Euro Crisis has American Fingerprints
The obituaries written of the European currency, the euro, have demonstrated the divergences in national and cultural temperaments, the European funereal and laden with gloom about the future, but unyielding, and the American and British cheerfully and self-satisfiedly shoveling earth onto a casket of euros already six feet into the ground.
Defy the markets, will they, these Europeans!
Suddenly, the lid of the casket flew open, and the euro burst forth, bigger, better and brighter than before!
Before Merkel was back, the German government had run up the white flag. The euro crisis was over. If any individual was a winner, it was temperamental and widely derided French President
What was decided in the pre-dawn hours was that some 750 billion to possibly a trillion euros would be committed to back the worth of the euro. This was not -- as was constantly and erroneously reported -- "bailing out" anyone. It was EU and IMF money to stand behind the repayment of bank loans to sovereign debtors -- meaning governments. This automatically reduced the interest rates demanded by those offering the loans. The agreement staggered world markets.
Among the recent and anxious holders of Greek debt, suffering for their imprudence, have been many German banks, their own financial stability supposedly guaranteed by the loads of U.S. derivative and "securitized" toxic paper that they themselves eagerly bought in recent years, like rubes at a carnival sideshow. (Foreign readers should consult an American slang dictionary.) One must keep in mind that there would have been no Greek crisis if international traders had not deliberately set out to panic markets, drive Greek rates sky-high, and go home laden with ill-gotten gold.
The markets now are calmed, for the present. The Europeans, for their part, have come to believe that the project of European union does advance by way of crises. Whether this will be proven true this time has to be seen. Certainly President Sarkozy has been proved right.
There already was widespread concern in the press, including the serious press, that the amount of austerity now demanded of all of the euro-zone economies may prove too severe for electorates to accept. For some economists, the agreement is one that will manufacture a long recession, if not a depression.
Austerity will destroy consumption. To apply the pledged measures of austerity will require billions of euros in savings on government expenditures. The rich will have to be taxed more.
Pensions will be cut, and begin later. Corporate business must be forced to pay taxes. In the current situation, corporations -- particularly in the U.S. -- pass billions in earnings through overseas tax havens, where their corporate "headquarters" are located (consisting of a token office with a brass plate), and then report huge earnings to their stockholders and next to nothing to their national tax authorities.
There is a remedy to this, which has no chance of being passed through the
A feature of modern capitalism, in which
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Euro Crisis has American Fingerprints
(c) 2010 U.S. William Pfaff