Europe has two big problems. Doubtless one of them is political, or to put it more precisely, it’s in the space of national politics.
The post-national European project has stalled. It has certainly taken us a long way, from warring nation-states to an open community where we feel free and entitled as citizens throughout the continent. We’ve largely lost our national identities, and it may come as a surprise to Americans that we don’t care about our flags. National cultures are cherished as heritage, but not something to be defensive or overly proud of – certainly not something to kill or die for. The nation state was born in Europe in the 1700s and it died in Europe in 1945. Generations of visionary leaders have taken the people of Europe from the aftermath of an existential war to a point where the state is little more than an old-fashioned cultural and administrative unit. It took a lot of paternalism and manipulation to get us here, but on the whole we are grateful. Even the insular British do not prefer to go back to a time of animosity where crossing the border to Germany or France had the significance that entering Israel or Iran has today.
The problem is that after the Maastricht treaty and the introduction of the Euro the post-nationalist transformation has stopped. The Euro obviously came too soon for Europe, but also obviously it was the first of a sequence of bold steps that the then heads of state could not take all at once. Having the Euro is like putting one foot on a moving streetcar, but not climbing on board, instead limping desperately after it with the other foot on the street. The onward steps were very much expected and obvious, but they didn’t come: an elected European presidency; real powers for the European Parliament or some reformed elected chamber; continent-wide taxation, social security, and pension systems; business reform to allow companies to operate across the zone without country subsidiaries; stronger education, development, and technology agencies. None of this happened. The Euro and the ECB were the last post-national institutions that Europe saw.
We haven’t stopped to ask why. Continue reading
There’s no shortage of voices explaining what Europe needs. I tried to collect the main recommendations here. The de-facto leaders of Europe, Merkel and Draghi, are doubtless very smart individuals who can clearly see what ought to be done if one had the common good in mind. I don’t believe the hyperinflation argument is anything but a populist stalling tactic.
What we are observing is the elite of the Eurozone accurately picking up a democratic demand and then deliberately offering something that sounds like the demand but is in fact the opposite, an attempt to distort and defuse what is earnestly demanded.
Eurobonds – what is needed:
Eurozone states need to pool their debt into a common type of bond, or “Eurobond”, so that a billion Euros of Greek debt is indistinguishable from a billion of German debt, much like US treasury bonds are all alike and not denominated by state. Bond markets initially perceived Euro sovereign debt that way, creating a somewhat unhealthy credit boom in the periphery. When markets realized the bonds were not the same they attacked the debt rollover of the weakest economies in turn, Greece being the first, with loan shark rates that predictably destroy the indebted economy. Eurobonds would restore the ability for the whole zone to manage debt at the same rate, which will be low since zone-wide deficit is a few percent.
Eurobonds – what was offered:
The red-blue Eurobond proposal by a German think tank was an attempt to offer something called a Eurobond that expressly doesn’t have the desired effect. That proposal calls for “blue”, essentially high credit rating, bonds that meet tight fiscal criteria and “red” junk rated bonds that don’t. The scheme is no different from the status quo, as countries like Greece would package some existing “senior” debt as blue bonds and would only be able to issue new red bonds for their deficit and rollover needs. The red-blue Eurobond proposal is thus a distraction that protects creditors and bond speculators.
Recently, philosopher Michael Sandel headed this debate (essays, public lecture) on the moral dynamics that result when money is introduced to activities that are normally motivated by other means: duty, friendship, etc. Sandel makes an argument of two pillars: One, money may somehow corrupt the transaction it is involved with; two, given existing inequality, making everything a product can yield very negative distributional outcomes.
To be honest, I think he uses too many words. Let me try to do better:
1. Subjective transactions
Sometimes, we care not just about the objective goods or services that are produced and exchanged, but also for the subjective experience of the participants in the transaction. We care that a gift is an expression of love and not a forced or calculated gesture. We care that expert or legal judgements are free of personal interest, and that honour is given according to merit rather than in exchange for favours. Men care that women are at least happy with sex, unless they’re sadists and want the opposite. Most of us are alarmed when others make transactions that are too invasive or too damaging to the self, such as selling organs, being a soldier or a prostitute, or working under hazardous or unhealthy conditions, because we suspect these people are facing terrible choices that we would like to not have to face. When people volunteer to do something worthy or refrain from something selfish out of a sense of community, duty, or justice, we care not just that they do the right thing but also that they maintain and nourish these valuable feelings.
I’ll vote against Angela Merkel in the upcoming Greek elections, and I think it’s very important that all with the right to vote in Greece do so. The choice is as follows:
If Antonis Samaras, the conservative New Democracy party gets elected his government will implement the austerity, deflation, and asset-stripping recipe/punishment prescribed by big European Capital through the German government. The economy will continue to deteriorate, a lot, until whatever is left of Greek capital (mostly small and medium business) is destroyed and Greece becomes a cheap labour and no social safety net state. There will be riots, fascism, and widespread hardship in Greece especially amongst old people and the self/family employed. The successful enforcement of austerity and de-capitalisation will be roundly seen as a triumph by EU and international capital, and Spain and Italy will be next in line for the same treatment. That is why the Greek press and even the German edition of the FT are practically intimidating Greeks to accept it. Vote this way or unspecified bad things will happen.
