Can the Euro Crisis Be Solved? Not in Greece

After the American Century

The Euro Crisis has not gone away. Several times there have been meetings and pledges of more money. The Greek Governemtn keeps making cutbacks, and the Greeks themselves keep protesting. The EU keeps up the pressure with one hand and gives the Greeks money with the other. Nothing seems to change for the better, and the financial fallout continues.

Who would have thought that all European consumers would be nervous because the Greeks profligately overspent? Why should this matter to other countries? Because the banks are all inter-related, and in Greece they are over-exposed. What is now possible is a kind of gigantic domino effect, in which the fall of Greece will topple some banks abroad, which will in turn have a knock on effect right across Europe and across the globe. 

Once upon a time the world was less connected, and some countries made a regular practice of overspending and then devaluting their currency. Take Mexico as an example. Starting in the 1950s for two decades the exchange rate was 12.5 pesos to one American dollar. But in 1976 this rate became impossible to maintain, and Mexico lowered the value of its currency to 20.4 pesos to the dollar. By June, 1982 the rate was 25 to the dollar, but things rapidly got much worse reaching 150 to the dollar by the end of the year. This was a serious crisis for Mexico. It got worse in the following decade, but it did not drag other larger economies to ruin.

By comparison, Greece has a smaller economy than Mexico, but it is much more tied into the economies of its neighbors. Mexico's peso fell pretty much on its own, but Greece has the same currency as much of Europe. 

So how bad is it in Greece? Worse than it was a year ago. The yearly deficit is getting bigger, not smaller, despite passage of austerity measures. It reached 19.2 billion euroes ($26.1 billion) for the first three quarters of 2011 compared to 16.65 billion euros for the same period last year. That is considerably worse than the EU Commission predicted in 2009, as can be seen in the chart above. The EU thought the deficit would be "only" about 12.3 billion for all of this year, but it looks to be about twice that once we have all four quarters. The cumulative deficit is growing even faster than the annual deficit, because it includes interest payments. The Greek rat hole is getting much larger, not smaller, as the size of the debt is exploding. Worse still, the cutbacks now being feverishly passed in Greece will reduce economic activity, in turn reducing revenues from taxation. It is a vicious circle, and nothing suggests that the Greeks are going to be able to avoid catastrophe. 

It may be time to give up on saving them and instead bail out the banks outside Greece, so that the European economy can continue to function. The banks should not be allowed to make a profit on their incompetence, of course, but it looks as though we must save them from ruin. I suggest this not for any love of banks, but because it seems the only plausible course of action to protect the rest of the EU. 

I said the European banks have been irresponsible. How so? Consider a chart from the Financial Times.

Far more than any other EU nation Greece has relied on foreign banks to buy its debt. This was smart of Greece, perhaps, but just plain stupid on the part of the banks. I would suggest an EU regulation that created a sliding scale for the amount of debt any member country could sell to outsiders. In other words, the worse the deficit, the less debt could be externally financed. A nation with almost no deficit would be able to borrow more and far more easily. Frugal virtue would be rewarded, profligacy punished, and punished much sooner than has happened in the present crisis.

Going off the cliff with Greece could ruin the EU economy for some years, and the Europe that might emerge after such a collapse will have fallen well behind Asia and the United States. Decoupling the banks from Greece will not be pretty, and the Euro will fall, but it will fall less and fall for a shorter time.In such a scenario, any Christmas bonuses for bankers would be obscene.

Proposed Museum to Symbolize the Bush Banking Era

I propose that a museum be built to the Bush Banking Era. Such a monument would best be placed underground and lit only by broken skylights. It will be cheap to operate, as no guards will be needed since nothing of value will be there. The space would be very deconstructive and postmodern.

On the walls should be an electric sign carrying text messages commenting on the site. Visitors could add to these messages using their cell phones. There should be no admission to a museum of financial mismanagement and fraud, of course, but visitors would be encouraged to make donations to charities for the homeless.

This concrete and plastic bunker could be located somewhere between 9/11 and Wall Street. The exhibits should include valueless commercial paper from failed banks, copies of auditor's reports from Lehman Brothers, and expensive, repossessed furniture from executive offices.

