The Eurozone and Us
For America, as for Europe, the consequences of Sunday’s elections in Greece and France are likely to be profound. Voters in the two Eurozone countries not only charted their own near-term political futures, but provided lessons for US voters in our rapidly approaching November contests.
Greece’s center-right New Democracy Party under Antonis Samaris squeaked out a narrow plurality, beating the radical-left Syriza Party by under 3 percentage points. Because New Democracy didn’t win a majority, it will have to partner with the Socialist Party, whose policies are largely responsible for Greece’s parlous economic condition. Syriza rejected Samaris’ call for a “government of national salvation,” thus positioning itself to replace him should he fail.
France’s results are even more depressing. Newly-inaugurated President Francois Hollande’s Socialist Party won a majority in the National Assembly to match its control of the Senate — giving Hollande undisputed political primacy in France. He seems determined to pursue further policies of economic ruination; his campaign promises included raising top income-tax rates to 75 percent and actually reducing the retirement age for many workers from 62 to 60.
International financial markets, first cheered by Greece’s results, quickly turned grim, with Spanish and Italian bonds coming under pressure. Ironically, the only good news was that China, Russia, Brazil, India and South Africa increased their contributions to the International Monetary Fund to aid Europe.
The amount they offered ($75 billion) is paltry given the magnitude of the crisis, but even the gesture — nations we used to call “developing” helping to bail out “advanced” countries — showed Europe’s world turning upside down.
German Chancellor Angela Merkel is the only European leader with a clear answer. Yet even with the clout afforded by Germany’s strong economy, it will likely prove too controversial and too hard to achieve to stop Europe’s rush toward the financial (and perhaps political) precipice.
Merkel acknowledges at least implicitly Europe’s folly in creating a currency without a government, centering monetary but not fiscal policy in Brussels. Her answer is to finish the job, and move fiscal policy largely out of the hands of nation states to Brussels.
Good luck with that. Mere citizens in Europe, perhaps most especially the Germans, have never been enamored of the “European project,” imposed upon them by their elites. Centralizing even more power in Brussels hardly seems in their interests, however much economic sense it makes to some theorists.
Thus, while Chancellor Merkel’s logic may be impeccable from her perspective, it is politically unpopular, and in any event not doable in a realistic timeframe to avert the ongoing tsunami of financial troubles.
Accordingly, another “corner” solution is the most feasible alternative — namely one or more countries, starting with Greece, exiting the Euro and readopting national currencies.
The Euro’s true believers argue that leaving it will be catastrophic — but compared to what? Today’s situation is already catastrophic in Greece, nearly so in Portugal and imminently threatens Spain and Italy.
Exiting the Eurozone means devaluation, which is no doubt painful — but which, as Iceland has recently proven, is ultimately sound medicine for a long history of irresponsible government spending and tax policies.
Still, Europe needs leaders willing to state the obvious. Either more centralization or fragmentation are likelier to address the Euro’s basic contradictions than continuing to “muddle through,” as Eurozone leaders have been doing for two years. Greece’s Samaris, realistic enough to know that denial is not an option, may be such a leader.
Hollande is another story — seemingly commited to policies that will add France to the list of Europe’s walking wounded. If that happens, there is little doubt the Eurozone will be radically restructured into something essentially unrecognizable from today.
For the United States, the stakes are high and time is short. Although the costs to the mistaken Eurozone countries have been enormous, they at least foreshadow what will happen to others who repeat their mistakes.
We can, as one alternative, choose a second term for President Obama in which he blithely adds even more to our already massive deficits, thus moving along the Greek and Spanish paths. Or we can turn away before it is too late.
Pursuing the Mitt Romney/Paul Ryan budget strategy won’t guarantee a complete and instant recovery, but re-electing Obama will certainly guarantee the opposite.
John Bolton is a former US ambassador to the United Nations.
This article first appeared in the New York Post.