Germany Is Putting The European Union Through The Wood Chipper
Autor: The Real Signs of Time | Publicado: 2011-11-21T13:22:00-08:00

 Those of you who have seen the film Fargo have the wood chipper scene indelibly seared into your memory.  (If you have not seen Fargo please remedy this deficiency promptly.)  I return to the scene at the end of this piece. Walter Russell Mead, a recovering liberal, has crafted a crude ode to purported German national character and insult to purported French national character. The defective purported national character of the French is leavened with equally crude stereotypes of the purported superior religious character of Huguenots and Jews.  It is all set within a broader, cruder attack on purported ethnic “Latin” character.  Mead’s piece ran in opinion pages of the Wall Street Journal, which embraces these prejudices and considers them the height of intellect.  Mead’s cultural thesis is that Germans are good.  They exemplify superior “northern” values.  The French are a “Club Med” people with minimal northern features.  The northern features are attributable to France’s Huguenots and Jews “out of which communities many of its most successful business leaders have come.” France’s business leaders are successful because they are not Catholics.  But wait, Mead has forgotten that two paragraphs earlier he dissed these French business leaders: “Worse, the French corporate elite decided in its sleek official way that this was the right time to go long on Italy, buying banks, companies, stocks and bonds ….”  So, the French Huguenots and the Jews, who exemplify “northern” values are actually the problem?  Mead cannot go two sentences without launching a snide stereotype at the French.  He can’t pass up the chance even when it contradicts his analytics.  Mead knows that there are few easier ways to make the WSJ’s opinion pages than bashing the French.     The virtuous Germans are beset with “bad news from Spain and Portugal, where despite the most-solemn promises to undertake the most-sweeping reforms, and the blessings of Brussels, the economies are somehow failing to grow.  Add disappointing news on Italian bond yields, and Europe has resumed its grim slide.”  “Somehow?”  Understanding why Spain and Portugal are “failing to grow” is hardly a mystery.  The ECB and IMF (paragons of northern values) have forced austerity and “labor reforms” designed to make it far easier to fire workers on Spain and Portugal. The goal of the “reforms” is to drive down their working class’ wages.  The ECB and IMF are demanding similar actions in Greece and Ireland and the Irish government’s plan for responding to the crisis is to cut working class wages to make Ireland more competitive with Portugal.  At UMKC, we call this race to the bottom dynamic the “Road to Bangladesh” strategy.  Reducing wages and public spending during a serious recession are pro-cyclical policies that make the recession more severe.  Private sector demand is severely deficient in nations suffering from the Great Recession. Reducing wages reduces income, which further reduces private sector demand.  Reducing public sector spending makes total demand even more inadequate and increases unemployment (further reducing private sector demand).  Modern nations have known for roughly 70 years that fiscal policies should be structured so that they function as “automatic stabilizers.”  Austerity and aggressive efforts to cut wages function as self-inflicted destabilizers.  These “northern” policies are so self-destructive that only economists who are total ideologues fail to oppose them.But return to Mead’s ode to German values, and examine the content of those values and Mead’s multiple fictions about the causes of the euro crisis.  Mead claims the French crisis was caused by:Clueless European regulators … pushed many banks to invest in soon-to-be-worthless sovereign debt from soft euro countries like Spain, Italy and Greece.  So French banks in particular are loaded to the gunwales with bonds that won't float.Worse, the French corporate elite decided in its sleek official way that this was the right time to go long on Italy, buying banks, companies, stocks and bonds….I have already discussed one of the logical inconsistencies in Mead’s argument that arises from the juxtaposition of this passage and his ode to France’s “most successful business leaders” (because they are disproportionately Huguenots and Jews).  The second logical inconsistency arises from two consecutive sentences.  French banks are “loaded to the gunwales” with underwater bonds from “Italy” because French regulators “pushed many banks to invest in” Italian bonds. The French bankers were the unwilling victims of this regulatory “push[ing].”  In the next sentence, however, Mead tells us that “the French corporate elite decided that this was the right time to go long on Italy, buying … bonds….”  Are French bankers not part of “the French corporate elite?  How exactly did France’s regulators (who had the most “northern” of anti-regulatory values) (a) decide to actually start regulating by pushing French banks to purchase Italy’s bonds, (b) how exactly did they “push” French banks to buy Italy’s bonds, and (c) and why, if they thought it was unwise, did French banks accede to such a “push?”  Mead made it up.  The officers that control French banks make their own bad investment decisions for the same reason other banks make bad investments – the officers love what the extra (nominal) yield does to their income in the near term.    Assume for purposes of discussion that Mead is correct about the condition of French banks: “The French bottom line is that Germany must help raise the carcass of the French banking system from the dead.”  If that is true, then France’s banking regulators retain their “northern” anti-regulatory ideologies for they are failing to act against the failed banks.  It also means that the euro is dead and that France and the EU desperately need aggressive monetary and fiscal policies.  I’m quite willing to believe that French banks are “carcass[es],” but what about German banks? German banks took the lead in making most of the foreign bank loans to the EU periphery (I call it “German banks gone wild”).  It is Germany that is demanding a ten year phase-in to the increased bank capital requirements proposed in Basel III because it believes its banks are so grossly deficient in capital that it will take a decade of subsidies, bailouts, and accounting gimmicks to bring them into nominal compliance with the new rules. German banks are among the largest beneficiaries of the Irish and Greek “bailouts.”  It was “northern” banks’ values that drove the global financial crisis.  Banks with “northern” values (U.S., German, Irish, and Icelandic) were the most notoriously fraudulent and imprudent lenders in the Western world.  What all these failed banking systems mean is that there is an urgent need to remove the (“northern”) theoclassical policies that create the criminogenic environments that produce our recurrent, intensifying financial crises.  “Northern” values and policies are the problem, not the solution in finance in the U.S. and the EU.  Mead ignores Germany’s banking crisis, but he is also blind to the fact that it is Germany’s policies that have turned an EU financial crisis into a combined economic and political crisis that has exposed the sham of European unity and revealed the euro and ECB’s fatal design flaws.  Indeed, Mead celebrates those design flaws and Germany’s perverse EU policies that are spreading ruin throughout much of Europe.   [T]he Germans are supposed to capitulate, authorize the European Central Bank (ECB) either directly or indirectly to print masses of money, and the proceeds will go to save the French banking system and national elite—without anything so humiliating as a bailout ever being mentioned.Means accurately reflects the manner in which Prime Minister Merkel frames the policy choices.  What Means fails to consider is that the Germans could be wrong.  Germany controlled the design of the euro, the ECB, and the Stability and Growth Pact.  Germany insisted that the ECB have no mission to ensure full employment and no lender of last resort function.  Germany insisted that the Stability and Growth Pact be designed as a double oxymoron that produces instability and destroys growth when there is a severe recession.  It is Germany that has demanded that the ECB follow a generally restrictive monetary policy. Because Germany insisted on defective designs of institutions related to the euro, the EU periphery nations have been left with no effective means of escaping the Great Recession.  They cannot devalue their currency or adopt appropriately expansionary fiscal and monetary policies.  They are left with one option, a hydra-headed monster – slash social services, slash working class wages, and suffer severe unemployment. The “national elite” of the periphery are not the issue in this context.  German policies devastate EU working class citizens.  The “national elite” of Greece and Italy still largely evade their taxes and have exceptional wealth despite the EU bailout “reforms.”  Merkel has not taken any effective steps against any foreign or domestic “national elite” and has never made doing so a priority.  Germany’s austerity demands are aimed at the “Latin” working class and poor and they are the victims of the German demands. View the original article here