This was always going to be an interesting year for Europe (and by “interesting,” I mean the supposed-Chinese-proverb-or-Hoban-Washburne version). With parties best described by Mats Persson (Open Europe) as “pro-euro in name, anti-euro in practice” leading the polls in Greece and making major inroads in Portugal and Spain, the currency union was in for a rough year even before the Greek Parliament deadlocked on a presidential election and moved its timetable to the 25th of this month (Telegraph). Now, however, the EU backers in Berlin and Brussels will have an early test.
Now, most media sources will tell their readers that the Greek opposition (SYRIZA) is “anti-austerity.” This would only make sense if the Greeks were actually implementing “austerity” as its usually understood (reducing government size and scope due to high cost). Nothing of the sort is actually happening in Greece; it’s more like massive tax hikes, salary cuts, and various other accounting ledgerdemain, which has led yours truly to label it as Faux-sterity. In effect, the government (center-right New Democracy and center-left PASOK coalition) has enacted big-government on the cheap, while SYRIZA would prefer big government in its usual form.
The problem with both of these options is the euro. The single currency now covers nearly 20 countries, but as Tim Worstall notes in Forbes, the currency’s recent history has been aligned to the economy if its largest member: Germany. Thus when Germany needed a loose monetary policy a decade ago, the members that did not need a loose policy (Greece, Portugal, Spain, Italy, etc.) ended up with one anyway, creating bubbles similar to ours in the mid-aughts. Now, with Germany preferring a tighter policy, the Mediterranean looks a lot like the Midwest during the Panic of 1819 (Poland, a recent European Union member, has promised to join the eurozone, but has stayed out of it so far; thus, its growth during the aughts came with an appreciating currency, which held off the bubbles).
In short, the euro is showing itself to be a badly flawed currency.
Yet, despite this, not even SYRIZA is willing to exit the currency union (although its policies would make it seem inevitable – Telegraph). It remains to be seen if they can even get themselves elected, let alone force Brussels to turn bristling demands for “reform” into bailouts (Brussels is big on Faux-sterity, not so much on actual reforms). The next three weeks should be something to watch.
Then there are the expected elections: Portugal and Spain (whose own versions of Faux-sterity have done their own damage), the UK (about to hold its most wide open election since Lord North was barely re-elected in 1780), and Poland (where the EU is cherished but the euro despised). If Greece elects SYRIZA, it could find itself the first of several nations to discover there really is life after the euro…and perhaps put a screeching halt to the EU’s insistence on “ever closer union.”
