Solvency the European issue

This is a slightly extended version of a oped published in the Irish examiner : 

With every day that passes the fault lines within Europe become clearer and wider. Germany’s Chancellor now appears to be increasingly isolated, reminiscent of the Irish mother looking at children walking up and down the road saying “sure they’re all out of step apart from my Johnny” in relation to how the crisis should be resolved.There is a problem in my opinion of misdiagnosis of crisis. Proposals have been put forward on the assumption that what European sovereigns are facing is a crisis of liquidity. It is reminiscent of the Irish government’s responses in 2008 and early 2009. Then we will recall that the assumption was that Irish banks were suffering  from a lack of liquidity when it was eminently clear that whatever suffering from a lack of solvency. In the case of several European countries, Greece for most but perhaps also Ireland, solvency not liquidity issue. The European political system, led up to now by Franco German axis which as France comes under pressure looks like splintering, is acting like the black night in the Monty Python skit, crying out as  Successive governments and societies are amputated “it’s only a flesh wound”.

The European central bank has the tools available to it, but is also debatable as to whether these tools are the ones that should be used to end the crisis. At the moment what we have is a veto by the troika this you’re in each country on government spending. Handing over that veto, even if only in a flexible manner, the European central bank does not make this an enormous improvement, and remains a deeply undemocratic as the present situation. The issuance of Eurobonds, or other forms of collective fiscal funding ignores both the existing levels of debt and again runs the risk of handing over the power of the purse to an undemocratic organisation. The history of political economy is that the power to raise and spend taxes is inextricably linked with the growth of the modern democratic state. If Europe wishes to move towards further fiscal integration this can only happen along with further deepening of democratic control over this fiscal centralisation.

At the crux of the present impasse is a cultural problem. In my opinion the crux of the present problem is cultural. We all recall in Ireland the plaintive cries that “Ireland is that Iceland”. That is very true, and more’s the pity when you consider the relative performance of Ireland and Iceland over the last two years. But if Ireland is not Iceland, then Europe is not Germany. The E in the ECB stands for European. It is as foolish to expect Greeks, Spaniards, or even Dutch, to become German as it is to expect Germans to overcome decades of cultural antipathy towards (the fear of) inflation. The institutions in Europe are curious bunch. Most national or supranational institutions are an outgrowth of society. The European institutions are a deliberate attempt by societies over time to produce institutions were no common cultural norms or commonalities exist. This was not make them any more or less valid, it just means they are inherently top-down rather than bottom-up. Other countries which we hailed as being rather monolithic may not be as such. People consider the United States to be a fairly monolithic whole while it is generally accepted that the USA is a optimum currency region, but in fact this may not be the case. Psychological and anthropological research shows that the degree of intra state differences in attitudes towards individualisty,, towards teh role of the individual and society, towards the whole series of cultural indicators are just as large as those between various parts of the European Union. Vast economic diffeerences persist between parts of the USA, yet the currency remains intact with even defaults of large cities and states not seeming to threaten the whole. The United States has however a very powerful federal government, which is easy to forget emerged out of the Crucible of an extremely bloody civil war. The experience of the United States in forming political economic institutions such as the Federal reserve board shows that nationbuilding takes a long time, is not easily achieved, and takes political will. At the moment the political will to even see that the problem is systemic, is not one of liquidity, will require give-and-take on both sides of the German/rest of Europe divide, is missing.

http://www.irishexaminer.com/business/eu-crisis-is-not-lack-of-liquidity-but-solvency-174367.html
http://www.irishexaminer.com/business/eu-crisis-is-not-lack-of-liquidity-but-solvency-174367.html

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