I just finished reading George Soros’ excellent essay on the euro crisis, published both in the New York Review of Books and in Spiegel. It’s very well done, and regardless of whether or not one agrees with his conclusions, it serves as possibly the best overview I’ve yet read of how this whole mess came to be and where it stands now. Soros lays it out in layperson terms, which most economists and economic journalists can’t quite master. This is worth noting because a major reason why many people have no real idea of what’s going on is that even when they try to learn, they’re beaten back by the impenetrable writing or logic of the majority of sources. The ones that aren’t impenetrable tend to be nationalistic and oversimplified, which leads to the kind of polarization we’re seeing right now: the “Merkel is a Nazi” opinions in Greece, and the “southern Europe is lazy” opinions in Germany.
While I feel that Soros’ essay is well worth reading in its entirety, one passage in particular caught my eye:
There is a close parallel between the euro crisis and the international banking crisis of 1982. Then the IMF and the international banking authorities saved the international banking system by lending just enough money to the heavily indebted countries to enable them to avoid default but at the cost of pushing them into a lasting depression. Latin America suffered a lost decade.
Today Germany is playing the same role as the IMF did then. The details differ, but the effect is the same. The creditors are in effect shifting the whole burden of adjustment onto the debtor countries and avoiding their own responsibility for the imbalances. Interestingly, the terms “center,” or “core,” and “periphery” have crept into usage almost unnoticed, although it is obviously inappropriate to describe Italy and Spain as periphery countries.
Obviously! — because Italy, Spain and Portugal were members of the European Community back before it became the European Union (which in turn was several years before the introduction of the euro). They are part of the core, but the two-tiered system that has now been created has pushed them into a different category. The European Union is no longer a collective of nations with common goals. Instead, we now have the “center/core” and the “periphery,” which is also called the “creditors” and the “debtors,” which really means — and nobody seems willing to say this out loud — “winners” and “losers.”
Despite the lack of public acknowledgment, I can assure you that the losers are extremely and painfully aware of their status. A whole bunch of nations being forcibly pushed into losing, with little to no power to fight back, is not conducive to the dream of the European Union. Neither is the creation of a winning class of nations who believe the losers only want to drain money from them while continuing to be “lazy” and “profligate.”
Soros makes the eventual outcome of this quite clear:
The permanent division of the European Union into creditor and debtor countries with the creditors dictating terms is politically unacceptable for many Europeans. If and when the euro eventually breaks up it will destroy the common market and the European Union. Europe will be worse off than it was when the effort to unite it began, because the breakup will leave a legacy of mutual mistrust and hostility.
The mutual mistrust and hostility are already there. The Portuguese are a polite people; their newspapers are not yet making Nazi references, as Greek and Italian papers have. That doesn’t mean the suspicion hasn’t been roused, as German writer Ingo Schulze discovered:
In March I held a reading in Portugal, in the city of Porto, from one of my books in translation. The atmosphere of friendly interest was from one moment to the next chilled by a single question from the audience. All of a sudden, we were merely Germans and Portuguese, who sat facing each other as enemies. The question was unpleasant. Were we – meaning myself, a German – now taking over with the euro what we had failed to take over with our tanks? Nobody in the audience disagreed with the sentiment. And suddenly I responded as desired – namely, as a German: “No one is forced to buy a Mercedes,” I said, offended, “and they should be happy to be getting credit that would be cheaper than credit on the financial markets.” I thought back to all the German newspaper stories heaping abuse on the PIGS countries, and it made my molars grind.
“PIGS” refers to Portugal, Italy, Greece and Spain — and that acronym alone says everything you need to know about how the winners perceive the losers. In the history of peacetime international politics and diplomacy, has there ever been a more insulting term accepted for general usage?
After Portugal’s prime minister announced last week that individual Social Security taxes will increase in 2013 from 11% to 18%, I did the math. This latest tax increase (I have lost count of how many there have been), coupled with the previous reduction in all civil servants’ gross salaries, means that my wife’s take-home pay will soon be 30% less than it was four years ago — and 10% less than it was before she became a full professor. She will make less now as a professor than she did as a doctoral student with a scholarship, at a time when everything else — gasoline, utilities, food, tolls — has dramatically increased in price. In the entire length of her career, she will never make up these years of lost income, even if the crisis magically ended next year. Nor is there any end in sight. Every year we tighten our belts more, and every year some new austerity measures are announced that make our previous belt-tightening look like days of luxury. Meanwhile, businesses fail all around us, the unemployment rate skyrockets, and we count ourselves fortunate to have jobs at all.
This is what it feels like to be a loser. I do not personally know any lower or middle class Portuguese who don’t feel this way, and the comments sections of newspapers certainly reflect that. The Spanish are in the same boat, as well as the Italians and Greeks and Irish. There is an enormous and continually swelling population that no longer think of themselves as Europeans, but as downtrodden nations, all victims of relentless and unsympathetic controlling powers who disdainfully refer to them as PIGS.
The European Union was created in reaction to the horrors of the two great world wars, but some of the hottest and most volatile ingredients for war are being created at an ever-increasing pace, right now. I sometimes wonder if the winners see this quite as clearly as the losers.
Addendum: After I wrote today’s post this morning, the German high court ruled the European Stability Mechanism to be constitutional. This is obviously a good thing, and has already made the financial markets happy, but whether it’s more than just another stopgap measure depends on what steps are taken next. I’m not holding my breath.