By Kelly Sloan
Much effort has been devoted of late towards trying to save Europe from itself, without actually addressing the problem. The announcement Wednesday of coordinated action amongst the six major central banks to help relieve pressure on the financial markets, for example, might have eased a liquidity crisis (for now at least) by allowing the European Central Bank to borrow U.S. dollars at reduced rates, but does nothing to address the underlying problems that created the bond crisis – and hence the liquidity crisis – in the first place.
The troubles with the European banks are subsidiary; the real problems are the fruits of Europe’s massive liberal experiment – profligate welfare state spending, exacerbated (at the very least) by the creation of the European Union and the Euro.
The Euro itself is in many ways the poster child of left-liberal social architecture. Its current tribulations are correspondingly stark testimony to the failure of such experiments. The establishment of the European Union and its common currency was ostensibly intended to provide economic benefit to member nations by making it easier to conduct trans-national business. But like most liberal ventures, this one had at least as much to do with political theorization as it ever had to do with economics.
The imposition of the common currency was a means to achieve equalization or leveling at the trans-national level. To do so, it had to ignore, or disregard, important regional and cultural differences and characteristics – the sorts of things that form the basis for nations – that resulted in the economically bizarre situation where countries such as Greece and Italy, with national spending habits tending towards the extravagant, were allowed to borrow at the same rate as traditionally uber-disciplined Germany.
The resulting loose- money bubble did indeed act as a rising tide lifting all the Euro-boats (even the ones not sea-worthy) for a time; but the flipside was that when the weak countries inevitably foundered, they brought even the sound ones down with them.
It is telling that the only national economies not glaringly at risk in Europe are those which have eschewed ties to the EU – like Switzerland (still possibly the best run country in the world), and Great Britain. Stronger EU economies, like Germany, should feel no reluctance or remorse against happily exchanging their Euro’s for Deutschmarks, rather than continue to be content with bailing out their more parasitic neighbors.
But the perilous effect of the Euro is not only felt by those nations, Germany in particular, that are being dragged down as a result of being tethered to a sinking ship; had the Mediterranean countries retained their own currencies, for example, they would have been afforded the option of devaluing those currencies and pricing themselves out of their troubles, as other nations with sovereign currencies in similar situations have done. Not a pleasant option, to be sure, and not sufficient to excuse, much less remedy, the spendthrift habits that created the situation in the first place, but a darn sight better than what is being currently contemplated.
The grand architects of the EU made a key, but predictable, mistake in disregarding – or failing to understand – not only economic principles, but the basic facts of human nature. As much as the Eurocrats may have wished to engineer it out of them, the people of France, Germany, Italy, and Holland simply harbor no wish to relinquish the common history, cultures and traditions that make them French, German, Italian, and Dutch. To try and replace these local loyalties with an elite centralized authority acting as economic puppet-master, is a direct affront to the voice of historical experience, with failure being the predictable result.
Europe faces many problems, most originating from the social-democratic policies of the last half-century. The issues of the crippling debt-load, low birth-rate, decline in the authority of the church and the family, massive civil unrest, and cultural decline, among others, will only begin to be resolved if Europe’s leaders firm up and squarely face the origins of their difficulties. This seems lamentably unlikely, as European Union elites in Brussels continue to desperately seek band-aids, while tendentiously pursuing policies that even further centralize power in the ECB and tighten the bonds of the EU.
Nevertheless, Europe needs to dramatically alter its mind-set, and restore the western institutions and principles which built the continent, if it hopes to claw its way out of its largely self-inflicted mess.
An orderly dismantling of the Euro would be a good place to start.