Tags
Recent Comments
Receive "The World According to Tom Barnett" Brief
Where I Work
Where I write
Buy Tom's Books
  • Great Powers: America and the World After Bush
    Great Powers: America and the World After Bush
    by Thomas P.M. Barnett
  • Blueprint for Action: A Future Worth Creating
    Blueprint for Action: A Future Worth Creating
    by Thomas P.M. Barnett
  • The Pentagon's New Map: War and Peace in the Twenty-first Century
    The Pentagon's New Map: War and Peace in the Twenty-first Century
    by Thomas P.M. Barnett
  • Romanian and East German Policies in the Third World: Comparing the Strategies of Ceausescu and Honecker
    Romanian and East German Policies in the Third World: Comparing the Strategies of Ceausescu and Honecker
    by Thomas P.M. Barnett
  • The Emily Updates (Vol. 1): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    The Emily Updates (Vol. 1): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    by Vonne M. Meussling-Barnett, Thomas P.M. Barnett
  • The Emily Updates (Vol. 2): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    The Emily Updates (Vol. 2): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    by Thomas P.M. Barnett, Vonne M. Meussling-Barnett
  • The Emily Updates (Vol. 3): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    The Emily Updates (Vol. 3): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    by Thomas P.M. Barnett, Vonne M. Meussling-Barnett
  • The Emily Updates (Vol. 4): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    The Emily Updates (Vol. 4): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    by Thomas P.M. Barnett, Vonne M. Meussling-Barnett
  • The Emily Updates (Vol. 5): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    The Emily Updates (Vol. 5): One Year in the Life of the Girl Who Lived (The Emily Updates (Vols. 1-5))
    by Vonne M. Meussling-Barnett, Thomas P.M. Barnett, Emily V. Barnett
Search the Site
Subscribe to Blog
Monthly Archives
Powered by Squarespace
« 'Senator's Son' a Good Window into COIN | Main | The continued unease about the role of quants in ever-connected global markets »
11:43PM

Bail-out Greece or make an example?

OP-ED: "The Making of a Euromess," by Paul Krugman, New York Times, 14 February 2010.

COMMENT: "A Greek bail-out would be a disaster for Europe," by Otmar Issing, Financial Times, 16 February 2010.

COMMENT & ANALYSIS: "Trust is wearing thin in Europe's union of opposites," by Tony Barber, Financial Times, 13-14 February 2010.

MARKET NEWS & COMMENT: "Euro project tested by Greek crisis: The single currency has fallen hostage to flaws in the eurozone," by Peter Garnham, Financial Times, 13-14 February 2010.

COMMENT: "Greek light on an over-hasty project," by Samuel Brittan, Financial Times, 19-20 February 2010.

I wade in . . . gingerly, because the subject of the EU and its Eurozone is dense enough so as to defy easy analogies, so not easy to blog unless you want to regurgitate--a lot.

The Greek bailout question has become a mini-boom for analysis on whether or not the EU should stick to its integration schemes or settle for something less, which, at first glance, sounds more on the scale and tone of the U.S. federal system, where states can go bankrupt and serve an a lesson to the rest. But the problem is, the EU isn't far enough along in its political integration to allow such tough-love dynamics to work on their own, meaning, if Greece isn't bailed, the risk of spreading contagion on sovereign debt to would be substantial.

I may not be saying that particularly artfully (or even accurately), but what interests me is that the Great Recession of 2008 (by definition, really) catches all of the major players too early: China's not ready on the currency floating question, the EU's not ready on the political integration issue, and the US simply isn't yet past the do-nothing-but-take-no-prisoners partisanship of the Boomers (and yes, too many of the next generation of pols seem equally clueless on this score). In sum, then, the Core's three great poles all struggle at the same time, leading many experts to delve into their usual bag of tricks and predict all manner of future conflict, when, in truth, having the system's three great poles all inwardly focused is far more likely to result in a burn-baby-burn philosophy regarding the Gap's many woes. This, in turn, makes the East's economic integration/penetration of Gap regions all the more crucial. It will be, in most instances, the only game in town for developing economies for quite some time.

