It seems that there is a kind of human reflex demanding extension, expansion and the crossing of limits as a generally desirable goal.
The dream of empires, reaching out for new territories and overall control, the ideals of unity or even uniformity have prevailed through all eras and ideologies.
But ironically, the final crisis of systemic extension and overstretching empires usually bring up opposite effects: instead of external expansion the rise of inner conflicts might occure, instead of successfully spreading rules and regulations, the reliability of rule and law at home might become corrupted. Instead of creating stability elsewhere, instability tends to come back to the heartland.
Looking at Europe from a distance it seems that exactly this is happening now after the ambitious Euro project went into its crisis. Only a minority of international observers still believe in recovery and repair or in the further extension of EU competencies.
Currently we are observing world markets, world leaders and banking managers around the globe starring at a country of ten million people, ranking no. 36 in nominal GDP worldwide with less than 10% of the German nominal GDP but still with a ten times bigger GDP than Ethiopia for example (where eight times more people live than in Greece):
If nations were comparable to societies, Greece looked like the new precarious middle class among nations involved in global change: a fully integrated member of NATO, EU, Eurozone, OECD, WTO and all other privileged multinational framework organisations it seems to be now at the brink to fall back on the level of the world’s working class of nations, the ‘developing world’ competing with each other by low salaries and simple living conditions.
But instead of questioning systemic structures and international procedures which have lead to this economic and social regress, EU member states point their political finger at Greece shouting ‘this is a home made disaster’, an ‘exception’, a ‘scandal’, ‘the result of cheating’, evoked by ‘corrupt elites’ a.s.o.
But in fact, those who swear in that way behind closed doors are the same ones that introduced fully inappropriate low interest rates for Greek banks over a decade, that accepted the rise of production costs in Greece by more than 30% by implementing the Euro curreny, that created a disfunctional EU system of subsidies which contributed to the industrial decline of Greece and other European countries. Gradually, the same politics have moved Spain and Portugal out of balance.
Instead of caring for incentives to sustainably develop the so called peripheric Europe, globalizing policies encouraged capital flows to Asia. German politicians and industrial managers never defined the Eurozone as a domestic market but as a ‘less attractive’ export destination. Now their tax payers are urged to pay the bill for these failing policies that created a European industrial core zone around Germany while larger parts of Europe are turning into exploitable supply areas or depending subsidy receivers.
European politics failed to create an economic environment that allowed competitive production on the continent beyond High Tech and consulting. Shoes, clothes, furniture, computers and solar cells from Europe are unaffordable in Europe itself while youth unemployment in Spain and Greece has reached 50%. What happened to the Greek textile industry?
Decision makers in Europe tend to define a potential Greek default as a failure of the local elites and not as a result of European politics. They did’t intervene when half of Southern Europe became de-industrialized. Now the EU commission calls for subsidized growth programs under their control. Again, it seems that the ambitions of the European elites are more important than the creation of a functional, rational, de-ideologized market system.
Functional markets are as necessary as locally adjustable currency systems and the chance for political steering. The more centralized, planned and inflexible the overall system is, the bigger is the risk of its failure. It is not very likely that the Eurozone is an exception of this rule.
The most severe example of a historic disaster initiated by too large, unflexible alliances leaving no ‘alternatives’ in their reaction patterns were the political mechanisms leading to World War One in 1914. Austria was united with Hungary and both were allied to Germany while Serbia (where the initial incident happened) was allied with Russia and France. The murder of the Austrian crown prince in Serbia activated a chain reaction dragging all allies into war.
An opposite example to this kind of automatism was the refusal of former British general Sir Mike Jackson to obey an order from American General Wesley Clark to block the runways of Pristina Airportand to isolate the Russian contingent that was positioned there during the Kosovo war . He reportedly told Clark, “I’m not going to start the Third World War for you”.
Who in Greece should have the power to say ‘I’m not going to strangulate our economy and impoverish our people for the survival of the Eurozone’? Or, antonymously who might say ‘Without the Euro you all will become more poor, so lets face the challenge and follow the international advisors’?
The problem is, that neither the first nor the second statement might be heard as the promises that were necessary to motivate a self-sacrificing decade-long rescue of the Greek Euro does not have enough power of credibility and will never come with a guarantee. Vice versa, neither new international credits nor the return of the Drachma can help to maintain the former wealth.
