The European monetary crisis is like a botched root canal: painful, expensive, interminable. Weeks, months and even years go by and the world helplessly sits in the chair as the incompetent dentists poke, scrape, bicker and endlessly, endlessly drill. From time to time there are shots of Novocaine—usually in the form of liquidity injections from the ECB—that reduce the pain to a dull throb, but there are no signs of improvement, no signs that the long and futile European process is coming to any kind of successful conclusion.
We are frightened and bored at the same time: we can’t look away but we can’t bear to master the intricate details of this most tedious of world crises.
Yesterday yet another worthless European summit saw yet another series of posturing speeches as yet again Europe’s so-called ‘leaders’ failed to agree on any way out of the deepening mess. Yet again the world’s financial markets heaved and thrashed as traders and investors tried to figure out if the Europeans were really as inept as they appear — and, if they are, when and how will the catastrophe come.
The details change, but the underlying situation is the same. There are two games of chicken being played in Europe at the moment. One is the game between Greece and the rest of the eurozone. The Greeks believe, or at least they are doing their best to pretend to believe, that a Greek exit for the eurozone will be so catastrophic that in the end the EU will have no choice but to offer the Greeks substantially better terms than are now on offer. The eurozone authorities, on the other hand, believe, or at least they are doing their best to pretend to believe, that the consequences of a Greek exit can be managed for Europe as a whole, but that the devastation in Greece will be so great that the Greeks will have no choice in the end but to comply with the agreements they have already signed.
The other game of chicken is the contest between Germany and France. The Germans swear up and down that whatever happens they will never, never, never accept the ‘mutualization of eurozone debt’ or the ‘politicization of European monetary policy.’ They won’t bail out the debts of the Club Med countries and they won’t accept the classically Latin form of currency management in which the currency’s value is manipulated (generally downward) by the political elite. The French (politely and deferentially in the Sarkozy era and more confrontationally under Hollande) point out that this German policy will lead Europe into an interminable series of financial crises, and at each crisis point the Germans will have to accept new bail outs and new debt guarantees in order to stave off a general European financial collapse.
So far, the French strategy has largely worked. The Germans say no, no, no until some new banking crisis peaks, at which point they grudgingly give way.
The trouble with this approach is that it condemns Europe and the world to one moment of crisis after another. Doomsday threats are now a routine part of eurozone economic governance. There is a certain necessary European political logic to this. Given the politics of Germany, Angela Merkel can’t take certain steps until it is obvious that the alternative is a complete financial meltdown. Given the politics in Greece, no Greek politician can accept anything like the current arrangements unless the financial equivalent of Armageddon is staring the country in the face.
But if this situation makes a certain perverse sense in the context of European politics, from the global standpoint it is outrageously irresponsible. The kind of doom that European negotiators regularly invoke in their routine financial conversations these days has horrifying implications for the world. Neither Asia nor the Americas can survive a full fledged European financial crisis unscathed. Meanwhile, the uncertainty in Europe hangs like a pall over the whole world, reducing growth everywhere and threatening the still fragile recovery from the Great Recession.
This is eerily like the irresponsible egotism and political incompetence that plunged Europe and the world into the great conflicts of 1914 and 1939. The recklessly incompetent design of the eurozone—a monetary union among quite different countries with no serious agreement on its rules—was widely noted at the time. The Europeans simply did not care. They wanted the euro and so they announced it. The irresponsible egotism is reflected in the casually brutal way in which the different European countries are ready to invoke a global financial Ragnarok to make relatively minor points in their internal squabbles.
European shortsightedness and European selfishness were the prime movers in the great catastrophes of the twentieth century. (The US, too, had its part to play in these disasters.) Now in the first grave crisis of the twenty first century they sometimes seem bent on demonstrating how little they have learned.
Part of the problem is the mismatch between the excruciatingly slow pace of the European political process and the rapid moves that financial markets make. Europe’s failure to achieve a viable federal structure to date means that “Europe” is as weak and inconsequential as the United States was under the Articles of Confederation. Endless debates are needed while deals are cut and compromises are painfully hammered out before even the simplest steps can be taken.
The ECB is the only body in Europe that can act quickly and decisively in the name of the eurozone. Beyond the central bank, there is no person or no committee in whom serious executive authority is vested; there is no one in the European system who can order its governments to act — and no European government has the authority to compel the others to do much of anything.
The weak and diffuse nature of authority in Europe condemns the EU to the kind of dilatory process that has marked the European response to the financial crisis. The hope among euro-federalists was that adopting the euro would ultimately force a political union on Europe. European optimists hope that that is what is happening now: that the crisis of the euro will force the emergence of a true United States of Europe.
There is not much sign of that yet, and no sign that it will happen quickly enough to shorten the agony of the current economic root canal procedure. The world is stuck in the chair for the foreseeable future while the world’s most incompetent dentist wields the world’s dullest and noisiest drill.
The most we can hope for at the moment is that he will keep the Novocaine coming. It doesn’t solve anything, but life would be very much worse without it.
The worst thing to fear? The next great game of chicken where irresponsible and selfish politicians will gamble with the world’s economic future is now scheduled to be held in the United States after November. As the Bush tax cuts move toward expiration and automatic budget cuts are set to go into effect, the lame duck US Congress will see Republicans and Democrats engage in their own form of brinkmanship. If European brinkmanship and American brinkmanship come together, Katy bar the door. The mother of all meltdowns, a financial event that would make the Mayan apocalypse (also scheduled for next fall) look like a high school pep rally, could be upon us much sooner than we think.
[Image courtesy of Shutterstock.]