Europe

The PIIGS Who Fell to Earth

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In her office in Berlin, Angela Merkel waited by her phone. A small group of advisors waited with her, unusually quiet. Their eyes moved back and forth between the clock and the telephones. Finally, a ring shatters the silence. The defense minister picks it up. He listens, nods, barks an acknowledgement into the phone, and hangs it up. He turns to the chancellor.
 
Der Rubikon ist gekreuzt worden.

This is from a great post by Jim Bennett.

In the form of a thriller, he shows one way the current Euro currency crisis could play out.

Schadenfreude is a German word, but we in the Anglosphere occasionally feel a twinge of it … .

It’s easy to have a disciplined euro, but nobody would want to join.

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Reading Gerard Baker’s speculations on Germany leaving the euro I got somewhat bored halfway through. The solution was as obvious as the fact that Mr. Baker, and perhaps most of Europe’s luminaries, are blind to it.

Europe is a hodge-podge of buried irredentist sentiment and maximalist territorial dreams. Do you want Greek discipline in paying its debts? No problem, force it to put up the islands that Turkey has wanted for a very long time and suggest that insufficient fiscal discipline will lead to an auction sale of the territory collateral complete with loss of sovereignty. Not only will this instill fiscal discipline in countries that have to put up parts of their own territory, it will induce their neighbors to save up “wishful thinking” funds to bid the real estate up high enough.

Is the UK spendthrift? Have them put up Gibraltar as collateral and watch the Spanish suddenly start saving like mad in hopes of an auction. No doubt Moroccan finances would tilt towards fiscal surpluses as well.

The utter national humiliation of dismembering your own country to finance social spending should set things right. And if not, well, other hands would take over their country’s ultimate assets, national sovereignty.

Totten Interviews Hanson

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Superb. This interview has probably already been linked by fifty blogs but I’ll make it 51. Hanson is insightful as always. Totten is characteristically observant and thoughtful.

VDH: I’m worried about Iran, and I think we’re asking some of the wrong questions. It’s not just about whether or not Iran can be deterred. Even if Iran can be deterred, leaders like Ahmadinejad are going to periodically issue these proclamations about killing the Jews. I’ve read polls where Israelis are asked if they’ll leave the country if Iran develops a nuclear weapon. Some of them say yes. There’s a real worry that Iran will place this Sword of Damocles right over their heads, and a lot of them will just leave.
 
MJT: It would have to be awfully demoralizing.
 
VDH: It’s like living next to a crazy neighbor with a house full of guns who once in a while yells over the fence that he’s going to shoot your whole family, but never quite gives you a good enough reason to call the police. Who wants to live next to somebody like that?
 
MJT: Nobody.
 
VDH: This is what Obama does not understand.
 
MJT: I don’t believe Iran will actually nuke Israel, but I don’t believe that in quite the same way I believe France won’t nuke Israel. I’m 100 percent certain France won’t, but I’m not 100 percent sure Iran won’t.
 
VDH: But you can be 100 percent sure they’ll talk about it.
 
MJT: Absolutely. Ahmadinejad talks about it right now.
 
VDH: And he’ll keep doing it.
 
MJT: They’ll ramp up the belligerence in general. I mean, why wouldn’t they? Why would they suddenly dial it down once they’ve built a nuclear arsenal?
 
VDH: The administration is immature. There are millions of reform-minded Arabs in Jordan, Egypt, and the West Bank. There are millions in Lebanon. To the degree that they can function and try to create a liberal community of nations in that area is dependent on the United States opposing radicalism and allowing Middle Eastern governments to be hypocritical. What I mean is, let the Arab states complain about the meddling United States with the private understanding that they want us to oppose Al Qaeda and Iran. I’m worried that Obama believes this anti-Western rhetoric, or at least thinks it’s legitimate, and by voting “present” he sold out all these people. They’ll just go back into their shell or make the necessary accommodations.
 
We saw this in the 1930s in places like Czechoslovakia, Hungary, Bulgaria, and Romania. People there accepted that hardly anyone would speak out against Hitler, that if they aligned themselves with Britain, Britain wouldn’t do anything for them.
 
MJT: Look at the Lebanese. They now have the United States “engaging” with the people who have been trashing their country and murdering their elected officials with car bombs. France is now “engaging” Damascus. Sarkozy was supposed to be an improvement over Chirac, but I’m beginning to doubt he really is.
 
VDH: This a confusing period. There’s a lot of irony. Look back at the period when Europe had it both ways, when we defended them while they mouthed off, when they undermined us and Bush pushed back.
 
Now compare that to what Obama is doing. He’s almost smiling while selling out Europe. He’s trying to become even more left than they are on foreign policy. On one hand, the Europeans are getting what they deserve, but they are Westerners, they are a positive force in the world, and what we’re doing is dangerous.
 
