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by William Pfaff
The Greek crisis has precipitated the existing crisis of the
A monetary union, however, was successfully created, with its common currency, the euro, but the threat to its success, known from the start, was that national economic differences, dictating different policy choices, with consequent national budget discrepancies, would eventually undermine the euro.
The euro, after a period of weakness shortly after the circulation of banknotes and coins in 2002, increased to a high of more than 50 percent over the dollar but is now falling back.
Recent complaints in Europe about the euro's "decline" have simply reflected its move back toward its original dollar parity, in part the result of a deliberate American policy during the Clinton and George W. Bush years to keep the dollar cheap, to the advantage of American exporters.
This policy was financed by the Chinese government's unceasing purchase of dollar Treasury bills, motivated by the uncomfortable position China is in as the major exporter to the United States -- facilitated by its own cheap exports -- and its main debtor. This requires China to prevent the dollar from further decline, diminishing the value of China's reserves.
George Bush's great war against global terror was financed by China (as are Barack Obama's wars in Afghanistan and elsewhere today), for which the U.S. government has displayed no great gratitude, nor much apparent apprehension that all good things eventually come to an end.
Today's European crisis was precipitated by Greece acting with possibly reckless honesty, and Germany behaving badly toward Greece (the latter a case of the pot calling the kettle black; Germany itself is running a deficit of some 3 percent over the EC stability pact limit -- promising, like Greece, to do better in the future).
Germany's haughty refusal to assist Greece in its difficulty ignored the fact that German banks have been large-scale lenders to Greece, and that they, in particular the state Landesbanken, were deeply involved in the U.S. mortgage crisis. Some had to be refinanced and others taken over, contrary to widely held illusions about the German supposed fiscal fortress, and the actual difficulties of the
The endangered are in states governed by Angela Merkel's Christian Democratic coalition. With regional elections approaching, Chancellor Merkel has preached against the sins of the Greeks while ignoring troubles at home that no one was supposed to know about (except the professional derivative traders). Note that "bailing out" Greece, as the commentators like to say, did not mean literally loaning money; it meant guaranteeing new Greek loan bids so as to attract loans at the same rate as other EU members.
Greece, of course, has only itself to blame for its budget crisis since the governments preceding the return of the Socialists, and
George Papandreou's becoming prime minister, enjoyed the assistance of
Papandreou, newly in office, revealed what had been going on. German bankers and commentators and even Mrs. Merkel have suggested that Germany might abandon the euro and let the Mediterranean EU members who belong to the euro zone and experience debt problems -- Greece, Spain, Portugal -- stew in their own juice.
Germany could then gather the virtuous Netherlands and Finland into their very own currency zone (composed of states that profit from subcontracting to Germany, practicing the German export-at-all-costs trading model, while suppressing consumer buying power).
Greece, despite all, on Monday (March 29) was only able to get new loans at over 6 percent, which would imply decades to come of government, worker and consumer austerity. Simon Johnson, formerly chief economist at the IMF, and the banker Peter Boone, have proposed (in the April issue of the
Some form of managed Greek default would be less painful and more constructive. Since a large part of the Greek debt is held by German banks, such a managed default might have a certain poetry in it.
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Greek Financial Debt Crisis Only Part of EU's Woes | William Pfaff