Friday, March 27, 2009

Tough Times in Eutopia

"Tough Times in Eutopia," subtitled "The continent's politicians think the undemocratic character of the European Union is a virtue. They have miscalculated," is an article written by Andrew Stuttaford which appears in the March 30, 2009 issue of The Weekly Standard. Unfortunately it does not appear to be available to nonsubscribers.

Stuttaford's expertise is in International Finance and his comments on Finance and the EU economic concerns are better developed than his comments on the EU's lack of democracy. I'll quote a few sections and then comment:

" . . . it is worth pausing to consider how the introduction of the euro has left the EU marooned on a circle of economic hell all of its own making. Imposed on most of the European heartland by a characteristic combination of bullying, bribery, conclave, and legerdemain, the single currency was put in place with as little regard for the real world as for the ballot box. To squeeze a wide range of vastly divergent economies (and to do so with few safety nets) into one monetary system made little sense except when understood as a matter of politics, not economics. But economics has a nasty habit of biting back.

"Up until the eruption of the present crisis, the European Central Bank's interest rate policy primarily reflected the needs of France and Germany, Euroland's largest economies. This left rates "too" low for naturally faster growing countries like Ireland and Spain, which in turn inflated unsustainable housing bubbles. These have now burst-in Ireland's case taking much of the banking system down with it. On some forecasts Irish GDP may shrink by 10 percent between 2008 and 2010, a dismal number that could eventually prove too optimistic. Gloomsters joke bleakly that the difference between Ireland and Iceland is six months and one consonant. Spain meanwhile now boasts an official (in other words, understated) unemployment rate of 14 percent. Over 600,000 migrant workers have been laid off. This is not a recipe for social peace."

"These worries are made even more pressing by concern over the impact of Eastern Europe's spiraling economic woes on the already shattered finances of the western half of the continent. Contrary to some of the more excitable headlines, not all the countries of formerly Warsaw Pact Europe are, yet, in deep trouble, but the problems of those that are (notably Hungary, Ukraine, Romania, and Latvia) threaten to wreck confidence in those that are not. And those problems will not be confined safely behind the Oder-Neisse line: Two of Sweden's largest banks, for instance, are frighteningly overexposed to the faltering Baltic States, while their counterparts in Austria, seemingly lost in nostalgic Habsburg reverie, have reportedly lent out the equivalent of 70 percent of their country's GDP to once kaiserlich und k├Âniglich territories and parts nearby."

. . .

"So money will be thrown around, the imperiled brethren of both East and West will, after much shoving, screaming, and hesitation, be bailed out. Some protectionist measures (directed against those outside the EU) will be brought in and all fingers will be crossed. It won't be pretty, but with luck, it might be enough to stave off catastrophe. Pushing their luck, some glass-is-half-full Europhiles believe that the fact that no country can easily work its way through these tribulations alone will conclusively make the case for still closer European integration to some of the EU's more reluctant federalists. You can be sure that this is a rationalization that Brussels will look to exploit: Rahm Emanuel is not the only politician unwilling to waste a crisis. The EU's policy response to the slump is likely to have two objectives: the reconstruction of member-states' economies and the destruction of what's left of their autonomy. Going for the latter could well drive even more disaffected voters into the extremist fringe, though Brussels is arrogant enough to persist. There are already indications that the eurocrats may be pushing at an open door. In a startling example of mistaking the Titanic for the lifeboat, Poland has become just one of several nations speeding up plans to sign up for the euro-and the safe haven it is meant to represent"

COMMENT:

As of March 26th 2009, Poland was still on the Zloty per http://online.wsj.com/article/SB123802887719243221.html so perhaps Poland will weather the storm without falling into the trap of switching to the Euro with all the attended troubles Stuttaford describes.

I have been critical of Socialistic governments for "experimenting." The Communist forms of Socialism know all about how to do a revolution, but nothing of how to make a nation be successful economically, politically, or socially. Once a Communist revolution is over then it turns into a dictatorship with the "Great Leader" engaging in all sorts of experimentation that has without exception failed. Failure here is judged in terms of the Utopia the Revolutionists promised and the results they actually achieved.

To some degree the EU was another Socialist Revolution and now it is busy experimenting. In Europe they have been inching into the Socialist water, first one foot and then the other. I have criticized other aspects of the EU project, but Stutteford's take on the economic status, or perhaps it is better to say "financial status" is interesting. The individual nations haven't given up everything so far, just one foot and half of another, but they have given up a large degree of economic independence and those nations that have adopted the Euro, many of them, are seeing that the EU has gotten them into more trouble than it has helped them with. Stutteford reports that "Hungary, Ukraine, Romania, and Latvia" are in "deep trouble."

Indeed, on March 26th http://online.wsj.com/article/SB123797363098836183.html Romania accepted a 20 billion Euro rescue package. . . . Serbian officials said the country reached a deal with the IMF on a €3 billion loan to bolster foreign-exchange reserves and prevent the national currency, the dinar, from falling further."

On the other hand, the same article reports, "the IMF is offering flexible credit lines to economies with sounder fundamentals. Poland and the Czech Republic are potential candidates for such an arrangement."

I continue to be critical of the EU; however Stuttaford hasn't convinced me that the EU is doing bad things during this economic crisis. He may be right in saying that the weaker economies such as those mentioned in the previous two paragraphs are worse off, economically, than if they had not been in the EU, but the EU can't entirely be blamed for that. Some of the blame must reside with the earlier Communist experimentation. These economies were weak before they EU ever became involved with them. And where is the economy today that is not in some sort of trouble?

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