-
Restrain the Abusive Administative State
May 22, 2013 | 24 comments
-
Delivering Serbs to the Wolves
May 21, 2013 | 29 comments
-
The Perils of Intervention in Syria
May 7, 2013 | 37 comments
-
America on Welfare
April 25, 2013 | 46 comments
-
Thursday Is Tax Freedom Day
April 17, 2013 | 5 comments
A Further Perspective
Hurtling Over a Fiscal Cliff
Spendthrift Europe’s week of reckoning.
For months the European Union has tottered from bailout to bailout. After agreement was reached on the latest aid package for Greece, Italy fell into investors’ crosshairs, Portugal’s credit rating fell, France risked losing its triple A rating, and even Germany had trouble selling bonds.
Worldwide investors are backing away from European sovereign debt, creating “a pretty terrible spiral,” observed Peter R. Fisher of asset manager BlackRock. Yet the Eurozone nations must refinance nearly $900 billion worth of debt next year. European leaders are set to meet later this week in a desperate attempt to save their “project.”
Just two years ago a Eurocratic elite made up of politicians, bureaucrats, academics, journalists, and businessmen pushed the so-called Lisbon Treaty into effect. The objective was to turn the continent into a Weltmacht able to compete with America and China. Today the 27-member European Union is besieged economically and fractured politically.
The vision of a united Europe goes back decades, even centuries. Pressure to weld the European nations together accelerated after World War II. However, political unification remained a distant goal. Some Eurocrats chose the indirect approach. Give the single market a single currency and united politics will follow. Thus was born the Euro, which has been adopted by 17 of the EU’s 27 members.
The challenge of unifying monetary policy without unifying budget policy was recognized at the time. Recently German Chancellor Angela Merkel argued: “We must overcome the architectural flaws that worked their way into the economic and monetary union during its formation.”
But political unification remained at a standstill while the Euro seemed to thrive. The continent’s elite proposed a new constitution to strengthen Brussels’ authority, reduce national control, and create the equivalent of a president and foreign minister. But in 2005 Dutch and French voters said no, killing the effort.
The Eurocrats relaunched the constitution as a treaty, which required only parliamentary approval in every member state other than Ireland (its constitution mandates a popular vote). Even here the bandwagon almost foundered. But two years ago the Eurocrats celebrated their victory.
That, however, was the high point of European political unity. Already the Eurozone was suffering significant economic stress. Weaker European countries borrowed promiscuously even as they lost international competitiveness by tying themselves to a stronger continental currency.
Once investors looked beyond the Eurozone connection they began demanding higher interest rates. Greece was the first to face enhanced scrutiny. Athens had lied about its finances for years. It could have been left to reschedule its debts, but that would have devalued the Eurozone seal of approval. If Greece could default, so could other members. Equally serious, European banks that only narrowly survived the 2008 financial crisis might again be at risk.
So the parade of bailouts began, despite contrary treaty guarantees and political promises. Greece, Ireland, and Portugal, and then Greece again. What if each preceding round wasn’t enough? European Council President Herman Van Rompuy announced: “my answer is simple: in this case, we’ll do more.”
European politicians raged against the markets. Germany’s Finance Minister Wolfgang Schaeuble complained that “The international markets do not really understand the very specific construction of the Euro.” In fact, the markets understood all too well — especially how the feckless spendthrifts in power across Europe were desperate to avoid making tough decisions.
In October European leaders agreed to expand the bailout fund to one trillion Euros, around $1.4 trillion. No wonder the group Open Europe called the EU “a de facto debt union.” But the EU had become a de facto transfer union as well. Every country, even the newer, poorer members from Eastern Europe, was expected to underwrite their better off spendthrift neighbors.
Europe’s problem was too much government burdening too little economy, yet the EU members were creating more government. Observed Daniel Hannan, an outspoken British Member of the European Parliament: “It doesn’t strike [EU leaders] as eccentric to address a debt crisis with more debt.” Every new round increased the indebtedness of highly indebted nations. Warned Gideon Rachman of the Financial Times: “one unpleasant consequence of successive rescue packages in Europe is that they impose a financial strain on countries that fund the emergency loans but are themselves heavily indebted — such as Italy and Belgium.”
The Europeans have yet to figure out how to fund their one trillion Euro fund. Neither the Chinese nor private investors indicated much interest in “investing” in the improvident Europeans. “It will be very difficult to reach something in the region of a trillion,” admitted Dutch Finance Minister Jan Kees de Jager. “Maybe half of that,” he suggested. But even the larger bailout pool could not handle a potential default by the largest European economies, such as Italy. Yet Rome’s borrowing costs have topped seven percent, causing barely disguised panic in European capitals.
