Recessionary Europe

With large budget deficits and even larger total debt, many members of the EU have experienced a one-two punch as a result of the great recession.  With economies in decline and large increases in debt due to bank bailouts, many countries such as Greece, Italy and others are feeling the pinch.  While this situation is more widespread than just the euro zone, countries that are part of the EU face a special problem.  Due to the connections created by having a single currency, one country’s economic dilemmas are not just felt by those within the country but by all members.  As investors force these countries to pay more for their debt due to perceived increased risk of default, the pressure is being dialed up on Germany and the European Central Bank to come up with a solution.

Democratically elected officials are stuck between debt and an increasingly upset populace.  With larger numbers of public sector workers, European countries have huge future debts (pensions and wages) that are difficult to decrease without feeling the pain at the ballot box in the future.  How can these difficult political decisions be made by leaders subject to the whims of the people.  More’s conservative political analysis provides an interesting lens to understand the dilemmas here.  The European Union had provided (undeserved) equality to investors; with interconnected economies, it seemed just as safe to buy the debt of Greece, a country known for economic problems and government debt issues in the past, as Germany, a country with an incredibly strong manufacturing base and overall economy.  More would conclude that the crisis of confidence for the Euro is punishment for this artificially created equality and would chide those that are trying to “level” so the consequences so they are felt equally by all members of the Euro-zone.  Only by allowing those with special skills and abilities to succeed at the expense of the rest can stability of society be defended.

Mario Monti, Italy's Technocrat Savior?

Burke’s understanding of illusion’s necessity in politics is illustrated well in the EU’s uncertain future.  Whether or not the Euro-zone stays intact is connected with how well certain illusions maintain their credibility among the populace.  So long as citizens believe that they deserve their large pensions and social services, the government will have major difficulties passing the austerity measures necessary to balance their budgets and calm the fears of investors necessary to contain this crisis.  Italy recently changed its leadership.  Due to their parliamentary system, the citizenry weren’t allowed to directly vote for the candidate.  Instead the parliament directly elected the new prime minister, Mario Monti who will serve until the next set of elections.  With less of a connection to the whims of the populace, many believe Monti is in a position to implement the necessary reforms to turn his country’s debt problems around.  Burke would argue that the democratic nature of European governments are one of the reasons budgets grew irresponsibly in the first place.  He would agree with a technocratic government much more than a government by the people due to the apparent lack of intelligence amongst the common people.



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One Comment on “Recessionary Europe”

  1. Phil O'Donnell Says:

    One point which should be taken into consideration when evaluating the Eurozone and the implications of interconnected economies with a shared, common currency is that, in reality, all the economies of the global (more so in the West and the other major global players) are connected to a certain extent. Although this is certainly emphasized by a common currency, such as the Euro, to an extent in contemporary global economics; an effect on one economy will seemingly have an effect on another economy. A great point which is raised by the post is the issue of the connection between economic policy and the ballot box. There truly is a strong argument which states that personal pragmatism stops, or at least slows, problem solving and issues being resolved pertaining to economic issues, most specific debt and budget reduction.

    Another point which should be mentioned is the great fallacy that deregulation and the private sector will get nations out of their debt problems and help them restore their economies. It must be remembered that it was a deregulated financial sector that mainly got us into the debt crisis in the first place, although not solely to blame, they certainly have to take some of the blame. This is one of the great ‘problems’ of modern conservatism in America (as mainly represented by the Republican Party) which is that it often calls for deregulation and more autonomy in economic issues (lowering taxes for example) for individuals in society.

    Another issue which I have a slight problem with the post is the issue of European countries levels of economic policy. I feel that a European countries act more independently than is often believed by many; they set their own retirement ages, taxation levels etc.; this is not set by the EU. Hence, vast national debt (such as Greece or the Republic of Ireland) is arguably more based on national policy then it is based on the fault of a having a single currency and being part of the EU. To evidence this, Britain which does not share have the Euro has also suffered very heavily, mainly due to their national policies which have huge expenditure on welfare policies.

    Another point which I disagree on to a certain extent is that the EU and Euro formed an artificially created sense of equality. An example of this is that good investors would recognize that Germany was always a better (less risky) investment then Greece, exactly for the reasons given in the post; namely strong industries etc. Hence, I content that the notion of an artificially created equality is only true to a certain extent.

    One final point which should be mentioned is that the post is very accurate in arguing that European governments will struggle to ‘pull back’ pensions or raise taxes in many European countries (as evidenced by the riots in Greece) and furthermore this collective hesitation of Europeans to have a quality of life or welfare system ‘worse off’ then their parents or the generation that came before them will slow the necessary ‘balancing of the budget’ in Europe and other nations; a balancing of the budget which will inevitably have to take place.

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