Combined intervention by the world’s central banks and an open door policy by the ECB to European banks wanting to borrow lots of money fast calmed the world’s markets this month. We are no longer having to think about whether the international financial system might melt down over a long weekend, and the relief plus continuing good if not spectacular news from the US economy made December a much better month than the world feared.
But if Europe dodged the charge of an angry bear last month, it is still hopelessly lost in the woods. The proposal for a new, souped up fiscal union treaty has bogged down in the usual horsetrading, favor swapping and generally ineffective European legislative process. More profoundly, the core cultural problem at the heart of the economic problem remains: northern and southern Europe are different places that need different rules, and the euro requires them to live and play as one.
The New York Times takes a look at life in Greece under the austerity regime and the piece shows why Europe isn’t fixed.
The piece leads with the usual agitprop:
The free clinic here opened about a year ago to serve illegal immigrants. But these days, it is mostly caring for Greeks like Vassiliki Ragamb, who was sitting in the waiting room hoping to get insulin for her young diabetic son.
Four days earlier, she had run out of insulin and, without insurance and unable to pay for more, she had gone from drugstore to drugstore, pleading for at least enough for a few days. It took her three hours to find a pharmacist who was willing to help.
“I tried a lot of them,” she said, gazing at the floor.
Roll your eyes if you must, but keep reading. This isn’t all weeping widows and flinty eyed neo-liberal technocrats. The piece goes deeper. The Greek health care system was corrupt and dysfunctional before austerity; now with the money gone it works less well than ever. The habits of behavior and the low level of personal and professional morality that made the old system a nightmare don’t change when the money is gone. Poverty does not automatically make people magnanimous or wise.
However, as Greeks wrestle with a deep recession, holes in the welfare state and a host of changes being forced on them by foreign creditors, their resentment grows: at their domestic political class, at Germany, at evil foreign bankers, at the IMF, at capitalism and Adam Smith, at the history of modern Greece, at rich Greeks, poor Greeks and the media.
Will that resentment find some kind of constructive outlet and be channeled into an agenda for social and national change?
Will it lead to political incoherence, demagoguery and public pressure for wacky quack cures and quick fixes that don’t fix?
It probably will.
European elites tried to construct a glittering cosmopolitan tower without grounding their structure in the mud and the mire of real people, real culture and real life. They designed a technocratic government for a population that fears and distrusts technocrats. They build a German style financial order for cultures who hate Germany. They thought that if they ignored the resulting problems and resentment resolutely enough for long enough, the problems would all go away.
They were wrong, and now they are having to live with the results. Both the economic and the political foundations of liberal capitalist democracy are under attack across much of Europe today. Keeping the euro in place requires aggressive fiscal and government reform in countries like Greece, Italy, Portugal and Spain. But in some if not all of these, the political will for reform isn’t there. The institutions that could implement reform don’t exist. The attitudes in the population that could make reforms work don’t exist.
Many European leaders quietly accept that the Greeks will fail and that sooner or later a new drachma will be born. What they still fight is the idea that the Italians won’t change much either. Prime Minister Monti will say whatever he must to keep the funds flowing, and the Italian parliament will pass any law if a gun is pointed to its head, but no power on earth can make those laws work. Italians have more than a thousand years of cultural experience resisting the demands, sensible and otherwise, of foreign overlords. Behind the technocratic new government, the old factions and alliances are constantly at work: imposing facades of reform programs will be built, but somehow the termites will have hollowed them out. As we’ve observed before, trying to force reforms on Italy is like trying to nail jello to the wall.
If Europe had tried to design the best possible currency regime for the people it had, it probably would have designed two different currencies: a neuro for the hard charging north and a seuro for Club Med. Instead, it designed a currency for an idealized European public that did not exist: more disciplined in the south and more generous in Germany than the actual Europeans are.
Europe’s core plan now seems to be to make the south disciplined enough so that the Germans become more generous: that is, under much worse conditions Europe’s leaders are doubling down on the original bet.
We shall see.