Faced with repeated threats to the euro and the 17 countries that use it, euro zone leaders have invoked measures that resemble band aids, though major surgery is required. Experts and pundits the world over - including within the Europe Union itself - call for structural changes that would align euro zone fiscal and banking policy with the common currency. Europe's problems are causing outsiders to blast its leaders for "dithering."
The price of risk for debtor nations is rising steadily; bond yields are increasing; credit rating agencies are downgrading debt; unemployment is rife; and the ratio of debt to GDP continues upward.
The Portuguese, Irish and Greek governments have received billions of euros in low interest loans from the European Central Bank. Yet they struggle fruitlessly to stimulate economic growth while meeting harsh austerity measures and the growing debt obligations imposed as a condition for the loans. Most recently, Spanish banks obtained 125 billion euros to prop up its ailing banks.
Speculation is rife that Italy, the third largest euro zone economy after Germany and France, will be next in line. Investors have begun dumping Italian stocks and bonds. There's fear that Italy can't grow its way out of its current recession fast enough to keep up with its sovereign debt payments. What's more, Italy has to shoulder a large part of the various bailout bills that the European Parliament has passed in order to shore up other countries.
So why haven't Europe's problems produce more movement? Acknowledgements of the need for better, faster integration have come from all sides, most notably from German Chancellor Angela Merkel, who has called for "more Europe, not less," in spite of the fact that just weeks earlier she sang a more cautious tune. US president Barack Obama is pressing for near term answers, as is China.
The answers are clear but they're not near term. First, the euro zone needs a fully empowered central bank to calibrate national economies with the common currency. Unlike the existing ECB, it should have the authority to regulate policy and practices across the region. In addition, Europe needs centrally guaranteed deposit insurance like the US's treasury-backed FDIC.
Second, Europe needs a strong central parliament with the power to regulate common fiscal policy. The EU's annual budget is less than 2 percent of the total member nations' GDP; yet individual member nations' budgets range from 40 to 50 percent of their GDP. A strong central government should have the authority to decide on overall expenditures for programs like welfare, pensions, and support for the unemployed.
If the answers are clear, the road to implementing them is an obstacle course. There are three sets of factors slowing down progress toward integration. They are political, economic, and historical.
Politics
As a general rule, political change happens more slowly than economic imperatives demand. To accelerate the process, strong, trusted leaders must bet their careers on the necessary change. For example, national presidents need to campaign at home for the pooling of euro zone debt - which means assuming responsibility for problems that the home crowd feels it didn't create. It may also mean risking popularity with ones own party.
In 2007 and 2008, when the wheels fell off the American financial cart, Washington basically stood up and said, "We will recapitalize the banks and guarantee all of the debt incurred by A.I.G, Lehman Brothers and others." As unpopular as bailing out bankers is with ordinary citizens, the Bush and Obama administrations, along with the Federal Reserve, stepped up and saved the day.
In Europe no one is empowered to save the day. So political leaders must summon the will to convince voters to give up control to a central authority. They need to go on the road in their own countries to campaign for a stronger European government. Regardless of the reaction, they must also act, even to their own detriment. If they cannot rise to the occasion, the EU will continue to belong to an unelected group of Brussels bureaucrats, rather than to the citizens of the member nations. And the dithering will continue.
Economics
Since the 1950s Europe has worked hard to facilitate the free flow of labor, capital and products across national borders. Treaties have reduced many of the obstacles to free trade. The sticking point comes when businesses, even whole industries, have to shrink or even die out in one country because another is more competitive. Germany can build cars competitively, Spain less so. In an open market, Spain's auto industry suffers.
Specialization is one of the benefits of economic integration because it allows for the efficient use of resources. But it is also one of the most painful for countries with limited ability to produce competitively.
Economic integration can also worsen inequality, and cause poor workers to migrate to rich countries where pay is high. Europe's leaders need to plan for these eventualities and find ways to counterbalance them without imposing trade barriers.
History
Measured against European history, the EU is an altogether remarkable accomplishment. A large war-torn, politically chaotic area has transformed itself into a confederation where war is unthinkable. But suddenly that's not enough.
Now, "every nation for itself" must become equally unthinkable, and not just for reasons of fairness. Wealthy countries must come to understand how it is in their interest to support poorer ones who have been enemies in the past.
The nature of nationalism has already changed; local pride has replaced the will to dominate. Now it must change some more. Nationalism must become the kind of national identity that sees other nations as partners, and is willing to cede a portion of its self determination in the interest of the partnership.
The road to such unparalleled change is riddled with potholes, though not impossible to travel. However, the way forward requires all the courage, intelligence, and conviction that European leaders can muster. The answer to "Why Can't Europe Go Faster" lies with its leadership.
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Comments: 9 ( 1 removed by Susan LaDue )
"I am state property."
"Control me."
Kind of in your corner, Norm. I don't consider the progenitors of these problems the best choice to accept solutions from. It's become fairly clear that money can't control government, government can't control money, and neither can control themselves.
Susan, I fully expect those checks to be extinct, or heavily devalued to the point of pittance by the time I'm eligible to receive them. If, after confiscating upwards of 50% of the fruits of my labor in the length of my adult life, the government fulfills it's end of the "social contract", I won't say no, or feel coerced. Just cheated.
If. At the current arc, debt servicing reaches revenue by 2020. A fifty trillion dollar debt by 2025.
Because at some point which may never happen, a tenth of what I've given is returned, I should be, what? Grateful? Maybe government is the place to, not from, which all good things flow.
Maybe the de facto indemnification those same governments have given these banks, instead of letting them fall like the rotten fruit they are, exacerbates the situation? There are good banks. Why NOT let bad banks burn? They have assets to sell, to businesses that are competent. This happened in '22, the depression was so short it's barely remembered. Bush stepped up and saved the day? Prolonged the night, I suggest. Saved some irresponsible bankers' hides, and they'll be happy to tell you they saved the whole world, did "Gods' work",while the politicians who covered their bare butts with public debt tell us that's exactly true. The same players, the same roles, and we expect a different movie, instead of a grim sequel? Are we so locked into this paradigm, that the overbearing state is natural and desirable, in the face of all this evidence to the contrary, that any consideration to the possibility it doesn't have to be the case or even true is rejected out of hand? That the suggestion be countered with,"You'll be getting pennies on the dollar when you're old and grey, you gonna throw that windfall back?" I don't think it will make much difference if I do or don't, Susan.
I reject the notion that a problem created by the incestuous relationship between big government and financial institutions free of consequences can be solved by these selfsame entities within that framework. I suggest it's the exact opposite of the solution. Separation, reduction, definition of these institutions within rule of law isn't simply the only mathematical possibility, but morally acceptable outcome as well.
As for Europe, hey, you tell me;)
Money and government are really the same thing. You can't call your money "unified" if your governments are not.
yes that is the crux of it. And we are left hoping that the Europeans can solve their fiscal mess, which we helped to stimulate with our follies. Because if their problems fester, our problems will fester too.