Blame Game, European-Style
01/06/2012 2 comentarios
The financial news from European Union keeps getting worse. Spain’s government, its banks foundering, may soon need to be bailed out. The cost of that rescue could strain the new European bailout fund, leaving little behind should investors turn on Italy next. Mario Draghi, the president of the European Central Bank, warned this week that the eurozone as currently structured had become “unsustainable”. He criticized Europe’s political leaders for half-measures and delays that have made the crisis worse. He is right. The problem is not a lack of ideas on how to fix Europe’s mess. France’s new president, François Hollande, is arguing that relentless austerity, championed by Germany, is not the answer and that indebted countries need help to grow. The European Commission issued a report saying that debt reduction had to be pursued in “a growth-friendly manner”. (Editorial – NYTimes – 31/05/2012)
Mr. Hollande, International Monetary Fund and many economists are also calling for jointly issued euro bonds to ease borrowing costs for indebted governments. Mr. Mario Draghi is pushing for long-term institutional reforms, including Europewide deposit insurance and bank supervision, a ceding of control unlikely to play well with powerful bankers and some leaders. What is lacking are politicians with the courage to tell their voters the basic hard truths, of how this crisis happened and what it will take to dig out. In Greece, the upcoming election has been framed as a choice between accepting externally imposed austerity or ditching the euro. Voters there need to hear that Greeks were, in fact, profligate borrowers and that austerity and painful reforms cannot be avoided, no matter what. If Greece reverts to drachma, pain would be far worse, provoking an even deeper recession and higher unemployment, as the new currency loses value and prices rise, and as companies and banks, unable to pay debts denominated in euros, are forced into bankruptcy court. But, either way, there will be plenty of pain. The challenge for Greece’s leaders, and all of Europe’s, is to find a way to encourage reforms and manage austerity without economic and social implosion. German leaders, meanwhile, are insisting that Greece and other indebted economies need to pay for their sinful ways. Chancellor Angela Merkel needs to level with her voters. Profligate lending by Europe’s banks, including Germany’s, helped drive up Greece’s unsustainable debts, as well as those in other economies. And the bailouts are not a favor to Greece and others. They are, in part, a rescue of Germany’s own banks, and German economy and financial system need them to work. That point was highlighted recently in The Times by Liz Alderman and Jack Ewing, who reported that two-thirds of $177 billion in bailout aid to Greece since 2010 has gone to pay off bondholders and lenders overseeing the bailout, including the European Commission, European Central Bank and the International Monetary Fund. Holding the eurozone together, and avoiding even wider chaos, will require sacrifice from all sides. Europe’s leaders can pull that off only if they tell their voters the truth about what is needed and about their own countries’ complicity in the crisis.