Tag Archives: policy

What about the Euro?

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Spiegel Online International writes that “in the end, only the ECB will be able to save the euro if the crisis continues to escalate.”  It’s useful to examine all three of the premises contained in this statement, which was made in the context of a discussion of the current Greek default crisis, the looming Italian default crisis, and the not far behind Portuguese and Spanish default crises.

One of those premises is the assumption that the euro should be saved.  Another of those assumptions, closely related to the first, is whether the euro can—or should—be saved in its present form; that is, should the current euro zone remain intact.  The third assumption, closely related to the second, is that, given a truth of either of the first two, the ECB is the only means of salvation.

On the first assumption, I suggest the answer is a qualified yes, the euro in some form is worth saving.  Free trade arrangements among nations are economically more efficient than trade among nations that have no such agreements among them.  The benefits for each of the member nations, for all of the taxpayers involved, include the following.  Free trade zones reduce the costs of the goods traded by smoothing their shipment and by reducing/eliminating costs associated with the process of trade: tariffs, for example; border delays in goods’ movement; reduction of bureaucracy and of bureaucratic costs associated with managing trade without such agreements.

A common currency is nothing more than a logical extension of this, and it carries further reductions in costs to the ultimate consumer—the businesses in the member nations and their cost of supplies and labor, and the citizens of the member nations as they go about their own business.  Another cost reduction is the loss of the cost of currency conversions from one nation’s to another’s.  Finally, if done right, the common currency eliminates currency speculation within the zone and the price excursions that can result from such speculation (even if the excursions are inherently short-lived).

A common currency, though, even more than a free trade zone, puts demands on achieving a commonality of mores among the nations involved.  The cultural imperatives, the views of a government’s role in a nation’s economy and in the people’s lives, even the views of the purpose of a currency (national or common) must have a very great deal of overlap and agreement.  If these do not exist, ultimately there will result a net flow toward some member nations and away from others; this instability means that a common currency cannot exist for long.

Additionally, a common currency stands on a very large leap of faith by all the members of the common currency zone.  This faith is that agreements made among sovereign nations in the creation of the currency, and that underlie the nature of that currency and its usability, will be kept.

With the euro, neither of these conditions obtain.  If we look at “northern” Europe we see a common attitude that still values smaller governments (if not as small as many Americans believe appropriate) with limited roles in lives and economies.  We also see a general culture that values individual work ethic, initiative, and a degree of frugality.  This tends to be the case of “eastern” Europe, as well: Poland, Estonia, and Slovakia, nations that experienced directly the failures of large government  involvement are examples of this.  Additionally, the memories of the failures of this large, controlling government involvement are still fresh in their minds, pushing them further in the direction of individual responsibility.

Mediterranean Europe operates from an entirely different culture, one whose work ethic seems centered on working to obtain as early a retirement as possible.  This is a culture, also, that holds that government’s role is to take care of the citizens in all respects.  This is a culture that sees currency, not as a store of value to be divided between current needs and desires on the one hand and future needs and desires on the other, but to be used solely for current consumption (that future being a purpose of government).  Regardless of what one might think of the merits of the two different mores, they do not mix.

We’re also seeing the routine breakdown of those agreements solemnly entered into at the creation of the euro.  The agreement that only stable nations, with sound economies, would be allowed to join has proven to be a chimera.  Greece’s membership demonstrates that.  That the signs were visible ahead of its joining is apparent in the contrast with Slovakia, which had much the same economic condition, only more so, as Greece when Slovakia began discussions to join the euro zone.  The differences starkly demonstrate the visibility of those signs.  Slovakia had to undergo severe “austerity” measures to get its economy and debt in order so that it could join, and the people set about to do that.  The Greeks lied about their progress in making the necessary changes and presented falsified books to the EU in order to gain accession, yet those falsifications would have been readily apparent to any serious audit.  And today the Greeks riot in the streets at each set of austerity measures demanded as a condition of bailout.

