek parliament.  It was headed We are all Greek Jews now, presumably meaning the readers of the Guardian and not the Golden Boys:

We invite all citizens, political parties, unions, civil society, intellectuals and artists to fight the extreme right by promoting and bringing to life the European dream. We must always remember that this dream was built on the ruins of Nazism. We must never forget about the Shoah. Our dream is of a continent free from racism and anti-Semitism. It is the project of a society based on "togetherness" – beyond boundaries.

Second, we must refute the dogma of "the European fortress", which favours the spread of anti-immigrant speeches and the lockdown of Europe's frontiers, especially when a core element of European post-war identity – its social welfare system – requires the economic input of immigration to remain sustainable.

Actually it’s this sort of meretricious rubbish that is responsible for the present malaise.  The authors simply cannot see that it was the attempt to promote and bring to life ‘the European dream’ which has turned out to be a European nightmare.  Yes, a nightmare, of nations and peoples with wholly different traditions and widely different economies being moulded into One.  The people of the Continent were kidnapped by Procrustes, who proceeded to cut or stretch them into shape.  Rather appropriate, don’t you agree, that a figure from Greek mythology, should serve as the supreme European architect? 

One Golden Dawn does not make a Nazi summer.  It’s the ignorance that strikes me, the utter incomprehension.  It would seem that the only way of guarding against the past is the ‘European ideal’, the only way of guarding Europeans against themselves.  But, as West rightly says, the ‘European ideal’ is not failing because of a collection of laughable Greek heavies; it’s failing because as a vision it’s totally unworkable.  It could only work in the absence of democracy, by new forms of centralised tyranny that the ‘European idea’ was set up to guard against.  Ah, there’s the rub, there’s the paradox. 

A Europe where centuries of difference and inherited tradition were conjured into nothingness, a Europe where uncontrolled immigration has threatened the livelihood and identity of its indigenous peoples, was heading sooner or later for a great fall, and all the king’s horses and all the king’s men won’t put it back together again. 

Did you note that point by the Guardianistas about social welfare systems?  No, I don’t understand what they are on about either, unless they mean that it is a sign of economic vibrancy for a country to attract hordes of foreign welfare claimants.  The irony is that their dream of a Continent of unrestricted movement, without boundaries, a Continent of ‘togetherness’ is the very thing that has increased anti-Semitism and racism of all kinds.  When people are ignored, when their concerns are ignored, marginal views begin to move in from the cold. 

West mentions his grandfather, who fought in the Second World War.  Both of mine did, one in the Far East and the other in the North Atlantic and the Mediterranean.  They had a clear idea of what they were fighting for; they had a clear idea of what was right and what was wrong.  West writes of his grandfather “I suspect that, were he to see Britain and Europe today, he would conclude that it was in the grips of collective insanity.”

I don’t suspect; I simply know all of my grandparents would be horrified by the direction that our history has taken; horrified by the insanity that grips contemporary Europe, as bad as past insanity, only different.  That’s the lesson of history.  

Deeper Still and Deeper

As the euro crisis moves downward in ever tighter circles I recall a piece I wrote a year and a half ago for the Daily Telegraph readers’ blog site.  Reading reports in the Sunday press I thought I would have another look at it.  It’s astonishing how little has changed; astonishing that grown-up people with grown-up minds could ever have embraced this madness in the first place.  How ill-led we are, how deceived; how unworthy are those in positions of power, who have neither prescience nor judgement. 

Anyway, judge the relevance for yourself.  The original article was headed Moussaka Money, published on 16 February, 2011. 

The Greek crisis is a superb demonstration of the intellectual absurdity and institutional vanity at the core of the whole European maze.  The important thing here is that we are dealing with a political as much as an economic crisis, perhaps more of a political crisis. We are dealing more specifically with blindness, blindness and hubris caused by a combination of self-delusion and self-interest.

The euro itself, the single European currency zone, was always about prestige, a desire for the grand gesture.  Looking at it in hard economic terms who would ever have agreed to allow the Greeks, or the Spanish, or the Irish to join the club? All it would take is for these fragile economies to come under sustained pressure for questions to be asked about the operation of a whole euro zone, combining rich and poor and supposedly treating them as equal partners.  

The Greeks, the poor cousins, were effectively given a Euro credit card, and they used it, without caution or reservation.  The Germans were paying, yes, but they also benefited with a massive trade surplus, another source of imbalance.  Angela is resisting a bail-out; she has to, if only for the sake of form and political credibility.  Sarko does want a bail out, but that comes at a price; there has be convergence across Europe. Athens, as I said previously, is facing a new Macedonian hegemony, a new dependency in all but name. 

