Category Archives: Europe

Today all roads in Europe lead to Greece, where its future lies in the balance.

Summary:  So many of the threads of history today run through Greece and the Middle East (not for the first time). The range of possible outcomes is wide, from wonderful to horrific. Yet we know too little to make accurate predictions (I suggest making free time by ignoring the confident guesses that overflow the news channels). Here we examine the key facts.

EU flag burning on the ground

Unnecessary death of a dream.

The Greek-Troika negotiations might have large effects on the future of Europe. Here’s my analysis (it’s similar to Tyler Cowen’s , but with more detail).

(1) The news tells us little.

Cowen nails this: “The further apart the various parties appear to be, the more the whip of concession gets cracking. The closer to an agreement they may seem, the greater the incentive to play hardball and demand further concessions.” Also, press releases seek to influence public opinion, not inform us.

(2)  Do both sides have a negotiating strategy? Does either side?

Cowen: “quite often leaders in critical positions simply do not know what they are doing. By no means is that always the case, but it is more often the case than narrative-imposing journalism encourages us to perceive.”

Both sides certainly have a clear understanding of what they want. Do they have a clear negotiating strategy? Or do they just stumble along, responding to events? History overflows with examples of the latter, with July 1914 at the top of the list.

Both sides quite sensibly keep their cards hidden, so we can only guess. Some of their public statements seem disturbing. Like the following from Helena Smith’s interview with Greece’s finance minister, Yanis Varoufakis (The Guardian, 13 Feb). Is he sincere or posturing as a tactic?

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The Truth and Beauty of Madrid and Lombardia (Down and Out)

Summary: The fate of Europe depends on many factors, not least on the support of the people in Europe’s periphery for the European Union. Today we have an excerpt from Truth & Beauty that gives an accurate picture of conditions in this pivotal region, with a comparison to Russia’s time of troubles.

“Labor reform means slavery”. AP photo by Emilio Morenatti

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This is a follow-up to Social unrest coming to Europe? If not, why not?, 21 March 20013.

Contents

  1. A missing element in our world
  2. Down and Out In Madrid &  Lombardia
  3. About Truth & Beauty
  4. About the author
  5. For More Information about Russia

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(1)  A missing element in our world

As the long economic crisis continues — with stability maintained in the developed nations only through unsustainable levels of fiscal and monetary stimulus — one barrier to change becomes ever more obvious: the lack of alternative ideas for organizing the political and economic machinery of society.  That is, finding new modes of social organization that are attractive to some combination of the our elites and the mass public.

Without new alternatives we might remain locked in a crisis with no exit. Our only hope lies with the eventual success of conventional economic policies — and the political apparatus that implements them. Or the ability of our societies to recover (ie, heal themselves), eventually.

To illustrate the abyss into which this has plunged the worst affected nations, today we have an excerpt from “A Hard Rain (’s a Gonna Fall)“, the April 5 issue of Truth & Beauty, by Eric Kraus and Alexander Teddy. They shine the clear light of common sense on the world, cutting through the fog of misinformation emitted by the western news media. This is reprinted with their generous permission.

(2)  Excerpt from T&BL “Down and Out – In Madrid and Lombardia”

T&B has been on the road in Southern Europe. We find nothing remotely encouraging to say – this year, not even the weather was significantly better than Moscow – and the employment situation far, far worse. If the situation were not so grim, there would be something funny about the governments of a continent in deep recession (or depression, in its South/ Western corner) lecturing Russia – with its slow–but positive growth and 5% unemployment – about the virtues of a liberal economic policy.

Perhaps surprisingly, nowhere in Europe is the popular mood one of rebellion or of any longing for a violent overthrow of the existing order – there is no Marxist revolution anywhere on the horizon; rather, one senses a quiet despair, escapism and cynical pessimism. Unemployment is endemic and systematic, in Spain and Portugal the unemployed do not even hope to find a job. People find ways to cope – the welfare state, the informal economy and family structures provide some support – but in terms of building a career, family and future, the prospects are grim.

