I wrote this piece in November 2011. It is a dark, pessimistic look at how the European Union and the Euro Zone were both built on fatally flawed designs that allowed massive widespread abuse and lying and cheating without penalty and how both structures have no built-in realistic and effective measures for dealing with the type of overwhelming financial crisis that abuse, lying and cheating inevitably led to.
It is now almost eight months later. I would love to be able to say the Europeans have gotten their act together in that time and are now on the long, slow, hard road to recovery. I can’t. They’re still dithering and denying and backstabbing and lying and cheating and dancing a frantic, pointless jig as the continent burns around them. Some of the players have changed, but the story is still the same.
I am, if anything, more pessimistic now about Europe’s future than I was eight months ago. The fire is spreading.
Probably the only thing I see differently now is that I believe Greece will choose to leave the Euro Zone, not be kicked out of it. But the timetable is still the same: I said 18 months in November 2011 and that makes it about 10 months from today. Next spring, in other words.
One other aspect that is apparent now (but largely unspoken in the public debate, as far as I can see) is that the contagion has spread so far and is so deeply rooted now that Germany — seen, with increasingly less confidence, as the bailout saviour of EU members on the edge — is worried about its own future. The DNA-embedded fear of the scourge of hyper-inflation that devastated the German economy and society in the 1920s is rising to the surface now in Deutschland. Every time Angela Merkel says “No” is another tightening of the life vest.
I fear for the future of Europe and I feel deep sorrow and pity for the anguish the European peoples will be put through soon. The hard times now are nothing compared to the hard times ahead. It doesn’t take away any of the hurt and pain to say the Europeans brought it on themselves by confidently, arrogantly placing their well-being in the maws of such obviously, intrinsically, fatally flawed and criminally useless institutions as the European Union and the Euro common currency.
I would weep but I have no more tears. Here’s what I had to say in November 2011:
I always used to wonder how Europe — the mother of “Western” civilization — could watch itself helplessly descend into one 20th Century cataclysm after another without putting on the brakes (or at least downgearing enough to counter the slo-mo slide to disaster).
You know the litany of Europe’s avoidable 20th Century debacles:
Sub-regional rivalries and intrigue coupled with arrogance, stupidity and petty personal jealousies and hubris leading to the firestorm of World War I; then the crushing burden of massive post-war reparations heaped on Germany by the victorious allies, leading to the crippling of the German economy and hyperinflation, exacerbated by the impact of Wall Street’s 2008-like fraud-based 1929-30 meltdown, which in turn caused the global devastation of the Great Depression; all of which led, in turn, to the collapse of hope and social structure that created the opportunity for ruthlessly opportunistic predators like Adolf Hitler to seize power; which in turn led to the willfully blind, criminally negligent appeasement policies of Britain and France through the 1930s, which in turn led to the even greater cataclysm of World War II and the Holocaust. (The tyranny, terror and mass murder of Soviet Stalinist Russia falls into this daisy-chain of avoidable disasters somewhere too, as does the nuclear Cold War which mutated European life for the last half of the 20th Century.)
I used to look back at that history of created chaos, self-inflicted misery, lost opportunities, and toxically craven “leaders” and wonder how, step by step, Europe could knowingly, deliberately tear itself apart time after time after time.
I don’t wonder anymore. Now I see it unfolding on a daily basis and I know what it would have been like to watch the European tragedy unfold in 1913 or 1923 or 1933 or 1943 or 1953.
Dumb and stupid and self-created and so unnecessary — but so inevitable in its slow, ponderous, irreversible course. It’s like watching lava flow to the sea or an imploded skyscraper collapsing in hang-time.
The political, administrative and regulatory house of cards that is the European Union and its layer cake of unaccountable “commissioners,” mandarins, bureaucrats and parasitic dependents is incapable of slowing — let alone reversing — the course of Europe’s current slo-mo disaster.
The European Union, as an institution, is as useless, self-serving, mendacious and malignantly hollow as the League of Nations (basically a European forum) was in dealing with the real economic, social and political cancers of the 1920s and ’30s.
As Benito Mussolini said in 1936: “The League is very well when sparrows shout, but no good at all when eagles fall out.” The same could easily be said today of the EU.
So here comes a new century of European debacles.
The rest of the world isn’t much better (Wall Street, especially, has a habit of endlessly repeating itself — inflate financial balloon, reap unconscionable profits by rubbing said balloon, cry tears of self-pity when balloon inevitably bursts while ignoring the real-life casualties, raid the cookie jar for comfort compensation, inflate new balloon — all done with the enabling connivance of an American political establishment larded with bought-and-paid-for lackeys.)
But Wall Street’s crimes have a rather direct thuggery to them — take the money and run. By contrast, the Europeans have turned self-immolation into an art form, a ghastly spectacle impossible to take your eyes off, not beautiful but mesmerizing.
I sense a deep level of here-we-go-again fatalism in the disconnect between the general public in much of Europe and their governments, both at the national and larger (what they call “supranational”) EU levels.
