Structural Reform in Europe is Key for the Euro's Survival
Germany has received scathing criticism from many experts for its approach to resolving the euro crisis. Germany has been trying to: limit/reduce government budget deficits and promote large-scale structural reform (e.g., improved international competitiveness in the European periphery, create a central authority to manage Europe-wide finances with real enforcement powers against national governments, etc).
A common and vehement criticism is that, to avoid a 1930s-scale economic collapse, Germany and the core euro countries (e.g., Finland, Netherlands, etc.) must shift from an austerity approach to aggressive pro-growth policies. They're urged to: recapitalize weak European banks, create a European bank deposit insurance system, promote fiscal stimulus in place of austerity (implying a mechanism for periphery countries to borrow with a German guarantee), weaken the euro against foreign currencies, and accept some euro inflation. Structural reform (which the Germans view as a top priority) is considered of secondary importance by Germany's critics, to be addressed only after the current crisis is averted.
The hour is late. Unemployment in some euro countries is at Depression levels (in Greece and Spain, unemployment now exceeds 20 percent). The collapse of the euro and the European common market -- which would be economic catastrophes -- are being openly discussed. Further, a 1930s-style Depression could also lead to political disasters. The 1930s weren't just an economic disaster -- they set the stage for WWII.
However, the harsh criticism of Germany's approach misses the extent to which corruption, demagoguery and governmental incompetence in Europe's periphery are significant barriers to: resuming growth, resolving this crisis, and continued European integration. Greece is my example, but the issues described below exist in varying degrees across Europe's periphery.
Greece has been in an economic crisis for several years, but its government still hasn't reduced public sector corruption. The elites that benefit continue to resist change. For example, paying bribes (to Greek hospitals to obtain treatment and to tax inspectors to evade taxes) reportedly remains a common practice. The public has very little belief in the honesty of the public sector -- "six Greeks in ten expect public officials to abuse their position for personal gain."
Well into the crisis, the Greek parliament retained all sorts of perks for itself (e.g., free Mercedes) while demanding sacrifices from common citizens. In Greece and other countries of the euro's periphery, violent ultra-nationalist political parties gain in popularity, and rumors connect them with the old corrupt elites.
These aren't just anecdotal reports in the press. In Transparency International's 2011 annual ranking of public sector corruption, New Zealand ranked 1st (the least corrupt country in the world), Germany ranked 14th, and Greece ranked 80th (tied with countries such as El Salvador and Morocco).
Consider another metric: In the most recent World Bank Ease of Doing Business Survey, the easiest country for doing business is Singapore (ranked 1st), with Germany ranked 19th. Greece is ranked 100th (just ahead of Papua New Guinea). Apparently, it's easier to do business in the Republic of Yemen (ranked 99th), than in Greece. As one simple point of comparison: In Greece, it takes 77 days (and probably a few bribes) for a business to turn on electric service; in Germany, it takes 17 days.
A free press is key in fighting public sector corruption. But across the euro's periphery, freedom of the press is weak and often under attack. For example, Greece ranks 70th on the most recent Press Freedom Index, behind Bhutan and ahead of Nicaragua. As a benchmark, Finland ranks 1st with the world's freest press; Germany ranks 18th.
I have huge sympathy for the Greek public (and the other peoples in the Euro's periphery) who suffer from this corruption, are disgusted and want change: "Only one Greek in ten says they see enough corruption prosecutions or strong enough punishments for offences". However, Greece's governing elites - rather than tackle popular reforms such as fighting corruption (that might adversely impact themselves) - have focused instead on unpopular moves, such as pension fund reform.
This wasn't supposed to happen. Countries on the periphery were supposed to converge to euro core standards. However, the periphery's ruling groups resisted fixing corruption problems during the pre-crisis boom, and resist fixing them now despite the crisis engulfing their people.
Germany/the core, as a consequence, prefers to tightly control bailout terms -- to continually pressure the periphery to reform. Otherwise, emergency loans will become gifts, temporary subsidies become permanent annual transfers, and structural reforms will again be postponed indefinitely. Aside from the risk to the German taxpayers, a failure to come out of this crisis with real reforms sets the stage for an even bigger debacle at a later date.
The Germans deserve commendation for their commitment to a united Europe. It's amazing that Germany continues its efforts to achieve a greater fiscal, regulatory and political union with strong non-corrupt transparent institutions. However, it's also amazing that, several years after this crisis began, the countries in the euro's periphery can continue to resist real reforms.
The Germans are correct -- structural reform cannot be put off any longer.
