A pathetic remedy for the Eurozone crisis

The dynamic of the Eurozone's crisis is continuing, and there is nothing whatsoever in its path to impede it. By Yanis Varoufakis.

In television, I was once told, you can never lose money by underestimating the intelligence of the audience. Mrs Merkel seems to have drawn heavily from that nugget of wisdom. Her take on it is that, in European politics, you cannot lose votes if you underestimate the electorate. Just keep telling them the same thing again and again, back it up with dead-end policies that throw zillions of good money after bad and, when things go belly up, send them the bill.

What prompted the angry lines above is the two tandem statements on Greece and on the ESM. They are not, of course, unrelated. Mrs Merkel has made a clear, unambiguous U-turn from her strategy of the past six months: gone are the covert or overt threats that Greece will be pushed out of the euro. Now, once again, “a Greek exit would pose grave dangers for the rest of the Eurozone”. What has changed? Three things:

First, the Greek Parliament was misled into approving Bailout Mk2; the sole purpose of installing Mr Papademos in Maximou (the PM’s Athens residence) having been accomplished. Secondly, the Greek electorate has also been sufficiently terrorised to elect a coalition government of the two major parties (the fact that they have been rendered empty shells being neither here nor there for Mrs Merkel) that will continue to sign on the doted line of whatever document is faxed to them. Thirdly, her own re-election prospects seem pretty good, courtesy of the SPD’s failure to grab the opportunity to advocate European policies that fix the Eurozone without committing German taxpayers’ money to endless bailouts.

Of course, nothing has been fixed in Greece. The only ‘achievement’ is that they have completed smoothly the largest, and most odious, transfer of debt from the shoulders of bankrupt bankers to those of Europe’s taxpayers, at the expense of keeping Greece in an ever-accelerating debt-deflationary spiral. “They created a desert and called it Peace”-type of ‘success’. Meanwhile, Spain has well and truly entered precisely the same spiral. Put simply: The crisis’s dynamic is continuing unabated and there is nothing whatsoever in its path to impede it. The monies that the ECB prints, and extends to the Italo-Spanish only play a palliative role that is, in fact, detrimental to the patient’s health, as they mask the gangrene that grows under the surface.

And what does Mrs Merkel have to offer as the remedy? The pathetic answer is a readiness to discuss the possibility that, perhaps, the European Stability Mechanism, will be potentially allowed to keep its dowry of €500 billion, i.e. not to take away from the €250 billion already committed to the fallen member-states (Greece, Ireland and Portugal). Is this not something, rather than nothing? I am afraid not. It is worse than nothing. It is an insult to our intelligence. First, the ESM will not be getting its dowry of €500 billion for years – only €80 billion will be available up front. Secondly, the sums mentioned, compared to the juggernaut approaching (Spanish and Italian debt), are puny (see Wolfgang Munchau’s latest analysis on the matter). Third, the whole structure and logic of the ESM-EFSF is ill equipped to deal with the crisis: as long as Europe continues to treat the problem on a country by country basis, waiting patiently for the conflagration to move to a place that it has not visited before (while, in the meantime, enforcing growth-destroying austerity left, right, centre, north and south), we have no excuse to hope that Mrs Merkel will be proven right. She won’t and she knows that she won’t. The trouble is that Mrs Merkel also has ample empirical evidence that her strategy is paying off handsomely on the political terrain that she wants to continue to dominate.

In the world of television, cynicism was vindicated. Audiences rewarded those who sought to profit by underestimating the viewers. In the end, audiences had no one but themselves to blame. Will European politics end up similarly? Will electorates continue to reward those, like Mrs Merkel, who understimate their intelligence? So far, it seems that they will. But unlike the idiot box, whose programs we can all switch off by remote control, Europe is our home. No remote control will help us escape a dystopia caused by our capacity to reward those who underestimate our analytical powers.


Image top: arne.list.