Robert Kuttner in As Goes Greece (Huffington Post May 28) suggests that Greece was on the right track and that other factors caused the present instability. He seems to offer some words of help but a close reading shows that he creates confusion.
The way to help is: (1) think straight, (2) give a solution that works. On the second: this weblog Boycott Holland outlines a new synthesis in economic theory plus an economic plan for Europe, see the About page. On the first, let us look at Kuttner’s case.
(a) Kuttner compares the weak EU governance structure with the strength in the USA: “It would not be an exaggeration to call the EU a failed state, except that it never quite rose to the status of a state.” However, the USA is in shambles as well, both economically and socially. In my analysis the Trias Politica structure in the Western concept of democracy is at fault, and we need an constitutional amendment for an Economic Supreme Court. See the About page again.
Also, the EU is a new kind of beast, a collaboration of sovereign states. There is no reason to call it a failed state if nobody intended it to be a state. There is no blueprint here. The USA had the Civil War and still suffers the consequences. The better approach is to call the EU an interesting project in diplomacy and an effort to co-operate while respecting national differences. Constitutional amendments with national Economics Supreme Courts will help a lot.
(b) Kuttner: “The ECB and national central banks might have intervened decisively on the side of Greek government bonds, and caused the speculators to take a financial bath. Instead, the European powers allowed speculators to rule.” Kuttner neglects the no-bail-out rule. Greece didn’t stick to the eurozone rules, it could not expect to be helped, it would be unwise to impose dictates from other countries, and the only way to get Greece to behave were the financial markets. The only reason why Greece finally tried to contain its budget was not “yes, we must stick to the rules, yes we respect the needs of other EU member states” but because of the exploding rates of interest.
(c) Kuttner: “The third problem is the high-handedness of German Chancellor Angela Merkel.” He compares with the German subsidies for East Germany: “You think the East Germans kept accurate books?” This is an extremely silly remark. (c1) East Germany came from communist dictatorship, not from 35 years of democracy since dictator Papadopoulos, and all those years of support from the EU, (c2) there were close historical ties, (c3) Germany is sovereign for the whole region, (c4) even under the dictatorship East Germany had shown some industrial power (though weakening in the end because of technological progress in the West).
“Mrs. Merkel’s government has been the prime source of the austerity demands.” It is a matter of semantics of what is “prime”. The Dutch and Fins were strong too. Perhaps Germany is more powerful but that does not mean that other voices can be neglected. It seems that in particular the Dutch were the main cause of the “private sector involvement” (PSI) that wreaked so much havoc. But the whole eurozone confirmed the budget rules, and if that is wrong, please blame them all.
(d) Kuttner: “Still, isn’t all this, in some respects, Greece’s own fault?” A stupid question gets a stupid answer. Is it Greece’s fault that the EU is not a sovereign nation with the ability to tax the North to invest in the South ? Yes, Alexander the Great should have gone to the West rather than to the East. Of course it is Greece’s fault that it borrowed more than it could handle. Of course it is the fault of Germany and Holland that they pursue an export policy that out-competes the rest of Europe, so that they are the creditor nations that lend on too easy terms.
“If the EU were serious about helping Greece to reform, it would have combined technical assistance and debt relief conditioned on a reform program with a reasonable time period, rather than adopting a purely punitive approach.” Well, this is what the EU actually did. But note: (d1) first the budget rules needed confirmation, (d2) Yes, the PSI was an error because that fueled problems in the banking sector, (d3) there is still tax evasion in Greece, with plush jobs and corruption, and the way how Samaras and other politicians tried & still try to evade the hot potato did & does not impress the rest of Europe as very trustworthy.
Kuttner seems to suggest that the problem was only Greece, and not also Italy, Spain, Portugal and Ireland. Isn’t there some involvement of the USA with Alan Greenspan and the US banking system ? Why doesn’t the USA make some amends to the rest of the world ?
(e) Kuttner: “Historians will look back on the spring of 2012 as moment when Europe’s institutions and leaders either failed to contain a deepening crisis — or as a time when leadership grasped the common stakes and rose to the occasion.”
Kuttner doesn’t specify what that solution would be. Supposedly anything that works ? Or just plain old integration into a United States of Europe ? Apparently The Economist newspaper seems to think the latter (May 26). But these anglo-saxon plush-job-corrupted commentators forget that Europeans do not want a United States of Europe. Historians will judge that Kuttner did not get it.
Just to be sure: the economic plan for Europe presented in this weblog contains EUR 100 bn for relief in Greece, no tax and social premiums on the minimum wage, a VAT of 1% plus international investment zones. Thus Greece has a sunny future. The political leaders must accept that this crisis has both monetary and budgetary aspects. The emphasis curently falls on the budgetary aspects but the monetary element should not be forgotten: a reform of the euro and ECB.