There should be a place, too, for framed copies of some of the millions of dollars in bonus checks issued to the MBAs who masterminded the mortgage market. Indeed, why not inscribe the names of all who received these infamous checks on walls, in alphabetical order, together with the size of their bonuses, so that every American can come and see who they were. It seems only fair, as the American people bailed them out. And in the place of honor, with spotlights on a text written in gold, appropriate words from the Chicago School of economics. I suggest the following:


"The most important single central fact about a free market is that no exchange takes place unless both parties benefit."  Milton Freidman


Proposed inaugural speakers: Naomi Klein and Al Gore.

One can only assume that public interest in this museum will be short-lived, Therefore, it should be designed in such a way that it can easily be converted to a public toilet,

"Stop the Machine" Protests Deadly Drone Aircraft Dispalyed at the Smithsonian

After the American Century

American politics is undergoing an upheaval from the Left, in what appears to be a delayed but forceful reaction to the Tea Party Movement and what many see as the disappointing centrism of the Obama Administration.  The new grass roots movements are protesting what they see as welfare for banks and corporations, foreign wars, and a tax system that favors the wealthy. On their own web site, "Stop the Machine" declares that a "large majority" of the American people agree with the following propositions, which I quote without alteration here.

• Tax the rich and corporations
• End the wars, bring the troops home, cut military spending
• Protect the social safety net, strengthen Social Security and improved Medicare for all
• End corporate welfare for oil companies and other big business interests
• Transition to a clean energy economy, reverse environmental degradation
• Protect worker rights including collective bargaining, create jobs and raise wages
• Get money out of politics

"Stop the Machine" further declared that "The government, dominated by elite economic interests, is going in the opposite direction from what the people want.  The American people’s agenda is our agenda."

While this program may not be embraced by a "large majority" of Americans, it is certainly not particularly radical. Looking at it from Europe, the demands are rather mainstream. Indeed, many voted for Obama thinking that he represented something like this program.

The name "Stop the Machine" comes from a speech made by Mario Savio in 1964. He was a leader of the Free Speech and Anti-War movements in Berkeley, and famously declared, "There is a time when the operation of the machine becomes so odious, makes you so sick at heart, that you can't take part; you can't even passively take part, and you've got to put your bodies upon the gears and upon the wheels, upon the levers, upon all the apparatus and you've got to make it stop. And you've got to indicate to the people who run it, to the people who own it, that unless you're free, the machine will be prevented from working at all!" The very name of the movement forges a link with the counter-culture of the 1960s.

What surprises me is not this reaction but that it has taken so long to emerge. Dissatisfaction with the Obama Administration on the Left has finally boiled over into widespread protests, focused particularly on the banking system, which has received enormous subsidies while millions of ordinary homeowners have struggled and gone bankrupt. For three weeks protests have focused on Wall Street in particular.

However, now protests are widening to include the widespread use of drone airplanes in warfare, to kill perceived enenies by remote control. Several hundred protesters attempted to enter the Air and Space Museum in Washington DC, which currently has an exhibit on drone airplanes. The protesters feel that it is wrong to celebrate this technology with an exhibition, and unacceptable that public funds should be used to do so.

This is not the first time the Smithsonian has been attacked for its exhibtion policy. Some years ago a virulent protest erupted -- from the Right -- against an exhibit of the Enola Gay, the plane used to drop the first atomic bomb on the Japanese city of Hiroshima, which brought World War II to an end. The protest on that occasion objected not to celebrating the atomic bomb, but to criticism of it. At the time, many historians supported the Smithsonian's attempt to be less celebratory and more reflective.

I have not seen the Drone exhibit. The Smithsonian explains on its webpage that "This exhibit showcases six modern military UAVs that represent a variety of missions and technologies. They range from large vehicles that can carry offensive weapons to a miniature system whose components are light and compact enough to be carried in a Marine’s backpack." 

The exhibit is made possible by support from "the generosity of General Atomics Aeronautical" which profits from the sale of such drone aircraft. Notably, it produces "The Predator," a drone that was deployed in the Balkans and that has been used in almost 200 missions in Afghanistan. It is not only a reconnaissance drone but also can fire missiles. 

Such drone aircraft are not the metaphorical machine that Mario Savio attacked, but actual machines -  high-tech weapons that increasingly define post-modern warfare.