Eurozone roommates have family-sized problems
“Houston, we’ve had a problem”. As markets roll their eyeballs and hit the “sell” button once again at the sight of squabbling European leaders, I must admit that I can’t blame them – the markets, that is.
Francois Hollande appears to believe that he has a popular mandate to pursue his policies of tax and spend, even if it is someone else’s money he’s trifling with. I, for one, wish to take issue.
First up, I’d wish to challenge all those journos who have been pursuing the line that European voters are rejecting austerity and that therefore Hollande has the moral right, nay, duty, to fight the anti-austerity corner. I had the privilege of studying history under the incomparable Professor Sir Ian Kershaw (back then and to me he was just plain “Ian”) now of Nottingham, but then in his and my home town of Manchester.
Ian is now regarded as one of the absolute authorities on the seizure of power by the National Socialists in Germany. Adolf Hitler was appointed Chancellor by President von Hindenburg in January 1933 and by way of the immediate elections of March 5 1933, the NSDAP became utterly legitimately and quite democratically by far the largest elected party in the Reichstag. By March 23, so within less than three weeks of the elections, the Ermächtigungsgesetz (Enabling Act) had been promulgated and the Nazi dictatorship was firmly in place.
Please don’t get me wrong, I am not attempting to draw any particular comparisons between the German parliamentary elections of 1933 and the French Presidentials of 2012 but I would just like to raise a warning that even simple populism during an economic crisis is very, very dangerous, but also that to believe in the unassailable supremacy of the democratic election process is fraught with risks.
Simple populism during an economic crisis is very, very dangerous, but also that to believe in the unassailable supremacy of the democratic election process is fraught with risks
As corny as this might sound, Joe, Hans, Jean-Jacques and Stavros SixPack only have a highly imperfect way of expressing their mood which is by way of a call to stick a bit of paper into the ballot box every few years (or weeks, if you happen to be Greek). A more immediate and hopefully more educated response to politicians and their vanities can be read in the performance of markets which are possibly a (marginally) more sensible vox pop. Current volatility must be telling the polis that they’ve still got something horribly wrong, even if the ballot boxes aren’t. I don’t see how Hollande thinks he’s going to save the boat by tossing the navigator overboard.
After a brutal day in the European equities with all the principal stock indices down over 2-1/2%, the US equities rallied back sharply to close more or less flat. I guess that somehow the Americans still seem to believe that our politicians are like their politicians who like nothing more than a jolly good game of brinkmanship and, once they have cynically garnered a few headlines in the news, will swing back on to the path of something approaching reason and vote as expected.
Sadly, that is not the case. In fact, the gridlock is becoming more pronounced and rather than settling down in the back-room in order to thrash out a compromise, the fronts are hardening. The EU mini-summit of yesterday was a case in point and even the normally highly upbeat Muppet-in-Chief, Jean-Claude Juncker, had to admit defeat in stating: “We had a not unheated discussion on eurobonds”, adding that joint borrowings “didn’t find much support, particularly in the German-speaking area but found a certain enthusiasm in the French speaking area”. Another summer of useless summits ahead? Yikes!
On Martin Wolf
Meanwhile, I should like to express my thanks to M2 Davies of Shepherdstown, West Virginia for the following comment on Martin Wolf and his excurse into US Treasury history in general and into Alexander Hamilton in particular. She wrote the following in response to my already critical comments on Wolf’s FT article of yesterday:
Wolf misses two important points:
1. Alexander Hamilton “got something” in return for assuming those debts. (And by the way, he didn’t take all of them.) Hamilton essentially gained complete control of monetary and fiscal policy from the previously sovereign states. He turned “federal”, in the sense of distributed power, into *Federal, *meaning nationally and centrally controlled. The recently-adopted Constitution had provided what looked like a porthole-sized opening for the national government to directly tax and to fund interstate projects. Hamilton turned that porthole into the Crystal Palace.
2. The debts the states tendered to the US were their shares of the expense of the Revolutionary War. They had already been deeply discounted in the secondary market and were mostly held in the hands of wealthy investors. The primary holders, soldiers and suppliers, had been legged over good and proper. Hamilton’s funding scheme actually redeemed the things at a premium to market prices. My point is that the states weren’t in the business of racking up still more debts – can anyone say the same about European nations?”
The eurozone confused having roommates with building a family. Families have joint bank accounts. Roommates divvy up expenses, but they keep receipts. Stavros doesn’t pay for Mary’s mascara, Mary doesn’t pay for Jacques’ lap dances, and Jacques doesn’t pay for Helga’s weed. Most of all, Helga’s mom Angela shouldn’t have to pay for any of it.”
There’s not much I can add to that.