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2.17.2012

The Americans Have a Tea Party, the Europeans a Beer Party: Angela Merkel's!

A peculiarity of our times: extremist political ideologies. They used to rise mostly on the left (Hitler and Mussolini were both socialists). Now they emerge on the right. The Americans have a Tea Party, the Europeans have a Beer Party, with Angela Merkel calling the shots.

Both parties are totally convinced they're right and everybody else is wrong. Both have one goal in mind: curb the role of government.

Who's behind the European Beer Party? Angela Merkel, of course. The European press is full of her - even staid financial newspapers like the Italian Sole 24 Ore. Here's their cover picture of their week-end magazine IL (it came out last Saturday):


Note the subtitle: MUTTER MUTLOS: "Mother Without Courage". For some Germans, she's too soft on fellow Europeans - the reason why she's taken on the battle against bailing out the Euro: she has no intentions of losing her political majority. Indeed, a majority of Germans (some 60%) see no reason why they should bailout Greece or anybody for that matter - forgetting that all these Southern Europeans they despise are major markets (correction here: some German insustrialists do know this and are not all that happy with Merkel). Consider the spread of Germany over Europe. Ten million Germans go to Spain every year for their vacation. German Deutsche Telekom controls the Greek telephone company and German Fraport has acquired 55% of Athens airport.Over 1,400 German enterprises are present on the Italian market, selling for a total €73 billion. Germany holds €123,5 billion of the French public debt.

I could go on and on, but you get the idea: European economies are deeply interlinked. The Euro is just a reflection of that inter-linkage - no, not a reflection, it's more than that. It makes exchange and trade easier, faster and less costly. Just like the American dollar links big, rich states like Texas or California with small, poor states like West Virginia or Mississippi. Which is why the German idea that the Euro was a non starter because it linked countries as diverse as Germany and Greece is plain wrong. Yet some important German intellectuals like the writer and poet Hans Magnus Enzensberger hold just that view! How can they?

It is astonishing how ignorant people are when it comes to economics. And that ignorance is reflected in the politicians they elect. Look more closely at Merkel, here's another amazing photo (still from IL Magazine):


She looks so young, doesn't she? She looks just like an East German University student! But she was actually much older on that picture, already 38. It was taken in May 1992, some 20 years ago, when she had just been appointed by Helmut Kohl as his Minister for Women and Youth. Note the somber, serious look:  there's the shadow of the Soviet Empire on that face - East German bureaucratic Kultur. There's also a hint of Lutheran austerity. Her father was a Lutheran minister, and no doubt her mother who taught Latin was a very serious person too.

But look closely at her eyes:


Do you see any light in them? Nothing? Grim determination, yes. Imagination? Mmmm, no comment. It should come as no surprise that she studied (and majored) in physical chemistry...numbers, formulas, no knowledge of human nature or history. Not exactly the best preparation to understand economics...

Have Angela Merkel's eyes improved with time? Let's take a look at them up close (still using the IL Magazine cover image):


Bright blue! Her eyes look more vivacious, don't they? But look again: this photo was very carefully taken, with two lights on the left and right of her face, to give it balance. The lights reflect in the eyes - two bright spots on the right and left of the pupil - thus ensuring that special brilliance. But if you move down to the mouth, you see she's not smiling:


There's a grim set to her lips and small wonder. Even her best friends misbehave, like the President of Germany, Christian Wulff, engulfed in a corruption scandal. No, the message is clear. Toe the line, kiddies, behave! Your government budget is like your household budget: it has to balance out, for the individual: every month, for the government: every year!

I've written elsewhere that the two kinds of budget are not identical, far from it. The public budget belongs to a community not a single individual family and it has to be balanced over time, not every year. When I say "over time", I mean the medium to long term, at least 10 years. Anything else makes no sense at all.

Not so for the European Beer Party. It has embraced the German ideology of balanced budgets and taken Greece as an emblematic example of immoral profligacy and corrupt government practices based on clientelism and privilege. Austerity is not just the Beer Party's key slogan. It is a comprehensive set of measures to balance budgets and use as a bludgeon to whip not only Greece but all wayward Euro-zone members and force them to toe the line of fiscal discipline.

The most recent and biggest Beer Party victory came when 24 EU members at the last Euro Summit agreed to write the principle of balanced budgets into their constitution (the UK is famously among those who have opted out).

The Beer Party is playing a tough game: last Sunday (February 12), while the street was up in arms, the Greek Parliament voted austerity measures at the behest of the European Union, IMF and European Central Bank. The Greeks were told that if they didn't vote, they wouldn't get their €130billion bailout in time to avoid default and that the European Finance Ministers would hold a meeting Wednesday (February 15) to decide on it.

Wednesday came and went and no decisions. Now the Greeks are told that a decision would come at the next Eurogroup meeting on Monday February 20... Maybe so, maybe not. This is disgusting brinkmanship at the expense of Greece whose economy has shrunk since the crisis started by some 15% and whose unemployment rate has shot up steadily, now hovering around 20% and twice that level for the young. Indeed, young Greeks are trying to flee Greece and find jobs abroad if they can...


In times of recession and economic contraction, austerity is a recipe for disaster. In Greece's case, the numbers are now in to prove it: as the economy contracts, tax revenues are down and the deficit grows bigger. At this rate, the debt problem will never be solved. Incidentally, things aren't going much better for Ireland or Portugal...

What's needed is economic growth: without measures to restore growth, the spiral can only accelerate down. Fortunately there's one politician in Europe who keeps saying that, and it's Italy's Prime Minister Monti. He's the only one who makes sense against Merkel's austerity obsession - but then he's not a politician, he's an economist and a technocrat...

This said, there's little doubt that Southern Europe is paying the price of wanting to have its cake and eat it too. Tax evasion and the "submerged economy" are so large that there's not a chance to ever balance the budget without cutting into the practices of bloating the bureaucracy to satisfy nepotism, of padding public pension funds, multiplying fake invalidity payments, handing out free medecines that are then traded for a profit etc etc Personally, I would give priority to fighting tax evasion and forcing businessmen out of the submerged economy rather than slap on higher indirect taxes on everybody (which give additional incentives to take refuge in the submerged economy). And I would give priority to reforming the bureaucratic apparatus and welfare system, to weed out the more obvious cases of systematic corruption and theft.

So Merkel is not totally wrong. And her insistence on austerity might really help put the European House in order. Let's just hope that she'll relent and allow for Euro-salvaging measures like quantitative easing before the European House collapses...Also because if Europe collapses, there's a real danger of contagion, and America could plunge back into recession.

Hey, we're all in this together!
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