Grexit: Europe's Darkest Hour



Every day, Europe is moving closer to the brink. And the rest of the world - America and China included - will feel the tsunami when the Euro sinks.

The winds of recession are blowing, and their source is Europe and the incompetence of its political leaders. 

Grexit, the possibility that Greece would move out of the Eurozone, was always there of course. It is  at the heart of the Euro crisis, but it was only just that: a possibility. Now it is fast becoming a certainty.

The Greeks themselves have given up in spite of their long-held conviction  that Greece should remain in the Euro - a conviction they have bravely  demonstrated  by their willingness to endure huge sacrifices to stay in, losing 25% of their GDP over the past five years, an enormous amount, not to mention galloping unemployment.

Since Monday, in just one week, Greek citizens have withdrawn €4 billion from their own banks.

A massive run  on banks, the classic scenario before economic collapse.

If the Greek banking system hasn't collapsed yet as I write, it's because the European Central Bank is keeping it on life support, providing it with just enough €€€ (the rumor is that it's €1.8 billion) so that banks won't close their doors.

How did we ever get to this dire end? How could a whole continent - Europe, over 500 million people - whose values are based on human rights, human dignity, justice and equality and who are proud of those values, who have built the world's most advanced economic community, the European Union,  come to this?

What happened?

Ask Germany.  In particular Ms. Merkel who lives by schoolmarm slogans  and her advisers, Mr. Schäuble, her Finance Minister, totally clueless about economics, and Mr. Weidmann, the President of the Bundesbank, in the grip of a demonstrably wrong monetary ideology (that requires, inter alia, a State to balance its budget on a yearly basis when government spending programs necessarily last many years - small wonder Germany has an infrastructure problem, it hasn't invested in it for decades).

These are the people who want to impose their views on Europe.

When the Eurogroup  meeting ended in a debacle this week, all Ms. Merkel could think of saying was that the deal with Greece was "still possible" only if Tsipras, the Greek Prime Minister, would "move". She hammered it in: “Greece has received unprecedented solidarity over the last five years. The basic principle still applies: help in return for reforms.”

Help in return for reforms? Is that what she calls solidarity?

It is clear that politically Greece cannot implement any more reforms, especially NOT to its pension system. Politically impossible: the vote that brought Tsipras to power was a vote against austerity. Mr. Tsipras is bound to respond to his electors, that's the way democracy works.

But, to make matters worse, there is an insidious notion creeping around Germany (and Northern Europe), the idea that the Eurozone cannot become a "transfer union". The famous German Spiegel Magazine aired the notion four years ago, in 2011 (see here), claiming "There are a number of options for the institutionalized shift of resources from richer to poorer member states -- and Germany would end up as the biggest net contributor in every scenario."

Why anyone should be surprised that this is the case astounds me: Germany is, or is it not, the wealthiest, strongest  economy in Europe? It has, or has it not, benefited the most from the creation of the Euro?

It is therefore normal and natural that it should pay and should pay more than the others. And as Sebastian Mallaby commented in the Financial Times that same year, Germany would be the "real winner in a transfer union". Germany will realize this is the case only, as he put it, when Germans finally  "discard the myth, widely cherished in northern Europe, that peripheral southern countries are the undeserving beneficiaries of a charitable transfer union".

Unfortunately, since 2011, that myth has grown stronger. And more dangerous.

Bottom line, any monetary union of any kind is necessarily a "transfer union". It's a nice technical term that simply means that when one of the member states is in trouble and running a budget deficit, the others help out so that the currency is defended.

That's the financial aspect, and that's the way the American dollar is run. There are many American states in trouble but none is threatened the way Greece is because the American dollar is defended by the Federal Reserve underpinned by the US Treasury. For example, in 2010, the news came out (here) that 32 American states were declared officially bankrupt, with California, Michigan and New York heading the list, and that the US Treasury has been conducting a shadow bailout worth $37.8 billion.

On a moral level, "transfer" is at the heart of cooperation, it is the act of helping out: the strong gives a hand to the weak, the rich to the poor.

But cooperation and solidarity no longer seem to be in the European DNA. Ask the right-wing populist party that have overrun elections everywhere, from Ms Le Pen's Front National (partly financed with Russian money - some €40 million cash - and small wonder) to the Italian Lega Nord. They all want out of the European Union, they all want to retreat to a pre-World War II situation.

Yes, nostalgia for the past is rising, we are going back to square one, as if World War I and World War II never happened. Erase the European Union! Bring down the United Nations! Let's go back to our nationalistic passions! Let's kick out immigrants and close our doors! Let's live among ourselves in absolute autarchy and economic self-sufficiency! Damn the rest of the world!

Germany nearly destroyed Europe in World War I, it tried again in World War II, and this time it might make it. With the enthusiastic consent of its northern European neighbors and all right-wing nationalistic parties across Europe.

Grexit would indeed mark Europe's darkest hour.

Is that the Europe we want? I don't recognize it. Do you?
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