MJT: It seems to unnerve the Europeans now that Obama is to their left.
 
VDH: It does.
 
MJT: They seem uncomfortable being to the right of the United States in some ways.
 
VDH: I had an interesting conversation two years ago just before Obama’s election with some military people in Versailles. They were at a garden party, and everybody was for Obama. But an admiral said to me, “We are Obama. You can’t be Obama.”
 
Everybody looked at him. And I said, “What do you mean?”
 
He said, “There’s only room for one Obama.”
 
I said, “So we’re supposed to do what? Take out Iran while you trash us?”
 
And he said, “Right out of my mouth. I couldn’t have said it better. Bush understood our relationship. We have to make accommodations with our public, which is lunatic. You don’t really believe there’s going to be an EU strike force, do you? Nobody here believes that. If you become neutral, what are we supposed to do?”
 
That’s what he said. I was surprised at his candor. And it’s worrisome. On the one hand I like it because they’re getting just what they asked for, but on the other hand, it’s tragic. And it’s dangerous. We shouldn’t be doing this.

The complete interview.

On The Debt Crisis and Europe

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I am not an economist nor a formal, paid pundit on Europe. Here are some of my thoughts on the economy, countries and people that are impacted by the debt crisis.

Some observations:
– The debt problem in Europe isn’t a problem of liquidity (i.e. short term cash flow); it is a problem of solvency (i.e. debt has risen to a point where interest payments are unsustainable, and raising more debt is problematic). Fixing a solvency problem requires structural changes (like defaulting on your house or declaring bankruptcy), while liquidity problems are due to timing. Few seem to be treating the issue like a solvency one, however.
– By European history standards (“hot” wars and “cold” wars) the military climate between nations is benign; with a few exceptions in the Balkans where the borders never were straightened out and occasional puffery from Russia (also mild by historical standards)
– Many of the problems between nations have been “solved” by breaking up countries into component parts (Yugoslavia into ethnic components, Belgium likely ultimately the same) along ethnic group lines, meaning a larger focus on their own ethnic kin and less on overall assimilation of ethnicities into larger, conglomerated countries (there is absolutely no appetite for putting multiple ethnic groups into a larger “whole”)
– The benefits of the Euro are real; lower interest rates, lack of currency risk, and an ability for smaller countries to raise funds similar to the terms of larger nations (due to the implicit backing of the financially weak countries by the financially stronger countries)
– The level of government intervention in virtually all European countries is very high, with the state controlling many institutions directly through armies of rules and bureaucrats while significantly “capturing” other areas of the economy (the banks buying government debt, the power sector, and export-oriented industries like aircraft)
– Growth is slow and there seems to be little chance of it significantly heating up in the near term; the economy is not dynamic and entrepreneurial and some of the formerly most vibrant sectors (real estate, finance, tourism) are in a post-bubble rut
– It seems very unpopular to transfer funds from the stronger to weaker countries given that it is obvious that these weaker countries are not going to “grow” out of their problems nor significantly open or fix their structural economic problems; even the mildest measures in those weaker countries are met with strikes and unrest and even these plans don’t reduce debt, they only reduce the rate of growth on debt
– Youth unemployment is the “flip side” of a large governmental sector and heavy-handed regulation. Youth unemployment is near 40% in some countries like Spain; angry, unemployed youth are often the spark that can set a dangerous situation in motion very quickly

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Where the Carpet Ends

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The worldwide attacks on Israel, in the wake of the Gaza event, are frightening in their venom and irrationality, and I fear that these responses mark a significant turning toward the abandonment of civilization’s ramparts and the appeasement of terrorist and rogue-state barbarism. Daniel Henninger of the WSJ has a roundup here. He notes that:

For starters, denouncing Israel for something like this is convenient for leaders who have failed repeatedly to do anything about more important and difficult problems such as Iran, North Korea or sovereign debt. Also, lesser nations learn by example: The Obama administration’s unrestrained criticism of the Israeli government in March over East Jerusalem settlements lowered the threshold for teeing off on Israel.

…and expresses particular concern about the comments made by Catherine Ashton, EU “high representative for foreign affairs,” who demanded “an immediate, sustained, and unconditional opening” of the Gaza blockade. Henninger notes that:

Until High Representative Ashton’s demand to end the blockade, the EU had been party to a clear, explicit policy toward the Israeli-Palestinian impasse. Since 2002, a group known as the Quartet—consisting of the EU, Russia, the U.S. and the U.N., with Tony Blair as its current special envoy—has said that no one could deal with Hamas, the occupier of Gaza, until Hamas fulfilled three conditions: Recognize Israel’s right to exist. Renounce violence. Accept agreements already made by previous Palestinian negotiators.

Hamas hasn’t met any of those conditions. After Ms. Ashton’s outburst, it knows it doesn’t have to.

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