If Alexis Tsipras of the left SYRIZA (means “from the root”) party wins, his government will reject the terms of the austerity and impoverishment package and force a re-negotiation. He is not especially anti-Euro and neither is Greek public opinion. A hard rejection of the austerity terms by Greece will force the Eurozone, meaning the ECB and Ms. Merkel, to shelve the “austerity for the losers” doctrine and come up with something else. There will be a period of frantic deliberation, whose possible outcomes include: very optimistically reforming the Euro to a model that works and is under political control like the US Fed; realistically some form of flawed compromise with the Euro and ECB in the hands of private capital but with a human face; and pessimistically and unlikely a breakup of the Euro. In the latter case, Greek savers will lose another chunk of their savings (unless they move them to other EU banks, in which case they may lose them outright due to unpaid Target 2 balances). Germany will be stuck with a strong currency and exposed banks, which will require inflation. More to the point, the Merkel government will be seen to have presided over a colossal failure and will likely lose power, perhaps prematurely.
After years of leading software projects I’ve learned many good practices about tracking issues. The most surprising and important though, is this:
Each of your issue tickets is costing you a fortune. Keep their number down!
And I don’t mean the engineering cost of the actual fix. No. The mere fact that a ticket exists in your tracking system is a gigantic time sink. Continue reading
I’m bored of hearing prejudiced nonsense about the Eurozone. A lot of what is said in the Anglo-Saxon press, with few exceptions such as Krugman or Ezra Klein, I interpret as either misinformed or pushing an anti EU, either pro-US or in the case of the UK exceptionalist agenda.
The Euro and the EU post-national project has many challenges, but not the ones that dogmatic US/UK commentators churn out. It’s not unsound and doomed to failure as a pegged currency system would indeed be. It’s not demanding of human perfection and discipline to work – that is just the flawed conception of the Merkel government. The Euro won’t collapse if some countries leave, though it would get stronger if a more homogeneous set of countries remain. The Euro is, indeed, a corporatist and pro capitalist construction. That is the idea, to compete with the dollar and to a lesser extent the Yen and RMB. Having the Euro doesn’t mean that European society as a whole has to change to be like America.
The real challenges of the Eurozone are: Different competitiveness amongst regions chiefly due to an imbalance of capital, unwillingness to fix that through redistribution, a single monetary policy that favors the center, and most damagingly a ban on the ECB making use of its powers as monetary sovereign. But rather than bore you by analysing the problems, I’ll offer instead solutions. There are relatively simple solutions to the Eurozone mess, and each of them involves fixing one or more of these problems. These are easy solutions, in the sense that governments can decide and do them. They do not require people or the economy to deliver an orchestrated outcome. All of these solutions are currently blocked, politically, by Germany. Continue reading
In the aftermath of the financial crisis, and with a raging sovereign debt crisis in Europe, notably Greece, it’s worth stopping to consider what debt is. Even as so much is written on the subject, when I read journalistic or even some economists’ accounts of the debt crisis I’m left feeling that they don’t understand what debt is, or rather that they bring a moral frame to the concept that is unhelpful and out of touch with reality.
There are only three formulations of debt, as an economic transaction between strangers, that are moral and advisable:
- An investment future: If you have a pile of cash, the net present value of keeping it as cash for a year is a few percent below face value, because of inflation and the risk it might be stolen or destroyed. You can give it to someone who can realize a better NPV and share some of that with you, so you both win. You could give it to Facebook in exchange of stock, or to a bank that invests in sub-prime mortgages. You could give it to the government of Germany, or of Greece. These differ in risk and return, and the market does a rough job of pricing them, but it’s always your investment decision. You can ask politically for an investment to be insured, or bailed out, and that simply means socializing losses by inflation or other means. Often, this is the right thing to do.
- An option to sell: A secured debt, such as a mortgage, is really an option to sell the collateral to the bank at some future date, for some variable amount that’s equal to your then outstanding obligation. Again, it’s a business decision. The lenders should plan according to the possibility that they may get the full payment schedule or the collateral, presumably whatever is worth less in the ensuing economic conditions. If they forecast that poorly, well, too bad. There’s nothing moral or otherwise beholding of the borrower in a secured debt arrangement.
- Due payment: Invoices for goods or services are a short term loan from the supplier to the client, granted as part of the cost of doing business. This debt does carry moral weight because it affects the cash flow of both parties a great deal and because only the value of the relationship, and a firm’s reputation, really compel a firm to pay it.
These are acceptable, modern forms of debt. Notice that, apart from the case of honorable business debt, there’s no moral angle to it. If you have surplus you give it to someone in the hope of achieving a better NPV, and maybe you get that or you don’t. There are no reckless borrowers or predatory lenders, and debt is not some kind of crushing moral obligation in this world. Continue reading