Monday, October 10, 2011

EU leaders still heading happily for the cliff

Merkel: Nick, mein Freund, have we made das Volk in Greece and Portugal and Spain and Ireland poor enough yet?

Sarkozy: Naturellement non, ma Angie! But we must zertainly save les banques!

German Chancellor Angela Merkel and French President Nicolas Sarkozy have again met and agreed to serve the plutocrats of Europe by loyally cooperating to support the euro and provide public assistance to banks in trouble while insisting that the people of Greece, Ireland, Portugal, Spain and Italy continue to impoverish themselves with austerity economics in the middle of a depression. It's hard to exaggerate the failure of European leadership at this moment in history.

Euronews reports (Paris and Berlin join forces in fight for eurozone 10/09/2011):

The French and German leaders have held another crisis summit on the Euro in Berlin as the EU’s lead pair attempt to speak with one voice.

They agreed completely on a co-ordinated plan to recapitalise fargile [sic]banks, and said the eurozone's economies needed to be better co-ordinated. President Sarkozy also insisted that Europe needed to get its act together sooner rather than later.

"This crisis is a financial crisis that has created much suffering in our countries and in the entire world. We must give a sustainable and global answer to this crisis. We have decided to give this answer before the end of this month because Europe must have resolved these problems before the G20 summit in Cannes," he said.
I think the EU leadership, Merkel and Sarkozy in particular, has jumped the shark, screwed the pooch, whatever your favorite metaphor is for having gone so far that bad consequences can't be avoided.

Greece's debt has to be written down in a major way; they're not going to pay it back. Instead, the EU keeps pumping money into Greece and other countries under attack by the bond markets to prevent the default (in Greece's case) that everyone knows has to happen. The form of the assistance is making public institutions take more and more of the bad debt risk. The whole program is concentrated on saving giant European (especially German and French) banks from the consequences of their bad risk practices. And doing so by a self-destruction austerity policy that is pounding the economies of Greece and other countries during this depression and thereby undermining their ability to service their debt.

Merkel and Sarkozy have taken the EU from being an institution that is an important support for peace and democracy to being an institution forcing the impoverishment of large numbers of Europeans on behalf of plutocrats. And undermining democracy in the process. They're practicing the kind of statesmanship that the Hohenzollerns, Habsburgs and Romanovs destroyed their dynasties practicing.

I always like to cite Krugman, so I will here. As he notes in Financial Romanticism 10/09/2011, bailing out major banks is necessary and, to a large extent, inevitable. How they are saved is another question. Putting a failed major bank into bankruptcy, reorganizing it with new management and requiring the stockholders take losses, is a very different and usually far more constructive way to do it than providing the failed banks extra funds, leaving the failed management in place and allowing them to do the same reckless things with inadequate oversight. Sadly, the latter has generally been the model the US and Europe have favored in this depression. Iceland is an exception. They took the former route and they are recovering much better than Ireland, who made a big bet on the latter route.

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