Italy’s political instability and its resulting inability even to think about cutting spending below revenues is another example of that broken commitment.

The member nations also were assured by the agreements that created the euro and the euro zone that their taxpayers would not be held liable for the debts of any other member.  But we have two bailout packages—and a looming third—for Greece that are built explicitly in the wallets of French, German, Slovakian, Swedish, et al., taxpayers.

On the assumption that the European Central Bank is the only mechanism available to save the euro and the euro zone, this is plainly false.  If ECB were to print money to pay individual national debts, there would occur explosive inflation from that enormous spike in circulating money, and this would blow up the euro.  The ECB cannot be involved in this at all.

The real question the euro zone faces is whether there will be a monetary union or a stable currency.  With the current composition of the euro zone, the two are mutually exclusive requirements.  To save the euro, the zone must be pruned, if not divided into two separate zones, each with its own common currency.   “Northern” Europe and likely eastern Europe must form their own “euro” zone, and let the Mediterranean members go their own way or form their own “mediterrano” zone.  Within each zone there will exist the commonality of purpose and of culture that will give their respective common currencies a chance to survive for the long term.  This, of course, elides the questions for either zone of what entity should have control over the parameters of the common currency, and of how far that control should extend.

The Bailout, Again

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I’ve disparaged in other posts the Greek people’s response to their economic crisis.  However, the decision of their Prime Minister, Giorgios Papandreou, to put the latest EU offer of a bailout to a plebiscite—to let those Greek people speak directly and for themselves on whether they think the bailout, or its terms, are suitable—has led to an interesting set of responses from the other governments of the Union, and from within the Greek government itself.

On the one hand, there is a great deal of legitimate frustration on the part of those governments over the decision for a plebiscite of the people who would be the “beneficiaries.”  Regardless of what we might think of the bailout itself, a lot of hard work and political capital, and yes, sacrifice and good faith, went into working out the parameters of this latest bailout, and filling in the details will take much more of the same.  On the other hand, how those governments are expressing their frustration says a very great deal about their views of democracy.

French President Nicolas Sarkozy insists, “Giving the people a say is always legitimate, but the solidarity of all countries of the eurozone cannot work unless each one consents to the necessary efforts….”  The Greeks really must have other nations’ permission to speak for themselves.  It’s a cute idea, though; thank you for playing.

Rainer Brüderle, a leader of the Free Democrats Party (part of Germany’s ruling coalition), says in all seriousness, “It’s a strange thing to do [hold a plebiscite], but all you can do is take precautionary steps in case there is a state insolvency in Greece.”  Indeed.  How alien a concept it is, this letting citizens speak and instruct their government.

The Swedish Foreign Minister, Carl Bildt, has Twittered,  “I truly fail to understand what Greece intends to have a referendum about. Are there any real options?”  Aside from the question of whether the Swede’s understanding is necessary to a Greek referendum, his professed inability to understand the matter says more about his understanding of the imperatives of democracy than it does about Papandreou’s decision to consult his employers.

Even from within Greece’s own government, we have a lack of clarity.  “I never expected Papandreou to take such a dangerous and frivolous decision,” huffed Dora Bakoyannis, an independent member of the Greek Parliament.  In the birthplace of democracy, it’s a frivolous thing to have the government’s employers speak up and tell their government what it must do.

Socialist deputy Hara Kefalidou wrote to Papandreou this, among other things: “I cannot back a referendum which is a subterfuge by a government that appears unwilling to govern.”  Letting her constituents, and the constituents of the rest of the government, speak is mere subterfuge, and not democracy in action.  And a government which fulfills this duty is unwilling to govern.  This is interesting….

Even support for the decision to hold a plebiscite is founded, not on recognition of the fundamental tenets of democracy, but on the purely utilitarian grounds of its political practicality: a successful outcome would silence, once and for all, opposition to the bailout in Greece.