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Social unrest coming to Europe? If not, why not?

Summary: Five years of crisis in Europe, yet its streets remain mostly calm. What accounts for this? How long will it continue?

“At the heart of the crisis, there is the challenge of redefining the social contract to safeguard the sustainability of Europe’s social model.”
Speech by Benoit Coeure (Executive Board of the ECB), 2 March 2013

“Spot on, Benoit. The trouble is European leaders and institutions seem to want to redefine the contract in ways that at least half of European citizens don’t approve, or trust them to carry out. So underneath the three-headed crisis of austerity, banking and sovereign debt, we have one of legitimacy and trust, which is feeding social unrest.”
— George Magnus, Economic Advisor, UBS, 20 March 2013

Liberty Leading the People, Eugène Delacroix (1830)

The painting “Liberty Leading the Way” commemorates the July Revolution of 1830, midpoint to a century of social unrest in France. It shows the result of mismanaging the forces of change.

Contents

  1. Why is Europe still stable?
  2. What comes next?
  3. Compare with China
  4. Leave a comment
  5. For More Information

(1)  Why is Europe still stable?

The stability in Europe since the second downturn began in March 2010 has surprised many observers (eg, me). Three years of depressionary conditions in the periphery have produced no large, severe outbreaks of social unrest. Elections have produced majorities in favor of the European Union and the austerity it mandates (we’ll soon see if February’s election in Italy broke this record).

What produces this stability? The usual supports for incumbent systems are human inertia and people’s dislike of radical change.  Hence the failure of the frequently made forecasts of regime change in developed nations. But those explanations seem in adequate, as does embrace of the EU from fear of war.

History provides a possible answer: the lack of an alternative. Thomas Kuhn in his The Structure of Scientific Revolutions (1962) says that scientific paradigms die not when they are disproven, but when they are replaced by a superior alternative. In much the same way revolutions (peaceful or otherwise) require a new political or economic ideology that can substitute for the old.

Without an alternative, accumulated stress breaks out in futile forms, such as protests and riots. These are a commonplace of history, such as the peasants’ protests (Wikipedia) and race riots (Wikipedia). These can produce incremental reforms (although they usually didn’t), but participants seldom had a vision of a realistic better system. Although recognized as defective, other systems were considered less attractive or unworkable (eg, plutocracy in Holland, city-states in Switzerland). For centuries this provided a buttress for European monarchies.

(2)  What comes next in Europe?

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Spain’s’ only three options for recovery

Summary:  The Euro-crisis began in March 2010, and yet its causes and basic elements remain widely misunderstood — including, based on their public statements, by many of Europe’s leaders.  Here Prof Pettis gives a clear explanation of what’s happening, and of Spain’s only three ways out of this crisis.

Excerpt from “Three cheers for the new data?”

By Michael Pettis (Prof of Finance, Peking University)
November 12, 2012
Republished with his general permission.

Spain’s three options

Finally, and to turn away from China, we seem to be experiencing a renewed period of increased optimism over European prospects, but we should refrain from joining in. The optimism will soon fade. In the great debate over the economies of countries like Spain, we sometimes forget the simple arithmetic of economic rebalancing. This arithmetic, like it or not, severely limits the options open to these countries.

For many years, thanks partly to bad policies in Spain but mainly to aggressive attempts by Germany to achieve growth by forcing a trade surplus onto its European neighbors, Spain, and many other countries in Europe, ran enormous trade deficits. It is easy and popular to blame the greed of the Spanish and the stupidity of the government for the mess in which Spain has found itself, but the policies Germany put into place in the late 1990s guaranteed that Germany, a country that had run massive trade deficits in the 1990s, would run equally massive trade surpluses in the subsequent decade.

Because once they joined the euro the rest of Europe had no control over the value of their currencies and the level of their interest rates, it was inevitable that European countries that had joined the euro with higher-than-average levels of inflation would be forced to respond to German trade surpluses either by forcing up unemployment or by forcing up consumption, and so running the large trade deficits that corresponded to Germany’s trade surplus. No other choice was possible.

