While America’s economic future is in the limbo, pending the hugely important November election, Europe continues down the slope into economic, political and social turmoil. Part of the deterioration is the disintegration of the currency union, partly driven by the rapidly evolving disaster zone formerly known as Greece, and partly by the desire of smaller, better-managed nations to get out. One of those nations is Finland. I recently reported on how the Finns are taking a serious look at exiting the euro; today the British Newspaper The Telegraph has a story on the progress of those exit plans:
[Finland] is battening down the hatches for a full-blown currency crisis as tensions in the eurozone mount and has said it will not tolerate further bail-out creep or fiscal union by stealth. “We have to face openly the possibility of a euro-break up,” said Erkki Tuomioja, the country’s veteran foreign minister and a member of the Social Democratic Party, one of six that make up the country’s coalition government. “It is not something that anybody — even the True Finns [eurosceptic party] — are advocating in Finland, let alone the government. But we have to be prepared,” he told The Daily Telegraph.
This has enormous implications for the the resiliency of the euro – even its very survival. Many have, rightly, been suggesting that Greece will be the first nation to leave the currency union, and if that were to happen it would eventually strengthen the euro. With its totally out-of-control welfare state, Greece is a cost to other member states. They have used the euro to get prime-rate credit for their excessive spending, and since their debt is denominated in the same currency as, e.g., Finland, this drags down Finland’s credit score without the Finns having done anything to deserve it.
Therefore, if Greece left first, the credit rating of the euro zone would rise. If, on the other hand, Finland leaves it will have the exact opposite effect.
Back to the story from The Telegraph:
Mr Tuomioja’s intervention is the bluntest warning to date by a senior eurozone minister. As he discussed the crisis, the minister had a copy of the Economist on his desk. It had a picture of Angela Merkel, the German Chancellor, reading a fictitious report entitled “How to break up the euro”, with a caption: “Tempted, Angela?” “This is what people are thinking about everywhere,” said Mr Tuomioja. “But there is a consensus that a eurozone break-up would cost more in the short-run or medium-run than managing the crisis.
For now. But as other countries go into the same kind of macroeconomic tailspin as Greece is in, the cost of crisis management will skyrocket. These warnings from Finland are chilling indications that “good credit” nations within the euro zone are rapidly approaching a tipping point. At that point the Finnish cost-benefit analysis of keeping the currency union together will show that their benefits outweigh the political and economic costs of status quo for the euro.
It is hard to predict exactly how far away we are from that tipping point. Several variables play in and affect the analysis in a way that complicates any forecast. One such wild card is the very political stability of the crisis-ridden countries; the situation in Greece is increasingly reminiscent of Weimar Germany. But as explained in this story from the British magazine The Week, the deterioration of political and economic stability is no longer a Greek problem:
The mayor of a small Spanish town is being heralded as a modern-day Robin Hood after organising daylight robberies at local supermarkets to steal food for the poor. Juan Manuel Sanchez Gordillo, the left-wing leader of Marinaleda in Andalucia, has overseen the looting and, because he has political immunity as a member of the regional parliament, has ignored a warrant for his arrest and refused to appear in court.
Just a minor detail: unlike this mad mayor, Robin Hood did not steal from his fellow private citizens. He stole from government.
I am curious as to who Mayor Gordillo expects the supermarket to pay for new deliveries of food, or its employees – or its taxes. But such minor details have never bothered statists.
The deeper issue here, though, is that more than anything this is a symptom of evaporating respect for the democratic institutions of government and a well-ordered society. This evaporation is taking place in one of Europe’s welfare states, a welfare state that has been pushed to the brink by its own reckless spending, its uncontrollable entitlement programs and the persistent refusal among both politicians and the people in general to grow up and take personal responsibility for their own lives.
The expectation that government should take open-ended responsibility for people’s lives is so deeply rooted in these European welfare states that people are willing to destroy the very foundation of a free economy – the property right – before they give up their entitlement mentality.
Back to The Week:
Now [the loony mayor] is set to embark on a three-week march on Madrid, starting tomorrow, to highlight the plight of those in southern Spain affected by the country’s economic crisis. According to The Times his campaign is designed to “embarrass the government and energise anti-austerity campaigners”. It reports: “The raids involved a group of labour unionists, cheered on by supporters, piling staples such as pasta and oil into supermarket carts, which were pushed through the exits past the tills. Mr Sanchez Gordillo stood outside the shops, urging the raiders on with a megaphone.” ”There are people who don’t have enough to eat. In the 21st century, this is an absolute disgrace,” Gordillo told the Times.
From 2005 to 2010 government spending in Spain went from 38 to 46 percent of GDP. Over the past 30 years taxes as share of GDP have doubled – doubled – and the Spanish welfare state still cannot feed all those it pledges to feed.
A question for Mayor Gordillo and his fellow socialists: according to your brilliant economic analysis, when will government be big enough to honor all its spending promises?
We probably won’t get an answer from the left in Spain, at least not any time soon. According to Time Magazine, they are too busy tearing up the political and economic stability, or what is left of it, in their country:
Protests are everywhere and in almost every form these days in Spain. Ever since the Spanish government requested a bailout from the E.U. for its troubled banks in June, the growing list of austerity measures (a 7% reduction in civil servants’ pay; an increase in the value-added tax on goods and services; the abolition of subsidies for most medicines; rising power rates) has pushed a steady tide of demonstrators into the streets.
And as I reported in April, these are not the only spending cuts they have done. In June I noted that the EU was about to open the bailout floodgates for Spain, which of course would mean that the new loans would come with serious austerity strings attached. And here we are in August, and things are only getting worse.
Back to Time Magazine:
Most of these protests are of the chanting and placard-waving variety; hardly a day goes by in Madrid without some kind of angry march in front of a government building or down a central artery. But as the crisis wears on and Spain appears to approach a second bailout — this one of its rapidly growing sovereign debt — new varieties of protest are emerging. Like the Pim Pam Pum Indignado, the criticism and outrage are becoming downright creative.
That’s funny for now. But raiding a supermarket to steal its food is not funny. It is an over-the-line kind of protest that sets a new standard. When these radicals realize that their new level of protests do not stop the austerity policies, they will take it up another notch. And another.
Europe is in deep, deep trouble. Fundamentally, its crisis is about trying to save the welfare state at the price of democracy and economic freedom, or saving democracy and economic freedom at the price of the welfare state. Ultimately we here in America will have to fight the same political battle; either we continue to expand the welfare state and centralize more and more political and economic power to the federal government, or we reverse the trend of ever-growing government and give ourselves back the control over our lives.