Today everything depends on Germany’s willingness to continue tossing away its citizens’ money. Berlin has much at stake. The Eurozone aids German exports; German banks have bought much sovereign European debt. There also is the sacred European Project. Said Chancellor Angela Merkel: “If the Euro fails it’s not just the currency that fails, but Europe and the idea of European unification.”
About the Author
Doug Bandow is a senior fellow at the Cato Institute. A former Special Assistant to President Ronald Reagan, he is the author and editor of several books, including The Politics of Plunder: Misgovernment in Washington (Transaction).
Letter to the Editor View all comments (32) | Leave a comment
More Articles by Doug Bandow
More Articles From A Further Perspective
http://spectator.org/archives/2011/12/06/hurtling-over-a-fiscal-cliff
Follow us:
ADVERTISEMENT
Current Issue
- Downton’s Class System — and Ours
- A Nation on the Edge
- Public Nuisances
SPONSORED LINKS
FLASHBACK TO: 1995
-
Pope Culture
A man of faith in a godless age is hitting Americans where it hurts.
-
Why the GOP Does Not, Like, Totally Suck
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
-
Dames at Sea
-
In the Absence of Guns
In Britain, defending your property can get you life.
-
The Metaphysical Martini
-
Counting the Costs of Clintonism
The debacle of this president’s administration is both a cause and a symptom of the decline of American values. Unless Congress impeaches him, that decline will go on unchecked. An eminent jurist surveys the damage and assesses the chances for the recovery of our culture.
-
Chuck McHagel
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
-
The Legacy of Old John and Mother Fresh-Roasted
-
It’s the Best Time of the Year
The American Christmas, like the songs that celebrate it, makes room for everybody under the rainbow. Is that why so many people seem to be hostile to it?
-
The Bush Crack-Up
Was the President done in by the economy, or by the politics of the economy?
Clip of the Day
H/T to National Review Online
ADVERTISEMENT
c. j. acworth| 12.6.11 @ 7:11AM
"Ultimately, it is up to the European people, not the Eurocrats to save Europe."
Someone please e-mail this to Ben Bernanke.
Alan Brooks| 12.6.11 @ 5:01PM
From '81 to 2000, things were pretty good, then from '01 to '08 it went slowly downhill.
It will take another five years (8 years from '08) to recover sufficiently from the Rove-Cheney interregnum.
TrueBlue| 12.6.11 @ 7:04PM
Rove-Cheney-Obama* There, fixed it for you.
Alan Brooks| 12.6.11 @ 8:28PM
is that supposed to be encouraging? as if you are on top of it, as you were a year before the '80 election?
Foxfier | 12.16.11 @ 2:55PM
Shockingly, not all of us were alive thirty one years ago.
But then, when you're trying to pin blame on people, little facts like that don't matter, right?
Ken (Old Texican)| 12.6.11 @ 7:42AM
Doug,
I only disaggree with your sub-title.
The idiots will figure out how to kick the can down the road ...beyond a week.....
Beer f.m.h.| 12.6.11 @ 7:52AM
Schadenfreude indeed. What great fun it is to watch the whole world (including the U.S.) come to the realization that the collectivist welfare state model is unsustainable. Even more fun will be watching all the advanced economies try to figure out a way to de-leverage. Can you hear the howls of pain already starting? Conservatives will finally and justifiably be able to say "I told you so..."
Redstateboy| 12.6.11 @ 11:39AM
Bravo! Beer!! Well stated.. and then you have morons the likes of Purpleguy and Allen Brooks who STILL embrace their Messiah: Hussein! They are truly like Lemmings.. they will go off the cliff and all the way down repeating: "Socialism is a good thing - Socialism is a good thing!"
Alan Brooks| 12.6.11 @ 8:30PM
"Bravo! Beer!! Well stated.. and then you have morons the likes of Purpleguy and Allen Brooks who STILL embrace their Messiah: Hussein! They are truly like Lemmings.. they will go off the cliff and all the way down repeating: "Socialism is a good thing - Socialism is a good thing!"
Just you wait until US military bases close all over.
Barn Cat| 12.6.11 @ 12:57PM
It's all well and good to say, "I told you so." The damage to the world's banking system in incalculable because of credit default swaps and derivatives. The EU going down could take down American banks and the US economy with it. The Fed created $7.7 trillion in secret loans after the 2008 crisis. What will it do with the next one? Create $77 trillion? We could easily wake up one day to find that the dollar has lost 25% or 50% or 75% of its value overnight.
PaulyD| 12.6.11 @ 3:01PM
Stock up on toilet paper. It will become the medium of exchange.
