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A Short Fable From the Eurozone
Let’s say you wanted to start a new country, but you knew nothing about civil institutions, bureaucracy or history. All you cared about was creating an environment that was good for business, where budget discipline and trade agreements were the law of the land.
So, you spend a bundle of money hyping your Dreamstate to policymakers and the public proclaiming that your new creation will be the fast-track to peace and prosperity. Surprizingly, everyone loves the idea so much that they overlook the structural flaw at the heart of the design, that the loose confederation of states lacks a central government. The only thing that holds the countries together is a shared currency and budget restrictions. That’s it. But the corporate bigwigs and banker tycoons shrug off the problem because, well, because governments don’t really do anything anyway, do they? They just get in the way of big business.
That’s why you created a different model altogether, a model that puts a Central Bank at the center of the universe, surrounded by a scattering of eurocrats (financial ministers) who implement your diktats and sing your praises.
Then, one day, a fire breaks out on the perimeter and you start to panic. You run around in circles waving your hands and begging for help. But the other leaders balk at your request because they are still tied to their constituencies and run the risk of losing elections if they agree to pay for a fire that they didn’t start. After all, it was those “lazy Greeks” that started the fire. Let them pay for it.
So, now you have a big problem. Eurotopia is being reduced to rubble and no one can agree on a solution. And all the while, you keep thinking to yourself, “If I could just get the finance ministers to support a larger emergency fund and leverage the heck-out-of-it, then I could douse those flames pronto and get back to making money again.” It never occurs to you that your Corporate Frankenstate has no historic precedent and is built on a foundation of pure sand. You never think, “Maybe we need an executive, a congress, a judiciary, a bond market, and civil servants to execute our plans”.
Nah. That can’t be it, because government is bad. Banks are good, governments are bad, right?
And as you savor this morsel of wisdom, your Euro El Dorado burns to the ground.
The 17-member eurozone is in an irreversible spiral. The banks are hoarding capital, dollar funding is getting tighter, CDS spreads are widening, the ECB’s emergency loan program is soaring, and the gauges of market stress are blinking red. These are all the signs of a major credit cataclysm.
Now all of these problems could be resolved if there was a functioning government in place to put out the fire. But there isn’t. All there is is a bank, a gaggle of finance ministers, and a few worthless treaties. And, that’s why the eurozone is doomed.
And the moral is….?
Mike Whitney lives in Washington state, He can be reached at firstname.lastname@example.org