Sunday, June 12, 2011


The jungle is cleared and a garden has emerged. However, the rumble over the Greek economic crisis continues. At village level, the bits that I manage to understand or are translated for me, range from delightful people picking gardenia flowers as gifts whilst expounding the most bonkers of conspiracy theories, the general idea that Merkel is the new Hitler (and the glee at the fact that the Germans poisoned themselves with their own bean sprouts, rather than with something grown by one of those recalcitrant Mediterranean types, is palpable), some pretty crude racism, whilst on the news protesters chant about the politicians being thieves. All have one thing in common, the sense that the cause of the crisis is a moral, rather than a systemic failure.

One of Adam Smith's most notable insights was his much misread notion that the strength of a modern, industrial society does not rest on the virtue of its citizens. Instead, small petty desires and self-interest drive economies and sustain civilisation. The target of Smith's writing was the same one that seems to animate popular debate today and thus leads us away from the major questions about the failures in the Eurozone. And, even if moral failure was a key factor, any system that has to rely entirely on the prevalence of human virtue has a major design fault anyway.

So, with the next tranche of bewilderingly terrifying austerity measures about to hit Greece, it was good to read these two posts from a new blog offering clarity about the systemic failings of both the single currency and the overarching economic model that informs it. This gets it spot on.
Without investment, or/and a dramatic structural change in the economy, to correct any trade imbalances everyone ends up working more for less. The promise is that this is for the short run. The reality is that, while the trade imbalance between the richer and poorer Euro members remain, it is for the very very long term. Under the austerity measures, the poorer states have even less resources to invest in structural changes to make their economies competitive. The ECB/IMF package is massive transfer of resources from the poor.
Instead the blog directs us to schemes such as this, Yanis Varoufakis and Stuart Holland's "modest proposal", and argues consistently that we are facing a EU-wide economic crisis that is not the result of the wayward behaviour of a few swarthy (or Irish) small nations, but an ongoing and inevitable consequence of the failure of the institutional architecture of monetary union. 

And so we face a choice between continuing pan-European austerity or a reform that will recycle trade imbalances to allow for investment and development in Europe's poorer nations. I know what my choice would be.

Hat tip - the ever useful KTG

No comments: