Last week, Greece was rescued with a package worth €110 billion ($146 billion) – for the time being. That's a lot of money. Yet in the greater scheme of things, the Greek economy is just a "hill of beans," to borrow from Humphrey Bogart in Casablanca. The momentous question is whether the euro will survive. Journalists should only quote others, so please forgive this author for a little self-indulgence. In 1997, I wrote an essay in the New York Review of Books titled "The Euro: The Engine That Couldn't." It laid out the current crisis by way of metaphor: a common currency without a common government is like "several locomotives, each running under its own power, strung together to make up a single train. Each engine must steam ahead at the same speed in the same direction at the same time." Unless all the engineers behave as one, "the couplings will break," or the "locomotives will go off the rails." – Time Magazine
Dominant Social Theme: From disaster to triumph – the EU story is being written even now.
Free-Market Analysis: Greece has gone off the rails, and there are lots of post-mortems being written – especially in the mainstream press – about what went wrong and what could go right. The idea, just as we expected, seems to be that the EU will use this crisis as way of implementing tighter political controls over what were until recently fairly sovereign countries. This Time Magazine article makes just that point, actually.
But we are not sure that tighter political control is feasible – not give all the controversy surrounding the Lisbon Treaty. We think the power elite may be in over its head in Greece. In this article, therefore, we will pick up where we left off yesterday (see EU Elite Continues to Stagger) and argue that the power elite behind the EU has overreached, partially as a result of the modern era of communication technology, and that what is going on in Europe is neither especially well thought out or practical.
Why do we return to this point? Because despite the elite's ongoing losses of credibility and power, the alternative press seems loathe to write about elite mistakes and defeats in the 21st century, preferring to profile an elite that has more in common with the 20th century than the 21st. In the 21st century, the elite is damaged in our opinion as a power player; it's every move is analyzed on the Internet and an increasingly broad spectrum of non-elite citizens understand the game, the way it is played and are telling others about it.
This is important to note. It is has ramifications for people living in the West – and especially for investors who could always comfortably bet with the power elite in the 20th century. Not so anymore. The elite machine is back-firing on occasion. It did with global warming. And the EU isn't running so smoothly either.
Elite dominant social themes – promotions – can only function when people don't understand they are being promoted. People generally don't like being manipulated. Once they've figured it out, the game is up. These fear-based promotions that the elite uses to gather further control and wealth absolutely depend on people not figuring out that they are being purposefully frightened. In the 20th century, there was no Internet and no way to get the word out. All that has changed.
The mechanisms of these promotions are all over the 'Net now. The UN bureaucracy, for instance, issued numerous warnings about global warming last year – indicating that future of the planet was at stake and that the world would likely end by 2010 (or so they seemed to be saying in hysterical speech after speech.) And yet the world kept spinning. The same thing happened with swine flu. Millions were scheduled to die if they didn't get vaccinated. But many chose not to receive the vaccinations and still they did not pass away in horrid contortions. Increasingly, these fear-based promotions are dead-in-the-water. Instead, millions read the Internet and alternative news articles, and gradually figure out the manipulation. Thus millions – and more – now understand.
Yet we continue to peruse articles in the alternative Internet media (of which we are a modest part) that in our opinion give the power elite too much credit. These articles claim that the current crisis was preplanned by the West's major money center banks, and that the IMF, the World Bank, etc., (only and solely) intend to loot Greece and then the other PIGS as they have looted South America, Asia, etc. Also, contrarily, that the American Federal Reserve will come to Europe's rescue, etc., because American banks have interests in Europe and must be bailed out.
All this may be so, but as we commented yesterday, we don't believe that the Anglo-American power elite is especially enjoying itself currently. We don't believe it wants Europe to unravel anymore than the EU bureaucracy does. And sure … while what is going on in Europe seems to be a kind of pro-forma IMF/World Bank rescue of the type that has happened before (and a terrible thing to watch and experience because it is done for the benefit of the banks rather than the nation's citizens) there are differences in the European situation that may be quite significant.
First of all, there can be apparently no effective devaluation in Greece, so the pain will be commensurately longer and deeper, as it will be Ireland and other countries that are stampeded into EU-style austerity measures. Second, many EU citizens are already aware of the impossible sums of money being laid out be central banks to salvage the larger banking system. Trillions have been disbursed to financial entities, and the millions of, say, Greeks who will now be required by their government to live on far less (while paying more taxes) will likely resent the disparities, and fiercely so. Finally, all of this is playing out on the Internet, which is a flexible and informative device, capable of mass entertainment and the most painstakingly detailed presentations.
