Dawn

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Sunday, August 21, 2011

Another Midday EU Special

This is an extract from an article (by Emma Duncan in The Times) on the consequences of the financial mayhem which followed Lehman's filing for bankruptcy on the 15th of September in 2008:-

When the euro was created, everybody knew that Northern Europe was both more productive and better run than Southern Europe, but the eurozone’s members hoped [Query: did they really believe?] that as they grew closer politically and economically, the productivity of the south would rise, and its economic management would improve. That might have happened over time, but there wasn’t much time: the first stage of the economic crisis started less than six years after the introduction of the euro.

My favourite piece of Warren Buffett’s homespun wisdom is: “It’s only when the tide goes out that you learn who’s been swimming naked.” That’s just what happened in Europe. As the credit crunch bit, it became embarrassingly clear that while the Germans, the Dutch and (maybe) the French were wearing capacious trunks, the Greeks, Portuguese, Spanish and Italians were in minuscule or non-existent Speedos. The weak countries’ borrowing costs shot up, threatening to bankrupt them, and their membership of the euro prevented them from devaluing their way out of trouble.

Northern Europe is, at the moment, trying to rescue Southern Europe.

It may succeed in doing so; but if it does, its governments will demand power over the taxation and spending policies of Southern European governments dreamt of only by swivel-eyed federalists.

Or it may fail; and if it does, the euro will break up, and so too may the European Union. 


Either way, the consequences for the continent will be immense.

Economic determinism is rather gloomy stuff. It leaves little room for politicians on white chargers to rescue their countries from disaster. That said, those in America and Europe have made a spectacularly poor fist of things in the past three years

Implicit in this commentary is the view that many of us hold - viz. that it's impossible to know how this imbroglio is going to resolve itself.

As for Spain, who now can oppose the view that a huge opportunity was missed - by both PP and PSOE governments - to make key structural changes when the cows were (very) fat between 2000 and 2008? Where then was the pressure to converge Spain's economy with those of the North that the euro was supposed to bring?

In fact, what happened is exactly what we saw on the streets of London - Given the opportunity to enrich itself with other peoples' money, Spain seized this with both hands and went on a lunatic debt-financed binge. Is it any wonder that the Germans are now, to say the least, unimpressed with this? After all, during this same period, they were visiting austerity on themselves while financing the madness in Spain and elsewhere.

Who's for a decade of stagnation here in Spain? Unless, of course, we get our own (devalued) currency. And a chance to make another mess of things.

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