Thursday, December 01, 2011

End of the euro, Thursday edition

To me, it's getting more painful by the day to watch, even though I have a sort of morbid fixation on it. This Spiegel International piece has an upbeat title, Europe's Debt Crisis: ECB Hints at Help Pending Euro-Zone Integration 12/01/2011.

But the story is almost the opposite. European Central Bank (ECB) head Mario Draghi says he supports two of the three things necessary to save the euro, if such a feat is still possible: eurobonds and more fiscal integration of the eurozone. Apparently if one squeezes the turnip really hard, a bit of liquid appears relating to the third critical part, the ECB acting as buyer of last resort of eurozone sovereign debt. But the liquid looks more like water than blood:

But Draghi also seemed to hint at a possible way out of the downward spiral, saying that the ECB could be prepared to take additional steps to halt the crisis. First, however, Europe needed to move quickly toward greater economic integration.

"Other elements might follow," he said, in reference to the coordinated central banks' action taken on Wednesday. "But the sequencing matters." He added that "a new fiscal compact would be the most important signal from euro-area governments for embarking on a path of comprehensive deepening of economic integration."

Draghi did not outline what kind of action the ECB might take, but he said that one reason the ECB had not embarked on the kind of massive bond-buying spree that many have called for is the concern that it would remove pressure on heavily indebted euro-zone nations to implement strict austerity programs. [my emphasis]
To me, this is another stake in the heart of the euro this week. (Excuse the bloody metaphors; I said it was a bit morbid!) The first was the plan floated by the French for a fiscal-union agreement that would require balanced budgets in all eurozone countries by 2016.


Austerity economics is killing the euro because it's battering European economies, and the US economy, too. The EU and the eurozone face four crises, more-or-less in time-sequence order: a bank crisis, a shortage of investment due to the depression, a sovereign debt crisis, and a crisis of confidence in democracy resulting from the atrocious way France and Germany in particular have insisted on handling the other crises.

The democracy crisis is actually the one that concerns me the most. Italy and Greece are now governed by regimes that for all intents and purposes were forced on them by German and French banks via their subservient national governments and the EU. To quote again from Jürgen Habermas:

Habermas refers to the system that Merkel and Sarkozy have established during the crisis as a "post-democracy." The European Parliament barely has any influence. The European Commission has "an odd, suspended position," without really being responsible for what it does. Most importantly, however, he points to the European Council, which was given a central role in the Lisbon Treaty -- one that Habermas views as an "anomaly." He sees the Council as a "governmental body that engages in politics without being authorized to do so."

He sees a Europe in which states are driven by the markets, in which the EU exerts massive influence on the formation of new governments in Italy and Greece, and in which what he so passionately defends and loves about Europe has been simply turned on its head. [my emphasis]
Greater fiscal union would be needed to save the euro. But a fiscal union that locks in suicidal austerity economics will kill the euro, too, probably along with democracy in some of the current EU countries. We shouldn't underestimate the seriousness of Italy and Greece each being run by what Jamie Galbraith (The crisis in the eurozone Salon 11/10/2011) described with particular reference to Greece as "a junta of creditors' deputies". The fact that proper legal forms were technically observed in installing those governments is comparable to Bismarck and Kaiser Wilhelm I technically being required to get Parliamentary approval for their military budgets, i.e., more pantomime than substance. Galbraith also notes:

Underpinning banker power in Creditor Europe is a Calvinist sensibility that has turned surpluses into a sign of virtue and deficits into a mark of vice, while fetishizing deregulation, privatization and market-driven adjustment.
I wish we could apply Karl Kraus' Vienna aphorism to this: "The situation is hopeless but not serious." But this one really is serious.

I've seriously started to wonder how much German Chancellor Angela Merkel's statecraft is shaped by her first 35 years, which were spent in Communist East Germany (DDR, from its German initials).


I'm serious about that. Not that anyone would mistake her for a Communist. But in terms of the raw power-politics of the DDR and the Eastern bloc, her attitude toward Germany's role in the European Union and the eurozone as shown in the euro crisis could be modeled on the role the Soviet Union played in the Warsaw Pact, where the countries were theoretically equal but actually were expected to take order from the USSR or suffer the consequences.

No German soldiers have rolled into Athens or Rome as the DDR's did in Prague in 1968 as part of the Warsaw Pact intervention. But Angie managed to impose governments on both, though these are expected to act on behalf of the financial lobby instead of nominally on behalf of the workers and farmers like by in the old days of the DDR.

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