In Europe, now what?

by on April 24, 2012 at 6:39 am in Economics, Political Science | Permalink

That is today’s NYT symposium, here is my short piece — “Democracy is having its say” — and links to the pieces of others.  My opening sentence is this:

Today, very few countries in the euro zone are capable of making credible commitments or binding agreements with the others.

I am still predicting that it will end badly.  It already has ended badly, in fact.  And the “better than expected” scenario is not easy to see, much less bring about.

8 April 24, 2012 at 7:37 am

Now we can talk about the breakup of the EU. This isn’t going to end with the debt crisis because this is not an economic crisis, it is a political crisis.

msgkings April 24, 2012 at 12:21 pm

The EU will survive but not the Euro (anything close to what it is now). This will be a volatile process but not the end of the world. Things worked just fine without a Euro before 1999.

TallDave April 26, 2012 at 4:35 pm

Once it’s done it won’t be too bad, it’s everything up to that point that wil be problematic (imagine trying to unscramble a cooked omelette back into its constituent eggs). Finance types are going to be circling hungrily and picking away at this thing, trying to find the arbitrage points.

doctorpat April 27, 2012 at 10:24 pm

How to go from omelette to egg? Feed the omelette to a chicken and wait.

Not sure how to apply this to Europe.

Chris R April 24, 2012 at 7:50 am

The economic fallout from all of this is hard to figure out, especially since Germany seems to be going through a structural upswing. No matter what the ruling coalition does, the consequences don’t seem to be felt on the street.

But, if the EU fails, what does it mean for Germany’s place in Europe? It’s too timid to lead, too big not to.

dearieme April 24, 2012 at 9:13 am

Break it up again.

Jermaine April 24, 2012 at 11:52 am

When Germany tries to lead it’s denounced for trying to dominate Europe and create the “Fourth Reich”. What Europe wants is a Germany that’s both quiescent and benevolent, but that Germany is dead.

Richard Fazzone April 24, 2012 at 8:04 am

Yes, but even with monetary and fiscal union, the United States is having much the same problem as governments in Europe and elsewhere. The larger reality: In the 21st Century, “the last monopoly” doesn’t work very well anywhere.

E. Barandiaran April 24, 2012 at 8:20 am

Tyler, you talk about making credible commitments. Do you know for how long the U.S. government has not had a budget in accordance with the Constitution? Frankly, you should read the new book by your colleague Dan Klein and think again about the relevance of local knowledge. Either you don’t know what is going on a few miles from your home and from your office, or you prefer to ignore it. Take my advice, forget about Europe, China and the rest of the world because from your office or from planes and hotels you cannot see anything. But you may open your windows to see what is happening in DC.

Ed April 24, 2012 at 9:13 am

I looked it up. The federal budget for 2012 was passed on December 17th, 2011. I agree that they have been getting passed late and with more difficulty recently (but late, clumsily put together budgets have been the norm for my state since I was a child). However, this isn’t the first time Congress has neglected its consitutional duties or violated black letter law; they didn’t reapportion representation in 1920. Except for the post WW2 decades, US political institutions have operated closer to the Latin American norm than is usually portrayed.

Bill April 24, 2012 at 9:44 am

+1 Another Fox news story for the uninformed. Congress passed a continuing resolution last summer that extends. In fact, those who want reform will likely see it after November via Conrad, and those who don’t want reform would like to do it now.

Here is an article in the Fiscal Times on the subject.: http://www.thefiscaltimes.com/Articles/2012/04/19/Conrads-Last-Gambit-for-a-Grand-Budget-Deal.aspx#page1

E. Barandiaran April 24, 2012 at 10:39 am

Hope Tyler and his assistants can watch soon the fraudulent clowns in action (come on, Tyler, open your windows, you can see the clowns from your windows). For a review of their last performance, read the new official story as told by the Washington Post (dated March 15, 2012)

http://www.washingtonpost.com/politics/obamas-evolution-behind-the-failed-grand-bargain-on-the-debt/2012/03/15/gIQAHyyfJS_story.html

that actually is similar to what Keith Hennessey wrot just at the time of that performance

http://keithhennessey.com/2011/07/23/why-talks-fell-apart/

Bill April 24, 2012 at 3:51 pm

E, so you like WAPO’s description of how Boehner had to back out of the grand compromise?

E. Barandiaran April 25, 2012 at 6:24 am

Hope Tyler and his assistants take note that while they look at the Europeans, U.S. fraudulent clowns are still performing some of their tricks just in front of Tyler’s windows. Read

http://www.powerlineblog.com/archives/2012/04/senate-votes-to-abandon-budget-control-act.php
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=112&session=2&vote=00069

and remember that

http://KeithHennessey.com/2012/04/17/not-a-markup/

Footnote: there are too many fraudulent clowns in DC, but of course partisan idiots just cherry pick one. These are the idiots that let their cherry-picked clowns perform unmolested. No surprise, however. People inclined to cherry pick when claiming the pursue of “truth” are likely to cherry pick when pursuing everything else.

Dredd April 24, 2012 at 8:44 am

This type of government paralysis seems to be forging a type of triage, which sometimes is masked as wise compromise.

It is sinking deeper into most every aspect of policy, as time goes on.

PatrickA April 24, 2012 at 9:38 am

There is a lot to consider in what you say Tyler. However a missing link in the argument for democracy having its say is Italy. The Euro elite have managed to put the technocratic placeman Senor Monti in charge.

However Italy is now suffering from the economic squeeze that is hitting much of the rest of Europe and her level of real wages is falling. I followed a link you had on here to the economist Shaun Richards blog a while back and here is his analysis of this.

“So over the last year prices have risen by 3.8% and wages have risen by 1.3% so real wages have fallen by 2.5% in terms of their purchasing power. No wonder Italian consumers have got less optimistic!

This reduction in real wages is an ever increasing feature of the credit crunch era and will lead to further debate in the 1%/99% argument. But for now I merely wish to point out that with falling real wages one cannot expect the Italian consumer to come to her economy’s rescue and that instead falling consumption could easily be a problem in 2012.

A Longer Term issue

The wages index and HICP are both based at 2005=100 and as of March the indices stood at 117.1 and 117.3 respectively.

So real wages have been stagnant since 2005. Much more of this and Karl Marx will be springing from his grave…”
http://www.mindfulmoney.co.uk/wp/?p=7838

Whilst this carries on there will be no improvement in Europe and I can see only trouble ahead for it.

FE April 24, 2012 at 10:47 am

“Democracy having its say” is a curious way to put it, given that the norms of Continental politics require all major coalitions to adopt the same pro-Euro policies with the deck chairs in slightly different configurations. When someone is elected on a platform of “let’s quit doubling down on the euro,” then democracy will have had its say.

Steven Kopits April 24, 2012 at 12:08 pm

And that’s where it will end. It’s seems likely that democracy in Europe’s southern tier will at some point lead to a renunciation of debts and a hard adjustment in the economy (ie, some form of balancing budgets unable to access debt markets, or hyperinflation).

It’s very easy to see how all this trends towards communism or fascism. In France, none of the mainstream politicians seem able to do what’s necessary, so the population votes for more extreme figures (without themselves becoming more extreme).

TallDave April 26, 2012 at 4:39 pm

Good point — and Europe’s party-slate systems mean this is very difficult, because instead of representatives accountable to constituents they have a class of technocrats who divide power based on how the population votes.

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