After Bailout: Where Next?

Date 2012/7/5 16:20:00

William PFAFF

Paris, June 3, 2012 – The latest, and twentieth, European “summit” meeting, held last week in Brussels, was symbolically a defeat for Germany’s Angela Merkel, who agreed that Europe’s permanent bailout fund could directly recapitalize certain troubled Eurozone banks after weeks of obstinate resistance to such concessions to what in Germany are regarded as the irresponsible and profligate “southerners” — Greeks, Italians, Spaniards, Portuguese – held responsible for the European debt crisis (with a little help from Goldman Sachs). She also, in the Greek case, agreed to a growth fund. ( One should add that the common journalistic term “bailout,” usually used as meaning “giving” money, actually means loaning money for eventual reimbursement.)

Thanks to the relentless campaign for Keynesian reform waged throughout the crisis by the columnist and Princeton Nobel Prize economist Paul Krugman, Americans are more likely to think of the current debate in terms of Monetarism versus Keynesian economics. However, in the United States, the Republican Tea Party crowd, and the old-fashioned small-government economic conservatives who oppose the Obama administration and form the bitterest enemy phalanxes of President Obama, are not monetarists (and would probably be hard put to describe what monetarism is).

The ordinary Republican conservatives (leaving aside the bloated and power-primed one percenter corporate elites) are frightened by the national debt, by their own medical or credit-card debts and their children’s academic loan debts, which are associated in their minds with liberal government welfare programs plus what they erroneously have been convinced is a ruinously huge potential Social Security and Medicare debt.

In Europe the debate has been different. There is a North-South confrontation concerning budget management, prudent national expenditure, and the interests of the international markets which hold European debt. The near-overnight meeting last Thursday-Friday finished in an agreement to support fragile Spanish and Italian indebtedness, allowing some Eurozone rescue funds directly to recapitalize some Spanish banks and to buy Italian sovereign bonds .

A new system of banking supervision via the European Central Bank was introduced, which was taken as a step towards eventual Eurozone banking union. There may also be a tax on financial transactions, no matter what Britain thinks about that measure, which attacks the soft underbelly of the City of London (and potentially Wall Street). But there is no sympathy whatever today for bankers, in view of their greedy and larcenous practices.

These short-term measures greatly pleased the (insatiable) international markets, but the German parliament, the Bundestag, was infuriated by what seemed an opened door for German taxpayers’ money to flow towards the coffers of their fiscally irresponsible neighbors. In Germany the affair has from the start been treated in tabloid newspaper style, with frugal Germany, and a few hardy North European Protestant allies – Finns, Scandinavians — being lain open to exploitation by wastrel nations.

The reciprocal sentiment, held with comparable vehemence, has been that having already ruined Europe twice for brutally self-interested reasons, trying and failing to conquer it in 1914-18 and 1940-44, a third such effort is now visible. The Greeks in particular have reminded all who would listen that Greece was never paid adequate war reparations by Germany, and the looted Greek national gold reserve was never returned. It has been an edifying year in the Eurozone.

Mrs. Merkel’s ferocious defense of Germany’s own treasury has been motivated by domestic politics as well as by her family inheritance as daughter of a prudent pastor. Her conservative coalition with the Free Democrats is in damaged condition, and her own Christian Democrats have a clouded outlook for the national elections next year.

Her overall position on the international debt problem, however, has been unexpected from the start of the crisis, and I should think politically unpromising, It is to demand “more Europe” politically, before conceding any “more Europe” economically. As Barbara Spinelli, of La Repubblica in Rome, has recently written, what the markets want is a schedule for adopting a European tax authority, a common European budget, a “powerful European parliament,” a strong central bank, and unified foreign policy. Chancellor Merkel wants a “European political union.” This is fantasy.

Close economic and budget cooperation is one thing, but that Europe’s great historical and imperial sovereignties, France, Spain, and England, would hand over sovereign power to a European executive and “powerful” European parliament, is inconceivable. Germany itself might – after all that happened during the past century –but I doubt even that. And we have already seen what a common European foreign policy is worth: pious good intentions, or uneasy ratification of what individual governments have done on their own initiative.

Europe is, and should remain, an increasingly close alliance of great powers. That these powers will renounce their individual sovereignties seems to me impossible.

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