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BORIS KAGARLITSKY, MOSCOW
DEFAULT IN EUROPE
When the Arab emirate Dubai was on the verge of bankruptcy, the international financial speculators became worried. The rating agencies simultaneously came to correct their assessments. The bankers started to check if their debtors were solvent. Another financial crisis is in the air.
It turned out that not only Ireland and Latvia, but also Greece and Spain face a default. Iceland has already become bankrupt.
Latvia has become bankrupt too, but this can be acknowledged slightly later if the country keeps borrowing money. While the European Union and the International Monetary Fund are willing to place billions of dollars to this bottomless pit, Latvia can pretend to make both ends meet. True, the debt is growing, and the gross domestic product is falling. For all that, the EU is still ready to place its financial resources to the Latvian “black hole”. However, it would be much more difficult to help Greece or Spain in the same way.
The Greek government said that Greece’s external debt was 300 billion euro. Meanwhile, the country’s gross domestic product in 2009 makes up about 240 billion euro. Therefore, the external debt has reached approximately 125% of the GDP. Greece has already been called Europe’s “weak link”, but if there was only one weak link, the situation would not be so bad. The point is that there are too few “strong links” in the “chain”.
The problem is aggravated by the fact that Greece, Spain and Ireland, unlike Baltic states, are in the Euro zone. In other words, their troubles automatically tell on the situation in other countries using the single European currency. At the same time, those countries cannot follow their own financial policies, as this would be blocked by other countries. Germany is interested in maintaining the stable euro rate, while Southern Europe – in the euro’s plummeting. Under the circumstances, there is nothing else left for Greece, Spain and Ireland to do but to dramatically devaluate their national currencies. But it is impossible to devaluate the euro in only one Euro zone country. That’s why there are rumours that Greece and then some other countries are going to withdraw from the Euro zone. Technically, this would be the only reasonable decision. But its psychological and political consequences would be extremely heavy, or even catastrophic. The dilemma is as follows: if the countries, which would like their currencies to be weaker, withdrew from the Euro zone, then the European monetary system would continue to exist, but the faith in the euro, as the world reserve currency, would be shaken. If Europe’s “weak links” were kept in the Euro zone by hook or by crook, all the other links of the chain would be weakened. As a result the faith in the euro would be shaken in any case, but that would occur later.
The euro sceptics predicted the current situation in the early 1990s. When uniting completely different economies in the single currency system, the neoliberal authors of the United Europe project has made all the countries hostages of each other and subordinated the entire European economy to interests and ambitions of the German financial capital. The inflation level in Spain cannot be equal to that in Germany, because for that the Spanish economy and society should resemble the German economy and society. It goes without saying that Greece did not turn into Germany, more than that, nobody defined such a goal as the differences between Europe’s markets were actively used by the mobile capital. As a result, too expensive currency hindered the development of Southern Europe, which, in its turn, exported the inflation to the North.
Ironically, now the countries, which joined the Euro zone most enthusiastically, are exactly the ones who may withdraw from that zone. Neither German nor French citizens were enthusiastic about adopting the euro. Nobody asked the people’s opinion and the new currency was imposed on them in spite of their vigorous protests (especially in Germany). In Sweden and Denmark, where the Parliaments asked the population whether they wanted the new currency or not, the majority of people strongly opposed the euro. Because of that, many European financial problems did not happen in those states. In addition the countries have much better opportunities to pursue their own policies, which are consistent with their interests, than their EU neighbors do.
By contrast Spain, Greece and Italy welcomed the new currency. There was a good reason for this. They had not very popular currencies, high inflation and weak banking systems. The single European currency seemed to put an end to all of that. Unfortunately, the weakness of the South European financial system just reflected the structural economical and social problems existing in that region. As nobody has addressed those problems, sooner or later they were expected to hit the new financial system.
Liberal commentators and politicians do not understand that a financial situation reflects the general economic situation rather than determines it. Fighting against an economic crisis by financial means is tantamount to reducing a person’s illness to fever. Here any decision made by a doctor boils down to prescribing higher and higher febrifuges doses to a patient, which, in its turn, only worsens the illness.
The Greek and Spanish people believed that after the currency change they would get rid of their financial and economic problems, but, as a matter of fact, the patient got a different thermometer to take his temperature.
Alas, the less reasonable in terms of economic interests of the European countries the single currency introduction was, the more steadfastly it will be adhered to, since the officials’ acknowledgement of their defeat and giving up the chosen policy means a failure for which they have to be amenable. Not only left radical “skeptics”, but also quite inoffensive (for the time being) ordinary people come to realize that the entire Europe’s interests were disregarded for the sake of ambitions of Frankfurt financial elites and the Brussels officials, who were close to them. Unlike intellectuals, ordinary people are pitiless.
The crisis in the Euro zone inevitable becomes the whole Euro zone crisis, when all the system, its rules, ideology and institutions are called in question. The European officials will do their best to postpone this crisis, including by jettisoning the lumber – poor East Europe. Such a result of the attempts to “integrate those countries into the West” might be a good lesson for the countries’ inhabitants, who believed in their governments’ demagogy, if not for the elites (they are hopeless).
However, even if East European lumber is jettisoned, the Euro zone crisis cannot be staved off. A building with the bad foundation cannot be durable.
A historical inevitability can be delayed, but cannot be stopped.
Boris Kagarlitsky is a Director of the Institute of Globalization and Social Movements
December 16, 2009
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