This is, in part, because the European Union was the creation of economic and political elites that told the common people, “This is an important, necessary thing that is far too complicated and intricate for your little mind to comprehend. Just fasten your seatbelt and do what you’re told.”
The cross-over of responsibilities, powers and interests between national government and the EU infrastructure is mind-boggling (purposefully confusing, really) in a Byzantine, constantly morphing labyrinth for which no one has a map — although the governing nabobs pretend they do, much like the Wizard of Oz.
As Wikipedia puts it, “The EU operates through a hybrid system of supranational independent institutions and intergovernmentally made decisions negotiated by the member states.”
Individual Europeans get to vote for members of the European Parliament as well as for their own national governments, but the degree of general apathy felt toward the European Parliament bears a direct relationship to the uselessness and powerlessness of that body.
Because the European Parliament is really the lowest rung on an organizational ladder that is controlled more by non-elected functionaries than by democratically chosen representatives.
The principal executive body of the EU is the “European Council,” made up of the heads of government of the (current) 27 EU member states plus the (unelected) president of the European Commission (more about that body later). This group gets together a few times a year, but mainly to set vague policy goals and rubber-stamp the policy plans of the unelected mandarins.
Not to be confused with the European Council of government leaders is the “Council of the European Union,” a loosey-goosey label for gatherings of specific cabinet ministers from the different member states configured to work out policies and deals on specific areas of interest like agriculture and telecommunications and so on. There are 10 different “configurations” involving about 350 ministers for this non-elected group, which is in turn overseen by a “General Affairs Council” made up of most senior national ministers, usually the foreign minister of each member country.
The “Council of the European Union” votes on EU legislation which is then passed on to the pretty-much-useless (but elected) European Parliament for debate and (usually) rubber-stamping.
Now here’s an important point: The “Council of the European Union” can constitutionally only legislate on the basis of (to quote the council itself) “proposals submitted to it by the European Commission.”
What, you may ask, is the “European Commission?”
Good question because the European Commission is the most important, most powerful body in the EU galaxy apart from the head-of-government “European Council.”
The “European Commission” is again made up of representatives from each of the 27 EU member states plus the president of the commission. Each member of the commission is appointed by his or her national government and each is responsible for one or more areas of trans-European policy making.
Although they hold the greatest degree of direct power in the entire European Union command structure, these commissioners are not elected by the people of Europe as a whole or even by the electorate of the member nations from which they come.
They are “designated” by the governments of their own countries and “confirmed” for five years terms by the European Parliament. And then they are pretty much like the gods of Greek mythology sitting on Mount Olympus — or, to put a more modern spin on it, like members of the Olympic International Organizing Committee.
Most of the commission members are hack politicians who have served their time in government in their home countries and done stints in the European Parliament (to get their pan-European stripes), who know how to accommodate and negotiate and blow hot and cold, and live off the fat of the land.
At their head is the President of the European Commission, usually a veteran of the commission who has proven himself adept at serving the needs of the people who put him in office — which is NOT the general populace of Europe, since — once again — the president is selected,. not elected.
And way, way down there at the bottom of the pile is the only part of this whole complex mess that is actually elected by the people — the European Parliament, made up of 736 members elected for five-year terms by the people in their home countries.
Of course, as the only directly elected participants in the EU governmental/legislative/administrative system, the members of the European Parliament have the least input of the hundreds, nay thousands, of mandarins, peacocks and cheeseburgers who run the European Union.
They only get to discuss and approve legislation that has been handed down to them by the appointed Council of the European Union, which has in turn approved policies and legislation based exclusively on proposals put forward by the appointed European Commission.
The individual members of the European Parliament have far less power than a member of Toronto Council — if only because there are only 45 councillors, which is almost 700 fewer individual voices — and votes — than the clamouring, fractured, powerless horde of window-dressers in Brussels.
So that’s your basic European Union.
No wonder the whole place is sliding down a very slippery slope with no functioning handbrakes. Everybody involved in the process has been too busy for too long looking after special interests and cutting deals with other special interests to grease the process.
And nobody is accountable. It’s always somebody else’s fault, some other governing body’s responsibility, or some individual country’s jurisdiction.
One thing to keep in mind is the “Euro Zone” — the 17 countries using the Euro as their common currency — is not the same thing as the 27-member European Union. Some EU nations — Britain, the Scandinavians — chose NOT to give up their individual national currencies , while others — most of the former Soviet Bloc nations of Eastern Europe — have not yet established the capitalist credentials to qualify them for access to the Euro — and its supposed benefits.
The benefit for some members (read Southern Europe for the purposes of this discussion) was that it allowed them to piggyback on the platinum-card credit rating of other members (read Northern Europe). The benefit for Northern Europe was that the relative economic weakness of Southern Europe held the Euro down and kept in check inflationary pressure on some high-performance economies (read Germany and, to a substantially lesser extent, France).
Although the Euro isn’t synonymous with the European Union, it is still the creation of the European Union and is the responsibility of one of the EU’s financial creatures, the European Central Bank.
Now one thing you can say about the European Union is that it knows how to make rules and bureaucratic red tape. And another thing you can say is that those rules get changed or ignored or even actively thwarted when they are inconvenient to any member state that has the power, negotiating skill, blackmail material or criminal intelligence to do so.
