The irrationality of the EU will go down in history – Evaluating the Euro crisis
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The irrationality of the EU is legendary.
It will go down in history as an example
for future generations to avoid.
Image source: ANH
The current systemic crisis of the euro has brought to the surface, apart from the numerous structural flaws in the architecture of the euro, the kind of logic that permeates EU policy-making.
First of all, EU leaders have massively failed to understand (or better to accept) the structure of the crisis. They insist on their failing belief that the crisis is a dept crisis of certain “undisciplined” countries, of the “PIIGS”. I know that this sort of populism appeals to voters but when it comes to the problem itself it utterly fails to deal with it. The crisis is systemic and not national. It is a triple crisis of (a) debt crisis of private and national accounts – we foolishly accumulated mountains of debt in a period of economic boom (malinvestments and maladministration), (b) banking sector crisis – the European banking sector remains ill regulated, it has not been removed of its toxic waste and is filled with zombie banks that parasitically live from the liquidity of the ECB and taxpayer money, (c) under-investment crisis especially in the European periphery – the euro is from the outset causing divergence in its constituent economies and there is no surplus redistribution mechanism to ensure balanced growth and convergence, which are the key to preventing asymmetric shocks and crises.
Second is the maladministration of taxpayer money, which is thrown into the black holes of the system. For a few years now we have the politically dangerous and economically illiterate practice of using taxpayer money to bail out practically insolvent states (under the current conditions) and to prolong the existence of the quasi bankrupt banking system. Bailing out losers without putting forward structural reforms is a cause with no end.
Then we have the structure of the EFSF, the temporary mechanism that was created ad hoc to provide the funding for the bailouts to Greece, Ireland and Portugal. The toxic foundations of the EFSF together with the ill advised bailouts to individual states, not only failed to contain the crisis but in fact were the source of contagion, hence we all saw how the “Greek” crisis became “Irish” and then “Portuguese” and how it engulfed Italy, Spain, Cyprus, with Belgium and France not far behind and how it has now become an existential crisis of the euro. Instead of solving the problem the completely irrational EFSF policies made it twenty times bigger and heavier.
Together with that we have the bailouts to individual countries, which are in fact a cover-up of indirect bailouts to private banks, since the money is only used to pay back creditors instead of being channeled in the real economy to stimulate growth through structural investments. Those bailouts were not only ineffective in solving the crisis, since their money was only used to finance creditors, they also imposed catastrophic front-loaded austerity measures that plunge the real economy into an even deeper recession and force the country into a downward spiral. That way not only the bailout fails to stem the crisis, but also the necessary structural reforms meet stiff resistance from the society.
All of these irrational practices could have been revised twice within the last weeks. Yet both times EU leaders clung to their failing policies and their vaunted beliefs. The first was the July 21 Summit of heads of state and government of the Euro area states whose outcomes show a continuation of the same irrationality. The second was the joint Sarkozy-Merkel letter which too, fails to propose anything different and concentrates on the future without mention to the present and to the need of a revision of strategy.
I could go on to put down all other flaws that characterize EU actions, but I believe that the above are enough to make the irrationality of the EU legendary. To make it an example that will go down in history for future generations to avoid.