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What’s happening in Greece? News from the front lines of Europe!

Summary:  The euro crisis began 30 months ago. The cheers for each new solution proved unwarranted. Likewise the fears of the skeptics, as the periphery nations have held together under horrific stress. So far. Here we look at public sentiment in Greece. See the For More Information section at the end.

Soon: the Golden Dawn of Greece!

My guess: Europe’s leaders continue their program of austerity plus government loans. They see this as penicillin. In fact it’s a toxic brew of hemlock and morphine. Europe’s economies will continue to deteriorate, but the political situation will remain stable until social cohesion breaks somewhere.

This poll gives us a status report from Greece. Even there a majority remain loyal to the great unification project (which US conservatives falsely describe as forced upon Europe by its elites). But as the depression deepens, an increasingly number of defectors give their loyalty to extreme parties. Greece and Spain are the fault lines; watch there for something to snap.

From Sky News of Greece (ΣΚΑΪ), 17 September 2012 — via Google Translate:

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Update on Europe: Tinker Bell fails to deliver

Summary: Monday’s post explained why last week’s statement by ECB President Mario Draghi was not the game-changer Wall Street assumed. Today the ECB met and did little but give more comforting words. Here’s the scoop.

Sorry I disappointed you

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About ECB President Draghi’s Statement to the Press Conference

Cutting through the fog, here is my guess about Draghi’s notes for the press conference:

  1. Lead off with: no change in rates or policies.
  2. To periphery: pay your debts, slackers!
  3. To euro-governments: continue flogging austerity & reform until morale improves!
  4. To everyone, most especially myself: The euro is irreversible.
  5. About the future: in coming weeks we’ll think about doing stuff.
  6. Don’t worry: if conditions go into the toilet again, we’ll do stuff.
  7. What about my speech last week?  The euro is irreversible!
  8. What will stop the long slide of Europe into recession or worse? Austerity & reform!
  9. Why will those things work in the future since they have not so far? The euro is irreversible!

Excerpt from Draghi’s statement

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Last week they spoke comforting words, but I saw only the frightening aspects of the euro-crisis

Summary:  Although entertaining as gallows humor, last week’s statement by ECB President Mario Draghi illustrates important but seldom discussed aspects of the euro-crisis. Here we read and annotate the text.

It’s an oddity of our time that people tend to rely on secondary sources — journalists and pundits — to learn what the world’s leaders say.  Twenty years ago major papers, such as the New York Times, ran their speeches in full. Thanks to the Internet we can do so as well.  Here we feature a major speech, with some information and analysis accompanying it to provide context.

The EU’s preferred policy solution

Contents

  1. An annotated speech by the President of the ECB
  2. They know what they want. They don’t see why their actions almost guarantee failure.
  3. They are relying on hope
  4. Other posts reporting Europe’s slow march to the cliff

(1) An annotated speech by the President of the ECB

In our world few things are as they seem to be. There are hidden complexities. There are hidden truths. There are lies and misrepresentations. Here we examine this important speech by a high European official, a speech which has electrified not just Europe, but investors around the world (mostly for wrong reasons). Draghi speaks candidly. But to correctly interpret his words we must understand his orientation — described in the annotations.

Speech by Mario Draghi, President of the European Central Bank at the Global Investment Conference in London 26 July 2012

… I think the best thing I could do   is to give you a candid assessment of how we view the euro situation from Frankfurt. And the first thing that came to mind was something that people said many years ago and then stopped saying it: The euro is like a bumblebee. This is a mystery of nature because it shouldn’t fly but instead it does.

He refers to the widespread forecasts at its beginning by economists that the euro-system could not and would not work. For details see Can the European Monetary Union survive the next recession?, 11 July 2008. Next he explains the results to date of the euro experiment:

So the euro was a bumblebee that flew very well for several years. And now – and I think people ask “how come?” – probably there was something in the atmosphere, in the air, that made the bumblebee fly. Now something must have changed in the air, and we know what after the financial crisis.

Paul Krugman gives a more accurate explanation:

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