I was traveling in Europe over Christmas of 2001 and New Year's Day of 2002, while the EURO was being introduced as the common currency within the European Union. Everything carried two price tags -- one in lire, francs or deutschmarks, and the other in EUROs. At the time a EURO could be purchased with just 90 American cents. Continental tourism was something of a bargain for us Yankees that winter. During the ensuing two decades, the EURO strengthened to a high of nearly $1.70. Recently it slid back to $1.25 as a consequence of the global economic death spiral triggered by Wall Street's liquidity crisis of 2008.
The EURO has always been something of a suspect proposition. More than a dozen countries with wildly differing histories, temperaments, fiscal policies and public attitudes towards taxes, governance and social obligations more or less guaranteed each others' economic prudence in the form of a common currency. The British opted out of the entire arrangement, skeptically sticking with its pound sterling. This initial agreement failed to anticipate an influx of formerly Communist countries from Eastern Europe that would petition to join the European Union. Upon their admission, a shaky edifice grew even riskier. Nonetheless, on average, the result has generally been a strengthening European economy and growing personal incomes.
The fact that these benefits were unevenly shared, and more closely resembled a lumpy stew, leaving some bowls with little more than a thin gruel and others bulging with all the meat, resulted from a willful refusal on the part of the European Community to discipline its slackers and speculators within a framework of consistent monetary rules. Today, the ultimate irony appears to be that in the 21st century the Germans are about to achieve the economic dominance of the continent they failed to impose during two World Wars in the last century. Without a federal system that can and will impose uniform tax and economic policies, it now seems likely that the EURO zone is about to unravel.
The EURO, much like the dollar, has tended to enrich those who were already well off, while doing next to nothing to help the peons struggling at the bottom of Europe's economic ladders. Most of these wage earners have regularly paid their income taxes through paycheck withholding, while the professional classes ducked and dodged the taxman. Greece has proven flagrantly corrupt in this regard. A helicopter survey of a wealthy neighborhood in Athens spotted nearly a thousand swimming pools, where only three pools appeared on the property tax rolls. In the following day's newspaper were full-page ads from architectural and engineering firms promising to camouflage your pool. The terms of the government bailouts agreed to with the European Bank and the IMF have added payroll taxes and slashed salaries for the peons but done nothing to reform tax collection for those at the top.
While the Irish went to the polls and agreed to eat their porridge cold, it seems doubtful that Greeks will do the same this weekend. Should they bolt to the political left, refusing to pay their debts, and opt for a return to the drachma, can the Italians, Portuguese, Cypriots and Spaniards be far behind? Americans learned a similar lesson following our own founding, when the Articles of Confederation failed to provide the mandatory and necessary social cohesion required to successfully sustain a national government. In recent years, many of our 'born again' tea baggers have tried to convince us that our constitution was divinely inspired. It seems unlikely, however, that God cared more about us in 1787 than he had in 1781. Perhaps then, he was on Sabbatical when the Articles of Confederation were drafted?
The American Constitution is a 'we fixed it because it's broken' document written by a brighter-than-usual group of compromising politicians. Just read the Federalist papers, if you have doubts. The European Union should immediately undertake a similar repair job if it wishes to salvage its wobbling economic alliance. Presuming a uniformity of social circumstances and economic opportunity when they do not exist, and cannot be enforced, inevitably leads to peonage for some and riches for others. Genuine uniformity can only be guaranteed through the imposition of commonly accepted laws and shared fiscal practices within a federal system, together with the widespread embrace of personal responsibility for insuring compliance. We should wish them luck, because their failure to do so will rapidly become our problem -- our double-dip recession.