The Unraveling in Europe
How bad is the financial situation in Europe? Greece may be about to exit the eurozone, though not according to everyone. The Economic Times of India has published an interview with Jean Lemierre, the chief negotiator for private creditors in the Greece bailout. According to Lemierre, Greece has too much to lose and “a majority of political parties are in favor of the euro.” Yet the Boston Globe is reporting that Bundesbank President Jens Weidmann has warned Europe’s central banks not to increase their exposure to Greece on account of political uncertainty.
Is there really danger? For those who live in hope, and for those who cling to economic optimism, there is nothing to fear but fear itself. For those who understand the Leftward drift of Europe’s political economy, and the inevitable bankruptcy that implies, there is no uncertainty whatsoever. Bankruptcy is coming for everyone and Greece is merely first in line.
The optimists, of course, are putting a brave face on it. They have Lemierre’s soothing words – and these words are repeated on every side. Bloomberg News is reporting that the “euro has weathered the worst financial crisis since the Great Depression….” Of course, weathering is nothing to worry over. It makes men and currencies stronger. It is no big deal if the euro has lost value of late. It is still above the dollar, and will probably stay above the dollar. Or is there someone with authority who says that Greece will lead the way for a series of euro-defections?
Nouriel Roubini is an economist with a sense of smell. He was one of those who predicted the crash of 2008, and now he has written a piece titled Greece Must Go. It is merely a matter of time, says Roubini – “either this year or next, Greece is highly likely to default on its debt and exit the eurozone.” Roubini says austerity and structural reforms are “failed policies” that will not restore Greece’s competitiveness. The only way out, he says, is a clean default and exit. “Greece cannot remain in a depression for a decade,” Roubini explained. “Likewise, a rapid deflation in prices and wages, known as ‘internal devaluation,’ would lead to five years of ever deepening depression.” But wouldn’t there be consequences for exiting?
Roubini admits that abandoning the euro would be “traumatic” for Greece. There would be suffering, yet there would be a more rapid recovery for the country. Roubini points to the example of Argentina. There is no arguing the fact that the 17 nations making up the eurozone are sovereign states, and these states can choose their own path. Portugal, Spain and Italy are already caught in a severe financial crunch. Would they suffer austerity for the euro? “Like a doomed marriage,” noted Roubini, “it is better to have rules for the inevitable divorce that makes separation less costly to both sides.”
If we credit Roubini’s analysis, there will be more than one defection from the euro. This train of events would likely reduce the euro’s value, which would be unacceptable to Germany. In such a situation Germany might abandon the European currency altogether. The great economist and social thinker, Max Weber, wrote in Economy and Society (p. 193) that “radical alterations in the (substantive) validity of money … produce a chronic tendency toward social revolution….” He further stated, “Rightly or wrongly, some can hope that this tendency will lead to the transformation of a market economy into socialism.”
We are approaching a situation in which economic distress engenders political unrest and revolution. If this happens in Europe it will probably happen in the United States as well. Many people will think such a prediction is farfetched, but revolutions have followed on the heels of economic distress in ancient and modern times. It is safe to say that the present economic unraveling isn’t going to stop. The reason for this may be found in the decadence of our civilization. We ourselves have degenerated from our ancestors. All the signs are present, including signs of impending calamity.
About JR Nyquist
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