Another, ulterior, motive for the EU leadership’s crocodile tears seems apparent.  “While Greece is threatening a vote, nobody will ever give Europe the resources for the enhanced [EFSF],” said Jan Poser, Bank Sarasin’s chief economist.  Those uppity Greeks are going to cause an embarrassment for the EU at this week’s G-20 summit. The EU members had intended to beat the wallets of the other members, especially China and Brazil,  for funding to bail out the now over-committed EFSF, so that it could bailout Greece, and then Portugal, and then Spain, and then Italy, and….  However, with those Greeks so rudely planning to speak for themselves, it seems there will be great difficulty getting anyone from outside the EU to support these efforts.

Apparently, the European view of democracy is that the citizenry very democratically vote politicians into their government, and then the citizens are to shut up, sit down, and let their government speak for them.  But when governments speak for the people, with no obligation to heed those people, governments instead speak in the people’s place.  And the people have ceased to have a voice in their own governance.

No.  Let the Greek citizens speak through their ballot box.  They’ve been speaking in the streets for months, and they’ve been studiously ignored.  It isn’t government’s role to protect people from themselves (leaving aside the minor fact that it has yet to be established that a popular decision to reject the bailout is something from which protection is warranted).  Especially when government does such a terrible job in the attempt.  And putting off the default will only make it worse when it happens.

America’s Future

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This isn’t as apocalyptic as it might sound; on the contrary, this is the first in an occasional series I’ll be writing on our foreign and defense policies, with the latter being approached both in its own right and as an arm of our foreign policy.

In this post, I intend to outline what I believe is the environment for these policies as we move through the 21st century.  Another post will address the framework of our foreign and defense policies, and future posts will look at necessary structures for each, actions for and by each, and how events of the day might be handled by the new policy(s).

The present and future periods seem sufficiently different from the period ending in the mid-20th century that such a rethinking and reformulation, central as foreign and defense matters are to our existence as a nation, seems in order.  Many of the seeds of these differences, certainly, were sewn in the latter half of the 20th century, a period dominated by the Cold War and by the ready view of combat in progress in the Vietnam War, which was carried out within that Cold War.

This Cold War period was characterized by political maneuvers that would have made Metternich blush, and by military confrontations that seemed on the surface to threaten the century’s third total war, but that were, in fact, proxy confrontations wherein both sides used small surrogates to do the fighting.  Here was a use of foreign policy as a means of outright conflict, and this use represented the beginnings of a diffusion of physical conflict across a more amorphous set of actors than had been the formally structured nation-states that had dominated war for the preceding two or more centuries.

The environment within which international interactions are carried out has changed radically, including through large extensions from those earlier beginnings.  We operate in the 21st century in a media age where the events of the day, wherever on the planet they may occur, become available for viewing, commenting, prognosticating in near real time anywhere else on the planet.  We can see the results of an earthquake near Indonesia, or of an earthquake and tsunami in Japan, or of a failure to pay an international oil bill in the Ukraine, within hours, if not minutes, of their occurrence on our televisions, on our telephones, via the Internet, through nearly any visual and/or audio medium modern technology can provide a consumer.

We operate in the 21st century in a communications age that brings news of the event, or conversations with our friends and neighbors and strangers, to us nearly instantaneously via dinky little cell phones, that same Internet, video and still cameras—portable enough to be standard equipment in those cell phones—and bring us that news and those conversations from wherever our friends and neighbors might be, including half a planet away, and wherever we might be.

And we live in a 21st century where the major actors are not limited to formal nation-states.  These actors include international corporations with operating budgets larger than many of those nation-states.  These actors include less formally or classically organized entities which do great ill—terrorist organizations like al-Qaeda.  These entities also often have budgets larger than some nation-states, and they have military establishments that are the envy of many nation-states.  It is the threat from these, the terror organizations, of which al-Qaeda is only the most well-known, that must inform our policy formation, for the point of foreign and defense policy is the survival of the nation.

To be sure, the prosperity of the nation also is a major purpose of foreign policy, but without survival, there is nothing.