Everyone — even the Greek government — admits now that Greece used cooked books, under-the-table, off-the-books loans from Wall Street (thank you Sachs Goldman) and bald-faced lies to candy-coat the state of the Greek economy and government spending to gain entry to the Euro Zone in 2001.
Greece was only one member of the Euro Zone — but the worst offender — to abuse the access to easier credit that was one of the privileges of membership.
It didn’t take long for all parties concerned to realize that it was a practical — if not perceptual, PR-wise — error giving Greece a free pass to the Euro gravy train, but by then it was too late.
It wouldn’t have been too late if everybody stuck to the rules. The problem was Germany and France found themselves in a bit of a cash-flow squeeze in the mid-’00s and they — Papa France and Mama Germany — would have had serious difficulty meeting the on-the-books requirements to maintain membership in good standing in the Euro club.
That wouldn’t do, of course. The Euro existed because of France and Germany.
So the rules were changed. Loosened. Actually everybody just agreed to ignore them in frilly language.
And so Greece — and some of the other less well-endowed Euro members — escaped the tightening noose of fiscal responsibility. Germany and (to a far lesser extent) France got their financial difficulties straightened out and didn’t need the fixed dice anymore. But (again mixing metaphors) it was too late to close the barn door. The fiscal-responsibility horse had already left the stable.
Now the chickens are coming home to roost (more lame, mixed-up — one might say half-baked — metaphors) and the southern half of the Euro Zone is ablaze in a bonfire of over-extended indebtedness.
Greece’s goose is cooked (metaphor), Portugal and Ireland are bouncing around like popcorn in a hot pot (I made this one up, I think), Spain is on thin ice (ice and fire, I guess, metaphor-wise), but Italy is the elephant in the room that everyone in the room is worried will crush them when it falls (I’m done with these stupid metaphors).
I don’t know.
If everyone played by the rules, I would have a pretty good shot at telling you.
But they don’t, so I can’t.
These Europeans (sorry to generalize, but that’s what happens when you join a Zone) are crazy and they defy — no, trample — logic. They’re fiddling while Rome burns. Literally — not a metaphor. Just wait for the riots in Rome when Italy catches fire.
So I can’t predict what’s going to happen — except that Greece is going down, kicked out of the Zone (within 18 months if not sooner), and in for some very tough times ahead. But maybe good times too, further down the road.
And — one way or another — Italy’s day of reckoning is coming, no matter how much shucking and jiving goes on in the short term. Italy’s sovereign debt load is unsupportable.
Look at this chart from Germany’s Der Spiegel magazine (Here’s a link to the English-language website).
Here’s a simpler comparison from the Wall Street Journal:
It makes it fairly clear why Greece is in filch territory and Ireland should be (the British financial connection puts Ireland in a slightly different position), and why Italy is dancing on the razor’s edge.
Spain and Portugal are still in big trouble. Spain’s seemingly low sovereign debt ratio is misleading because it does not account for a huge amount of debt Spain’s cities and regional governments were allowed to run up independently of the national sovereign debt — to make up for financing Spain’s national government cut to put its own books in better light. It’s all still Spain’s debt.
Here’s a link to a very good analysis called After Eurogeddon by The Economist Intelligence Unit that spells out more clearly than I can what may happen in the coming days, months and years.
And here’s a bit of the Q&A that goes on in the Economist report:
5. Which countries would be most likely to stay in the euro, and which would be most likely to leave?
Firm predictions are tricky, but broadly a fracture between a strong northern “core” and the weaker “periphery” looks most likely. The process would, in our view, probably entail periphery countries breaking off individually to leave a “rump” of northern countries still within a currency union. Once one peripheral country (say, Greece) left, all the other vulnerable countries would probably follow. This means that Portugal, Ireland, Italy and Spain would leave the euro, although not necessarily immediately. Malta would probably leave, and Cyprus would have little choice but to exit as its banking system would be nearly wiped out by a Greek collapse. Up to ten countries could remain members of the euro: Germany, France, Austria, Belgium, Finland, Luxembourg, the Netherlands, Slovakia, Slovenia and Estonia (the last three all being small, open economies like Malta and Cyprus, but with healthier fundamentals).
Look, all of the above sounds like I’m bashing Europe. Well … actually, I am.
I’m a spendthrift who can squander money like a drunken European finance minister, so I shouldn’t be casting stones. And I love Europe — the quality of daily life is better there than in North America, in my opinion. But I may have to change my opinion when the effects of coming austerity programmes put the boot to European joie de vivre, culture, proximity and variety, great train system, wonderful cheap wine and fabulous, affordable food in neighbourhood bistros (and five, count ‘em five, different seas, no, six, no, seven seas — but half of them are smaller than Georgian Bay).
Things will change in Europe — for better and worse.
But no matter how much things change, they will stay the same. Royally screwed up, for the foreseeable future.
I’ll be watching it unfold close up for a while, so I’ll let you know if the view is different from inside burning Europe than from outside.