In Europe, a dance of doom?
What the Locusts Ate
By THOMAS L. FRIEDMAN, NYT
One of the most troubling features of today’s global economic crisis is the lack of political leadership anywhere. No one has the courage to tell their people the truth. And the truth, alas, is that four of the pillars of today’s global economy — Europe, America, China and the Arab world — have, each in their own way, squandered huge dividends they enjoyed in recent decades, and now they have to dig out of their respective holes with fewer resources, less time and, almost certainly, more pain. There is no easy way out. But, as confronting these hard truths becomes unavoidable, I think we’re likely to see some wild, angry and destabilizing politics that could make the economic recovery even more difficult. Deep holes and weak leaders are a bad combination.
Let’s start with Europe. Greece, Italy, Spain and Portugal all enjoyed a “German dividend.” That is, they enjoyed German-level interest rates as members of the euro zone, even though they were not as productive or disciplined as German savers and workers. Instead of using that dividend to modernize their economies and make themselves more competitive and productive, they went on real estate or consumption binges that have badly weakened either their banks or national balance sheets. Now there is no more escaping the bill.
Chancellor Angela Merkel of Germany decried this “missed opportunity” to overhaul their economies in a speech on Saturday, as reported by Bloomberg News. The lower borrowing rates that came with the introduction of the euro meant “countries like Italy became virtually on a par with Germany in terms of interest rates,” she said. “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.”
Bloomberg quoted Nikolaus Blome, the Bild newspaper’s chief political columnist, as saying that the Greek state “must be rebuilt, like in a developing nation.” “Someone among the euro-zone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step,” he said. “And that means leaving the euro.”
(More here.)
By THOMAS L. FRIEDMAN, NYT
One of the most troubling features of today’s global economic crisis is the lack of political leadership anywhere. No one has the courage to tell their people the truth. And the truth, alas, is that four of the pillars of today’s global economy — Europe, America, China and the Arab world — have, each in their own way, squandered huge dividends they enjoyed in recent decades, and now they have to dig out of their respective holes with fewer resources, less time and, almost certainly, more pain. There is no easy way out. But, as confronting these hard truths becomes unavoidable, I think we’re likely to see some wild, angry and destabilizing politics that could make the economic recovery even more difficult. Deep holes and weak leaders are a bad combination.
Let’s start with Europe. Greece, Italy, Spain and Portugal all enjoyed a “German dividend.” That is, they enjoyed German-level interest rates as members of the euro zone, even though they were not as productive or disciplined as German savers and workers. Instead of using that dividend to modernize their economies and make themselves more competitive and productive, they went on real estate or consumption binges that have badly weakened either their banks or national balance sheets. Now there is no more escaping the bill.
Chancellor Angela Merkel of Germany decried this “missed opportunity” to overhaul their economies in a speech on Saturday, as reported by Bloomberg News. The lower borrowing rates that came with the introduction of the euro meant “countries like Italy became virtually on a par with Germany in terms of interest rates,” she said. “The freedom created by this situation wasn’t exploited to improve long-term competitiveness. Instead, the time was used to spend too much money in consumption and too little time in tackling reforms.”
Bloomberg quoted Nikolaus Blome, the Bild newspaper’s chief political columnist, as saying that the Greek state “must be rebuilt, like in a developing nation.” “Someone among the euro-zone leaders must finally tell the Greeks the truth: this fresh start can only be achieved with a radical first step,” he said. “And that means leaving the euro.”
(More here.)
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