The Greek double bind is tragic and dangerous for all Europe. Alliances today are larger and stronger than any time before. The smallest dot on the planet can become the decisive one for a whole civilization if it is connected and defined as an indispensable part of an almost global alliance.
Up to now, the political class and the central banks in Europe (and in the US) have managed to keep inflation on moderate levels as well as to hold together the diverse currency zone.
But this is necessarily temporary as the debt burden and the catastrophic situation of most Southern European economies can’t be solved without real and heavy inflation or by returning in fact to single currencies. The moment of this logic truth can’t be postponed forever.
The current events in Greece help to come closer to this point. The Eurozone’s heavy weights need to react, they need to change their policies in favor of Greece and the other precarious states, they need to pay for Greece, Spain, Portugal if they do not want to lose the battle politically. But even if they do, there is no gurantee of success at all.
This is why the search for alternatives has become so important, why the one-dimensional rescue schemes from Brussels, Paris and Berlin need to be replaced by a new, open thinking and by new models to be discussed without taking care about potential market reactions.
Where is the discussion about a network of gradually flexible currencies in Europe for example or about a soft differentiation of the existing Euro system? Where are proposals for improved democratic participation of the people on European levels?
Anybody, who has ever played the age-old computer game SIM CITY or who ever read a book about political or social sciences knows that the cut of resources creates a political reaction.
If the decision makers in Brussels and Berlin didn’t foresse the quagmire in Greece, if they are pretending now to be surprised, than they just prove a complete lack of knowledge and expertise. That seems to be even less credible than the politics that they make. This double bind might be the most dangerous for Europe.
Signs of a strategic change of French and Dutch politics besides a more easing ECB monetary policy has left behind the German austerity approach. Europe seems to be on the way now to come closer to Obama’s QE and job creation policies. The US JOBS ACT was signed April 5th this year.
Given the highly volatile situation in Spain, the ever harder recession in Greece and the negative signals from Great Britain, it starts to become visible even for hawkish observers that austerity measures have strangulated economies all over Europe. The power to stay this rigid course is about to end. Stimulus might not be back but it might become a necessity if stability and living conditions should not be sacrificed.
A closer look to the ratified American job act shows the differences between the European and the US approach that evolved already years before. It gives an impressive insight regarding priorities and the willingness to act:
The White House provided a fact sheet which summarizes the key provisions of the $447 billion bill. Some of its elements include:
Cutting and suspending $245 billion worth of payroll taxes for qualifying employers and 160 million medium to low income employees.
Spending $62 billion for a Pathways Back to Work Program for expanding opportunities for low-income youth and adults.
$49 billion – Extending unemployment benefits for up to 6 million long-term beneficiaries.
$8 billion – Jobs tax credit for the long term unemployed.
$5 billion – Pathways back to work fund.
Spending $50 billion on both new & pre-existing infrastructure projects.
Spending $35 billion in additional funding to protect the jobs of teachers, police officers, and firefighters
Spending $30 billion to modernize at least 35,000 public schools and community colleges.
Spending $15 billion on a program that would hire construction workers to help rehabilitate and refurbishing hundreds of thousands of foreclosed homes and businesses.
Creating the National Infrastructure Bank (capitalized with $10 billion), originally proposed in 2007, to help fund infrastructure via private and public capital.
Creating a nationwide, interoperable wireless network for public safety, while expanding accessibility to high-speed wireless services.
Creating additional regulations on businesses who discriminate against hiring those who are long-term unemployed.
Loosening regulations on small businesses that wish to raise capital, including through crowdfunding, while retaining investor protections.
In total the legislation includes $253 billion in tax credits (56.6%) and $194 billion in spending and extension of unemployment benefits (43.4%).
The sudden decline of the gold price in the late hours of February 29th came as a direct reaction of Ben Bernanke’s remarks regarding further easing policies that he denied. Positive news regarding the economic recovery in the US and the decreasing unemployment rates added to the price decrease after weeks of steady gains.
But it is very likely that technical reactions of set price limits were the main drivers of the sudden turn. Experts do not expect a further decline but continuity of the upwards trend due to factors dicussed earlier on this platform.