In this new set of conditions, the old, formal arrangements are not optimal.  NATO has lost its designed foes—both the Soviet Union and its Warsaw Pact no longer exist—and it has gained no other purpose; although this defensive alliance has been used, clumsily, to project political and military power offensively.  The World Bank and the International Monetary Fund have descended into piggy banks for the profligate.  And so on.

Cropping up is an ad hoc arrangement of free trade areas, each of whose individual purpose seems as much to be to compete politically with other areas, both free trade and not, as to provide mutual economic benefit to the particular members.

We have a fractious, nonhomogeneous Europe trying to force itself, Procrustean-like, into a single coherent whole, of several layers: a Union of European nations loosely subordinating a poorly understood level of national sovereignty to a European “government;” a subset of that attempting to bind economies that operate from radically different moral and political imperatives to a single common currency; and a growing division among Mediterranean Europe, northern Europe, and eastern Europe.

We have a Russian Federation, perhaps in a demographically-driven last hurrah, that is attempting to reform the earlier Soviet empire, this time with a different arrangement of how Russia will rule from its geographically broad and vulnerable center.

We have a People’s Republic of China that perceives a political vacuum developing in Asia and the Pacific and so is rapidly expanding its military capabilities, and sopping up resources like oil and iron, in an attempt to fill that vacuum.

And we have a world that, on the one hand, demands that we spend our treasure and our blood in attempting a semblance of peace in the Balkans when Europe effectively refuses their moral duty in their back yard, and on the other hand that vilifies us for supporting an ally against threats to its very existence.  We have a world that lectures us on our proper economic or moral comportment.  The list goes on.

Accordingly, our policy principles must be informed by the following necessary underlying mindset.  Following George Washington’s advice, in spirit if not literally, we must be chary of entering into formal alliances too quickly.  In this light, we must review our existing alliances for their suitability to our national interests.  Further, we must make plain that our friends know who they are and that they have nothing to fear.  We will stand with them steadfastly through all of their—and our—trials.  We must also make plain that our enemies know who they are and that they have everything to fear; their existence is at risk.  They have complete control, though, over their status as our enemy.  Finally, we must make plain that those who sit on the sidelines and “comment” on American actions here or there, or in this or that milieu, are demonstrating their level of integrity and courage by standing on the sidelines.  Their words are unimportant, and we do not hear them.

We must also recover our recognition that the United States is an exceptional nation and our understanding that our 18th century liberal/modern conservative values of individual responsibility, individual liberty, entrepreneurship are what made us great.  Other nations, other peoples will benefit from these values, also, regardless of the form these might take when tailored to the specific polity involved.  Thus, it not only is in our interest to talk about these values in all areas of the world, it is in those areas’ interest to hear them.  And a more prosperous, freer world is in both our interests.

Within that, it is in our interest, also, simply to provide aid to nations and peoples that need help.  We need no consensus, we need no permission of consensus, to do this, our duty.  Americans are the most generous people on Earth, and that innate generosity works to our, as well as the recipients’, advantage.  For example, after the 2004 tsunami struck Indonesia and killed 185,000 around the Indian Ocean, American aid, delivered by our Navy’s hospital ships, with our Navy’s aircraft carriers providing critical helicopter transportation and supply in support of relief efforts, Indonesian economic and physical recovery were both made possible and accelerated.  And the Indonesian people altered their opinion of us—in the middle of our war against terrorism that, by its nature, mainly involves groups claiming to be Muslim.  Beyond that, our aid cut the Indonesians’ favorable opinion of Osama bin Laden by 60%.  Similarly, our aid to Pakistan after a 2005 earthquake in Kashmir had killed 80,000 helped Pakistan recover far more rapidly than would have been possible otherwise, and it altered the Pakistanis’ opinion of us almost as radically.  And today there is a measure of peace, if not necessarily of complete justice, in the Balkans because we acted.

In subsequent posts, I’ll expand on the impact these issues should have on our foreign and defense policies.