Put all this together and you have a 1930s-style crisis running in glorious techno-color in the 21st century. The EU bureaucracy can make all sorts of resolutions in very official sounding language, but it may not help. They can commit more funds, as well, but at some point, some countries are going to have to OK some of these expenditures. In just a few minutes, as a matter of fact, Frau Merkel of Germany may get an object lesson in how angry her constituency is over the Greek bailout she just helped launch.
Likewise, the American Fed under tenacious attack in Congress, has less room to maneuver now that at any time since 1913, when it was launched. Let the Fed do ANYTHING underhanded or unconstitutional to bail out Greece or the other PIGS and it will likely be found out and broadcast over the Internet by GATA or some other watchdog group – and then Bernanke will undergo yet another grilling from Congressman Ron Paul. And it is not the grilling that is painful but the constant thump-thump of the collective feet of the public, growing angrier and angrier as they pursue the truth. Information has consequences. An enlightened public is a dangerous thing from the standpoint of the powers-that-be.
Before we finish with this article, we want to quote a little more from Time Magazine. But first let's meet the author. Jossef Joffe is the writer – the editor of Die Zeit and a fellow of the Institute for International Studies and of the Hoover Institution at Stanford University. And what is Die Zeit? According to Wikipedia, it is "a German nationwide weekly newspaper that is highly respected for its quality journalism. With a circulation of 488,036 and an estimated readership of slightly above 2 million, it is the most widely read German weekly newspaper … The paper is considered to be highbrow. Its political direction is centrist to social democratic, but has oscillated a number of times between slightly left-leaning and slightly right-leaning. It is known for its very large physical paper format (Nordisch) and its long and detailed articles."
OK, Joffe is certainly a mainstream-media type of guy. Now to Joffe's summary in Time Magazine (ie: What must be done.):
There are only three ways out: 1) the sinners mend their ways; 2) the better-off keep paying; 3) the worst offenders decouple, go into default and thence into brutal devaluation as did Argentina in 2002 — a nation that had previously chained itself to the dollar in a one-way monetary union.
With the rescue package of this month, Europe has gone for options 1 and 2 — for the heavy hand of austerity and the soft heart of 110 billion in emergency loans. When the markets reopened on May 3, they were unimpressed, continuing to short the euro. The traders may have remembered Argentina. The country was given several injections of assistance only to default in the end, with creditors getting just a fraction of what they were owed.
Greece, to be sure, is a small economy, about one-tenth the size of the German one, so other Europeans can afford to keep Greece on track even if its government will not risk death by pleasing its creditors. But Greece is just the most egregious problem. Next in line is Portugal, followed by Spain and Italy — and these latter two are economies of real size. All of which implies a fourth solution, which should have been imposed in 1999 when monetary union took off: a system of economic governance that keeps speeds and timetables in sync.
Logically, this is the only way to prevent future Greeces. But logic is not the same as politics. Whose rules would govern such a system? Germany's, with its insistence on fiscal discipline? Or those of France, which demands more vice from the Germans, that is, to sacrifice their export surpluses by stimulating domestic demand and letting wages creep up? "Slow down so that others may keep up" is not a slogan that will go over well in Merkel Land.
Europe will not choose a single engineer to run the entire train. It will continue to muddle through. That is not necessarily a disaster, but rather the way Europe was built, with disaster followed by renewal. So the Greek calamity, which is far from over, may be a salutary wake-up call. You can't have monetary union without a system of supervision and crisis-control. The E.U. has known what Greece and others have been doing for years, but it chose not to notice, let alone to intervene.
We can see here, in this article, that Joffe is suggesting what we have predicted – that the EU will use this crisis to develop a closer and more perfect union with its "states." This is from our perspective a most cynical approach, though we are certainly aware it was one that the EU elite counted on when it initiated this horribly flawed euro-currency. As we have tried to point in several articles, however, this approach (as enunciated by Joffe) may end up being a non-starter. We wonder if Europe's tribes are going to be pliant enough to go along, and we wonder if the EU has the stomach – in the Internet era – to rewrite the rule book once again to make all this practical.
There is a third reason. A closer political and economic union very obviously at this point means a Europe dominated by Germany. That would be a terrible irony from the point of view of a Europe that bled and suffered through World War II – only to end up with a German empire that dominates economically rather than militarily. The sociopolitical ramifications would be endlessly resentful from our point of view. Chaos, averted now, will strike eventually.
The hysteria of the mainstream media over the plight of the EU and the necessity to salvage it is misplaced. As is the perception of some in the alternative media that the elite has planned the current unraveling in detail and is on top of the situation. We think, in fact, that the EU, in various ways, is verging on becoming yet another failed elite promotion and, as we have written before, it couldn't happen to a more deserving bunch.