TrueBlue| 12.6.11 @ 7:08PM
Back to the barter system. I suggest stalking up on guns, ammo, and fuel actually. Along with food and water, that's what you'll want to get your hands on, and the method to keep them yours.
Alan Brooks| 12.6.11 @ 8:31PM
No, true fool, the Chinese will OWN you some day.
Alan Brooks| 12.6.11 @ 8:33PM
your granddaughters will be concubines for the Chinese-- THEN it is payback time.
Sam Vaughn| 12.6.11 @ 7:57AM
Once again the Europeans get it wrong. More freedom, not less, open markets and transparency, not less. The more power they concentrate in Brussels the more the power will be abused. We're headed down the same path.
Negro X| 12.6.11 @ 8:13AM
Fear not europe, Obama stands ready to place your burden on the backs of the American tax payer.
Barn Cat| 12.6.11 @ 12:58PM
Not really. The Obama administration is prepared to create or print as many dollars as it takes to save the euro. We're going to see hyperinflation in the US like Germany had in the 1920s. Just a matter of time now.
Alan Brooks| 12.6.11 @ 8:36PM
good! the Chinese will buy up enormous US domestic real estate holdings.
The Washington monument will be the Deng Xiaopeng monument.
Alan Brooks| 12.6.11 @ 8:37PM
yes, the laws will be changed so foreigners can buy us out.
Don't complain to me about it-- tough you-know-what.
aware| 12.7.11 @ 5:55AM
China is the biggest Keynesian bubble of all, bud. Soon to pop. They know it, that is why they aren't the ones willing to prop up Europe.
Centrally planned economies are doomed and none is more centrally planned than theirs. Quit trying to be cute and learn real economics. We have all, including them, entered the Keynesian End Game. One of the signs is the rapidly diminishing returns for government "interventions" and the increasing number of "interventions".
It is all quite simple: every one has lived way beyond their means through credit expansion. Now the debt is too big to ever pay back. So monetary expansion is being used to allow the debtors to at least "service" the debt. But in the end this only adds to the already unpayable debt.
Now we are in the position of accepting default and worldwide deflationary depression, which is the medicine no one wants but is the only way to reset with the lenders taking it in the neck, or keep pushing the monetary string and risk hyperinflationary destruction of the monetary and economic system.
This is the rock and hard place of the Keynesian End Game.
Timothy L. Pennell| 12.6.11 @ 9:09AM
"Captain. The ship has hit an Iceberg, and we're taking on huge amounts of water. I'm afraid she hasn't much time."
"Alright, Mr. Conroy. We need a plan. What can we do? The Ship will be Under Water, soon, if we don't do something to set her right."
"Captain. What if we were to Move those Chairs around, on the Deck, over there?"
"Bye God, Mr. Conroy. You've earned your pay, today. Get busy with the chairs. I'll tell the Band to keep playing."
Am I the only one who's certain, that THIS SHIP, (The Western Democracies) is going down, and that, unless we Face Facts, it is Inevitable?
The Bible tells us that when we "Spare the Rod" we "Spoil the Child". Hmmm. Ya think?
Who's seen the kids at the Check Out Line, SCREAMING, uncontrollably, when they're told that they can't have any Candy, or Cookies, or a Toy? Those are the Children who "Grow Up" to be the people RIOTING through the streets of Europe, burning Cars and Smashing through Store Front Windows in London, and Madrid, and in Athens.
They are the FILTH we see, Occupying American Cities, with their Dreadlocks, and their Lice, and their Anger. They Defecate on Police Cars, Urinate wherever, and Rape and Rob their fellow Revolutionaries. Why, sometimes, they even Kill one or two of them. All in the name of Fairness.
This is what the Devil does. He takes advantage of our Weakness. He Fans the Flames of Envy and Resentment. This is what Every Dictator, the World has ever known, Exploits, to gain what he could never posses, if times were better.
Things that are Failing, must be Allowed To Fail. That's the way it's always been done. It is DARWIN'S LAW of Economics. There is a Natural Order of things, involved here. A Natural Selection, so to speak. The Strong Survive, and the Weak must be allowed to go bye the wayside.
Every few Generations, we're told to believe in a System, where a very Few will run things for the rest of us. We're told that we should Trust them, because they are our Betters. And (God only knows why) Some of us believe them. And we turn our lives over to them, only to see them return to the Failed System that is SOCIALISM. MARXISM. COMMUNISM. The Universal Cookie Cutter Economic System where, Everybody gets the same thing, and never mind that "Everybody" isn't Contributing to the Group Fund. And, as it always does, as soon as it runs out of Other People's Money, it implodes on itself.
