Fair. Balanced. American.

Wednesday, May 16, 2012

One of the better summaries

Of the Eurocrisis:
But what has become unavoidably clear is that Germany, the linchpin of the eurozone, has been hopelessly stuck in an attitude that makes the break-up of the eurozone almost unavoidable. If Germany cannot pull itself together to keep Spain in the euro, then the markets can no longer ignore the fact that the lack of leadership and governance is a fatal flaw in the system.

What accounts for this? I would argue that the heart of the problem lies in the political culture of Germany and the mindset of its political and economic elites, which have never been willing to admit to their own voters the sacrifices that must be undertaken in order to be the leader of Europe. Instead, they have led Germans to believe that they can have it both ways: enjoying the fruits of the eurozone while times were good, and lobbing the burden of adjustment onto others when times got bad.

By doing this, the German elites set a trap for themselves with their own voters from which they cannot easily escape. Greece has been the perfect storm for the flaws of the eurozone and the vacuum of German leadership. Early in the crisis, the best course of action – the one I believe most likely to have preserved the core of the eurozone – would have been to admit the mistake of admitting Greece into the euro. From that recognition, Greece should have been eased out of the euro, while the German and French banks that were on the hook for losses could have been recapitalized. Finally, a massive firewall of monetary and fiscal support for Spain would have been announced.

But to achieve all this would have required a huge loss of face to the German voters – and a willingness to assume the burdens of leadership.

Instead, in the German mindset, Greece became a convenient but bogus template for assigning blame to other periphery countries – particularly, Ireland and Spain. Rather than acknowledging that these countries suffered from the bursting of a property bubble, greatly inflated by German and French lending, German elites pilloried them alike for having out-of-control budgets and inefficient workers. In the end, it was easier to blame and to moralize than to admit the truth.

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