The only-way-out-is-to-go-forward argument WRT the EU is a bit chicken-v-egg, as Krugman points out: If the EU was more a political union, states like Spain and Greece never would have gotten into so much trouble, because money and labor, etc., would have flowed more responsively and thus corrected the out-of-whack situations earlier. But the euro, in many people's minds, was introduced too early in this process of political convergence, so the only way out of the mess now is to go forward, meaning push for even more political union amidst this crisis--not easy. Why is it the only route forward? Admitting "defeat" (however defined) on the euro would be too painful at this point.

Note that America only got its first true national paper currency during the Civil War, so we were only able to summon the political will when the Union itself was at its greatest peril (1862).

As for the short-term question of transferring funds from fellow members to Greece, there seems to be such strong popular feeling against it that I would be surprised if anything happened.

So we get this stilted outcome where the EU learns what it means to have currency union without political union (too bad for Greece) but doesn't come out of the crisis with any great impetus to change that reality.

Barber's point is that the current state of affairs basically locks in a sort of mini-global economy imbalance within the Eurozone, with Germany playing the part of China and damn near everybody else playing the U.S. Blame-wise, Barber speaks of the growing divide between the "virtuous over-achievers such as Germany, France, the Netherlands and Finland" (on the subject of public administration) and the "dysfunctional under-achievers" like Greece.

Another comparison to the U.S. from Barber:

In a conversation this week, one high-ranking European Union policymaker who has lived in the US told me not to make such a big deal of this. New England was the equivalent of northern Europe and Louisiana was the equivalent of Greece, but the dollar worked just fine for both ends of the country, he suggested. True for America, but not true for Europe. It cannot be repeated often enough that the US is a nation-state, with all the collective responsibility that entails, and Europe is not.

The EU remains an "association of sovereign states," as Germany's top court recently opined, so all expectations are that Germany will lead the effort to force fiscal discipline on Greece--the EU acting like a nastier IMF, but will oppose any bailout.

Others, like Garnham, say Germany is likely to bow to pressure and lead some sort of effort because of the wider fears of contagion and the euro's decline (bizarrely, the dollar and British pound are now rising against the Euro primarily because everybody knows these two states can print their way out of debt--i.e., devaluing their own currency [something Greece cannot do]). In this argument, the Greek crisis is a good thing, because it forces tough fiscal choices within the Eurozone earlier than in places like the US and UK (EU member but not part of Eurozone).

Brittan's piece adds some understanding on scenarios: unlike Ohio, Greece can bail from the Eurozone--the great bluff. The great counter-bluff, one assumes, is that the Eurozone would eject the Greeks. A compromise would be to let the Greeks exit and come back in devalued. But once that happens, the floodgates could open on other profligate states demanding similar rights.

So then you're back to the seemingly inescapable position: the Eurozone is forced to crack down on Greece, maybe offering some aid, and the Greeks, unless they really want out, are forced to take the tough medicine (pay freezes, spending freezes, and the like).

I don't feel like I've offered any useful additional analysis here. Then again, I almost never feel like I do whenever I discuss the complexities of European integration. I just get this headache feeling.

I welcome any comments that can make me smarter on the subject.

Reader Comments (10)

>I welcome any comments that can make me smarter on the subject.

No smart comments, but I'm thinking about buying some Euros now for vacation later :-)
March 8, 2010 | Unregistered CommenterDavid Emery
Is the recession of 2008 a Great Perturbation? --Or a not-so-great Perturbation?
March 8, 2010 | Unregistered CommenterMichal Shapiro
It’s very difficult to understand the Greek sovereign debt situation. While the total debt is more or less known, the amount of money to service the debt is not known. If all of the debt were due in say one year or one month, the situation would be dire indeed. If the debt had an average repayment date of 15 years from now, the situation would be quite manageable.

Consider the 2008 situation here in which most of the largest US banks and some major corporations was totally dependant on overnight loans. (Repros). Small wonder that the entire system was so inherently unstable that it subsequently collapsed.

One other unknown factor, which one could guess, exists in the amount of toxic paper, which that Greece may own. When this paper fails to produce an income stream, it magnifies any debt servicing problem With Goldman working with Greece a decade ago to hide debt, it's not out of the question that Goldman and other Wall Street outfits, put a good amount of toxic paper on the Greek government books.