I invite you to follow me on Twitter at: @Steven_Strauss or on Facebook at: https://www.facebook.com/Steven.Strauss.Updates
About the Author: Steven Strauss was founding Managing Director of the Center for Economic Transformation at the New York City Economic Development Corporation (NYCEDC). He is an Advanced Leadership Fellow at Harvard University for 2012. He has a Ph.D. in Management from Yale University and over 20 years' private sector work experience. You can follow him on twitter at: @Steven_Strauss or on Facebook at: https://www.facebook.com/Steven.Strauss.Updates
Follow Steven Strauss on Twitter: www.twitter.com/steven_strauss
Sympathy, Mr Strauß? How do you think all of those corrupt politicians get into and stay in office? Could it be because the election fairy waves her magic wand? I don't think so. Somebody voted those folks into office, and that somebody is---the Greek public. Bada bing, bada boom
Yes, it shows.
They committed themselves to a united Europe at least twice in the last 100 years, so it should not surprise they're at it again. I would think in their private moments that many Germans would laugh at their earlier attempts, which required blood and sacrifice and much destruction of coveted assets, even when they were winning. Had all the money spent on military training in eras past been spent on accounting, business administration and central banking strategies, Europe may have been united several decades earlier, without a shot being fired.
As it is now, they are most anxious to unite Europe as a place to where they can export their manufactured goods at profit, while somehow extracting a maximum of austerity out of that same locale. After all, the debt of so much of Europe is the residue of design: who lent so much money to so many without due diligence on the part of the lenders concerning the debtors' capacity to repay? The genius bankers of Germany.
Who are "they"?
There are different opinions in germany about these matters. Quite necessarily so, since the different items on your list impact different groups and parties in very different ways. In other words the stakes differ as well.
Of course there has to be reform before transfers of wealth become permanent or institutionalized.
But there are many different ways of doing that. Merely insisting on austerity is far from the only one. The so-called "banking union" is crucial, but not as a universal bail-out at the german tax-payer's and saver's expense. It is crucial since regulatory arbitrage and excessive bargaining power of banks within the Euro zone must be curbed.
Conspicuous by omission in Mr. Strauss' piece, is Goldman Sachs, chief of thieves in the Euro-Drama. This omission tells us all we need to know about the Strauss agenda.
Reference: http://www.independent.co.uk/news/business/analysis-and-features/what-price-the-new-democracy-goldman-sachs-conquers-europe-6264091.html
I would posit this question to you; Why is there debt? This is a serious question and one which is simple to ask, however complex to answer.
When did 'Fiat' currency enter into civilization? How long thereafter did the first economic crisis arise? Is there a corollary? Could interest cause destruction of value? Is 'Parity' a possible solution?
Please keep the answers to these questions as simple as possible; because I am trying to understand why this seems to keep happing over the years and yet we keep blundering into the same problem.
Ironically, it was the banks who invested in factories in Asia, and that resulted in the factory closing. Now the banks want their money, and the Greek family may lose their home.
As you see, debt is only the tool which banks use to impoverish average Joes (or Adonis).
Since 2001, when China was granted unhindered access to the world economy, the U.S. has lost more than 50,000 manufacturing jobs per month. Manufacturing jobs are critical, since each lost manufacturing job results in 3-4 lost support jobs.
Reference: http://theeconomiccollapseblog.com/archives/how-can-america-create-wealth-if-our-industrial-base-is-destroyed-50000-manufacturing-jobs-have-been-lost-every-month-since-2001
Clearly Greece has a corruption problem and needs to reform itself, but over the past ten years Germany had no problem exporting Mercedes to Greece as well as lending Greeks the money they needed to buy those Mercedes. The euro structure has allowed Germany to pursue its somewhat mercantilistic policies without experiencing any of the internal inflation that would have occurred if it had its own currency. That benefit may ultimately cost them. It probably would have been wiser for them to lend to (and produce goods for) deadbeats that were outside the eurozone rather than within it.
America and Britain are jointly chiefly responsible for the situation as it exists today, because not only did we deregulate our financial industries, but to make matters worse we continue to allow them to sabotage national economies through their unchecked immoral behavior.
And oh, by the way, the people who took out the loans, the local governments who bought into the something for nothing pitches on credit default swaps, and the national governments who hired the crooks at G-S to cook their books all have played parts in this too.
Mitt Romney, the candidate for the GOP, likely got caught with an undisclosed account in a bank in Switzerland. He like elites in Europe decided to hide his wealth. Some of these lords and ladies including elites in Greece made massive fortunes with an ugly mix of financial contracts and consolidation of business. The balance of payments shows extra-ordinary flows mostly beneficial to the German Empire but also to the United States.