And so, here we are. The Ship is sinking, the Chairs have been Shuffled, and some of us would rather SINK TO THE BOTTOM, than to do the Painful Things, that must be done, if we are to save ourselves.
That Rock Climber, who had been trapped between a Rock and a Hard Place, literally, realizing his situation, took out a Pocket Knife, and cut off his own arm. He is ALIVE today, because he did the only thing that he could do, in that situation. And it was PAINFUL.
What is Cutting a few Budgets, compared to that?
TrueBlue| 12.6.11 @ 7:15PM
Is it sad that my two year old understands the word no, cleans up her own messes, and doesn't throw tantrums yet there are adults rioting all across the US under the guise of the Occupy protests because they don't want to act like civilized and intelligent people? Mob mentality and class envy rule the day.
As for the budget, the Supercommittee should give you an idea of how pathetic the establishment types in DC are. They couldn't even manage to agree to cuts of a measly $120 billion/yr from our budget. We have states with larger debts than some of the EU nations for crying out loud.
The Knife| 12.6.11 @ 9:15AM
Oh no. The people with the cool trains are just incompetent know-it-alls. Who will our incompetent know-it-alls mimic now? Obama and crew thought the Europeans had it all figured out. Oops. Progressives clearly admire the authoritarian Chinese. Will this be where the Democratic Party wants to take us next? Party hacks live high while workers work for dollars a day. How about Venezuela? Michale Moore's magnificent health state Cuba? So many possibilities for our very very smart know-it-alls.
squalis| 12.6.11 @ 9:29AM
Observed Daniel Hannan, an outspoken British Member of the European Parliament: "It doesn't strike [EU leaders] as eccentric to address a debt crisis with more debt."
My question is why were the above comments limited to the EU? How narcissistic can the left be?
Appleby| 12.6.11 @ 9:50AM
If America had brought all its troops home as soon as the Wall went down and the Iron Curtain fell in ruins, this would all have been avoided; and if Kanukistan had been told it had to defend itself, this country would not resemble a Roadrunner cartoon either.
In my opinion, socialism can never flourish in a country that has to defend itself. You cannot serve both Guns and Butter. By depending on our Guns, Europe (and Canada) have been allowed to slather their road with butter -- and lo and behold have reaped a Slippery Slope.
Who would have expected that?
Um, actually, everybody.
The Knife| 12.6.11 @ 12:03PM
http://www.economonitor.com/bl.....ty-budget/
This is a good progressive keeping her promises. This is how it will end here as well.
Franco| 12.6.11 @ 12:24PM
It's freakin' World War One all over again--except with money. It begins in the worthless Balkans, spreads to Western Europe, and it ends with the Yanks bailing Europe out.
Bob S| 12.6.11 @ 12:56PM
The concept sounds the same as what we hear here, "The wealthy just need to pay their fair share." In this case, Germany needs to ante up.
Sadly, even if the EU fails on this account, the progressives in the USA will just say, "Not to worry; we know how to do it the right way."
cicero| 12.6.11 @ 2:11PM
Everyone is worried about damage being done to the "banking system" if the current bunch of bankers are not saved from their folly by the working stiffs called taxpayers. If the bonds were allowed to go into default, the existing banks would lose a lot of money. The shareholders of those banks would be really angry. They would fire, and then sue, the banking executives who made the bad bets while paying themselves millions in bonuses. Some of the banks would not survive. Those would have to go bankrupt, and their good assets would be purchased by the survivors, or new banking entities. What is so terrible about that?
The end result would be that the countries whose bonds went into default would not be able to sell any more bonds - would not be able to borrow any more money. They would then have to live within their taxpayers means. That means that their taxpayers could not eat free at the expense of those who worked for it. That, my friends, is called reality. The Europeans, and the Americans,too, could use a dose of it.
Of course, this means that the controllers, the polititions, would not be able to bribe the voters to keep themselves in power, and living fat off the land. Once again, too bad.
POST American| 12.6.11 @ 5:22PM
AS we consider what INTER-national
USURY has wrought in Europe --Africa
--South America --and right HERE!
---for well over a century now, these
words come back to us.
"--The banksters have to be brought to
justice. There's NO other way. Here
and worldwide. About 200 of them.
They HAVE TO be brought to JUSTICE."
-ALEX JONES
(days ago)
---------------------FULL JUSTICE.
---------------HUAC/ Nuremberg 2012----------------
Jack in Wi| 12.6.11 @ 11:27PM
Doug Bandow did a great job here. I learned quite a bit from this article. He is one off the best people on this site.
wedding dresses | 12.7.11 @ 4:18AM
http://www.weddingdressesstore.com.au/