The Germans in particular are heading for the perfect storm; they have too much of their economic self-interest invested in the euro-zone to allow it to collapse altogether, but they are horrified of the consequences of countries like Greece riding on the prosperity of the old D-mark, abandoned with considerable reluctance.

We know the Eurocrats are not fond of votes.  After all, they have a tendency to go the wrong way.  But the Germans are least fond of a particular kind of vote than any other European nation, so much so that referendums are actually banned by law because of the use they were put to by the nasty Nazis.  Just as well for the Eurocrats, I suppose, because the Germans would never have abandoned the D-mark if they had been given a choice on the matter eleven years ago.  

At the time the opponents of the euro ran a campaign warning of the dangers of being linked up with the ‘spaghetti money’ of southern Europe.  So, poor old Angela finds herself in an impossible position.  Pressures at home force her to talk tough.  Auntie Angela does not come to the Greeks bearing gifts, no, she waves her Aryan finger and talks austerity.  But this is tomorrow and now we know just how much the Greeks have been spending, as if there was, well, no tomorrow.  

Yes, what a mess this is.  If the Greeks get a handout - as they almost certainly will - the markets will turn on the next most vulnerable, the other partners in the union of the Piigs (Portugal, Ireland, Italy, Greece and Spain).  The contradictions, there from the outset, are being revealed one by one.  

Angela is a high-wire artist, a gambler as much as those who speculate on the currency markets, who speculate against the euro.  She is playing for time, her fingers crossed behind her back, hoping that austerity in Athens is enough.  And if it is not? Well, then we will perhaps be talking about moussaka money. 

Europe's Perfect Storm

What follows is an article wrote for BrooWaha. The subject matter is in part covered by my previous article on the great European fiasco (The Majority is Always Wrong), though I tailored this piece specifically for a North American audience. BrooWaha is in lockdown at the moment (there have been no fresh articles in two days), so rather than see it lost in a logjam I’m publishing it here.

Are you following events in Europe, the slow motion death of democracy? Yes, that’s what’s happening, all part of the continuing attempt to stabilise the troubled euro, all part of an attempt to restore the confidence of the financial markets in the benighted single currency.

The latest proposal, one that Britain opted out of, is to introduce more centralised control over the tax and spending decisions of the individual members of the euro-zone, some seventeen in all at present. European leaders, in their boundless wisdom, have suddenly discovered that one cannot have monetary union without fiscal union; or rather one can, if one wants to see the madness that has beset the whole vanity project over the past few months. And fiscal union has to involve some mechanism for overruling national governments.

No taxation without representation, was the battle cry of the American Revolution. It really does not matter who represents you in future; in practical terms they will be irrelevant, is the manifesto of Europe’s more perfect union. Just imagine if King George had agreed to all of the rebel demands in 1776. Yes, that’s fine; choose your government, elect your president, raise your taxes, but just make sure that the details of your national budget are sent to London so that we (the royal we, of course) can say yea or nay. There will be penalties if you don’t.

There is a terrible irony at work here, as I noted on my personal blog, an irony that sees countries like Greece and Poland, countries that struggled for centuries for national freedom, giving away the last traces of sovereignty to a new central power, a new Ottoman Empire or a new Soviet Union. Under the proposed arrangements it will not matter who or what the people vote for; the real decisions will be made not in Athens or Warsaw but in Brussels, not by elected politicians but by bureaucrats, a bloated and corrupt officialdom.

It would be wrong to assume that this sinister process has come about purely by accident, a by-product of the present financial crisis. Writing about the euro last month, Nigel Lawson, once the chief financial minister in Margaret Thatcher’s government, mentioned a particular faction of Europhiles, people who had a different agenda all along;

They fully understood the dangers yet promoted EMU [European Monetary Union] precisely because a crisis could be overcome only by full fiscal and political union. For them, this was the objective. But such union is only practicable if it is the clearly expressed wish of the majority of the people of Europe; and that is manifestly not the case. Contempt for democracy has always been one of the least attractive characteristics of the European movement. It lies at the heart of the present crisis.

There is indeed contempt for democracy in this; that is not too strong a way of expressing the point. There is also a deep condescension among those charged with the responsibility of directing the whole European project from offices in Brussels, a belief that the process is too technical, too complicated for ordinary voters to understand. In the past when new treaty arrangements were rejected in national referenda they were simply repackaged in a different form and accepted without the inconvenience of the vox populi.

I’ve written before that Europe is now in a post-democratic age. The evolution towards a centralised, technocratic future just got faster. There is no repression, there will be no repression, other than repressive tolerance, allowing people to say all that they want, confident what they want will always be ignored. This is a recipe for political disaster, for a deeper political crisis that cannot be long delayed, a perfect storm. Remember, you read it here first.