The way out here is simple but not likely. Greece should stop servicing its debt and let the lenders take the loss. More likely stopgap measures will be employed. If however Greece has to borrow to service its debt, failure is inevitable.
March 8, 2010 | Unregistered CommenterJoe Canepa
No bailout - pain ensuesWith bailout - pain is delayed and more painful

The Great Recession has hastened the breakdown of the semi-socialist eurostate. They are currently only cracks in the dyke and can be patched, but the flood is coming.
March 8, 2010 | Unregistered Commenterjoe Michels
Lots of opinions. What caused the financial crisis, and how can we reduce the chances it will happen again, asks Paul Krugman.

The nobel laureate looks at the experience in Ireland [eurozone] and in the United States and concludes that free market fundamentalism was the cause. This led to “regulatory imprudence” in some countries: the people charged with keeping banks safe didn’t do their jobs. In Ireland, regulators looked the other way in part because the country was trying to attract foreign business, in part because of cronyism: bankers and property developers had close ties to the ruling party. There was a lot of that here too. . .

Enforcement of any global rule-set is therefore essential?
March 8, 2010 | Unregistered CommenterIJ
Tom. I would say, keep thinking it through. Sometimes the reading, processing, dumping, opening for comments, re-reading, reprocessing cycle can be a great way to string the pieces together.

My mind goes to playing out the scenarios that you have set out in yoru post, and see which ones are most likely, and mentally run those exercises.

Is there a leader in the EU that can stand like Lincoln did here and do the things like create the dollar, hold the AU together via all means, and appeal to the greater sense of community? Are the people in the EU willing to leave the borders to cartographers and get to stitching it up tighter?
March 8, 2010 | Unregistered CommenterMatt R.
I made two trips to Ireland. They were only 6 years apart. I was astounded at the changes in just six years. People were driving BMW's and Mercedes. Lads in the pub waving 50 Euro notes at the barman and asking for white wine. There were construction cranes towering over Dublin and houses going up all along the coast. The "Celtic Tiger" they called it. Poles and Brits were coming over to find jobs. All over now.
March 8, 2010 | Unregistered CommenterTed O'Connor
US states cannot file for bankruptcy. Municipalities can, but not states.
March 8, 2010 | Unregistered CommenterFazal Majid
Playing more with your "bad timing" theme, I like this:

" the US simply isn't yet past the do-nothing-but-take-no-prisoners partisanship of the Boomers (and yes, too many of the next generation of pols seem equally clueless on this score)"

I think there is another element to this, again consistent with the view that things have not evolved to the point where the great powers are capable of dealing with the world as it really is. The ideological clashes that we are experiencing today date back beyond the Sixties, really being traceable to internal group conflicts present from the start of the country. What has happened since the Sixties, is that we have fallen into a kind of Frederick Jackson Turner moment where our country has kind of stalled - no new states and JFK's "New Frontier" was more rhetorical than real. In this context, our politics has become incredibly claustrophobic, and as you say, nothing can get done.

However, the thing about globalization is that it doesn't stop. As you have previously written, the really big news is the demographic alteration of the US. By 2040, the majority of Americans will be of Asian, African, and Latino ancestry. That demographic shift is what is reshaping America, and it, not just generational change, is essentially what elected Obama. It is a force that will destroy partisanship as it has hitherto existed. However, the demographic rewriting of America isn't finished and Obama's election was premature. So we're still stuck in ideological mud.
March 8, 2010 | Unregistered Commenterstuart abrams
Another difficulty for US-EU analogies is the sheer number of languages in the EU, which makes a true federal government too hard.

The reality is that the PIIGS are not too surprising: Portugal, Italy, Ireland, Greece, and Spain are all Latin/Greek but for one....I do not like to stereotype...but Latins in general have disorganization in their genes it seems...but most likely it is a societal phenomenon that hasn't run it's course yet.
March 9, 2010 | Unregistered CommenterPetrer

PostPost a New Comment

Enter your information below to add a new comment.

My response is on my own website »
Author Email (optional):
Author URL (optional):
Post:
 
Some HTML allowed: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <code> <em> <i> <strike> <strong>