‘And I have to say, Mr. Van Rompuy, eighteen months ago when we first met — I was wrong about you. I said you’d be the quiet assassin of nation-state democracy, but you’re not anymore, you’re rather noisy about it, aren’t you? You, an unelected man, went to Italy and said “This is not the time for elections, but the time for actions.” What in God’s name gives you the right to say that to the Italian people?’
– Nigel Farage, member of European Parliament representing southeast England, addressing a meeting of European Parliament and specifically EU Council President Van Rompuy during a debate on EU economic governance on November 16, 2011
The explanation of what is going on in the European Union right now is very long & involved if you get into details. But as with many complicated things, deciding what principles matter in the situation in question and matter to you as a person will give you a framework to start sorting out details.
(I add the “and matter to you as a person” and highlight it because many times in policy discussions someone will argue opposing or different sets of principles, sometimes they really do believe in those other principles and sometimes they’re doing it just to play devils advocate or to be a pain in the neck & pick something to argue about as a way to prove they’re smarter than their opponent it. If you follow current events, don’t do that. If you just argue to argue but paper over it by picking a different set of principles each time, people will eventually come to see you as someone who just likes to pick a fight and that’s not a reputation anyone wants to have.)
So, a quick overview of the very last few acts and a bit of background regarding Mr. Farage’s speech: Italy and Greece (and while we’re at it, Ireland, Spain, and Portugal too but Italy & Greece are the ones who look closest to default right now) ran up too much public and private debt since they became members of the European Union about 20 years ago. You can’t run up debt without someone being willing to loan to you, and a lot of European countries & companies got very favorable loan terms while part of the European Union because Germany was also part of the European Union & Germany had a very good credit rating (due to the German central bank & nation as a whole being extremely cautious about debt and balance sheets, which in turn comes from very bad memories of the hyperinflation that hit Germany in the years after World War I.)
Everyone is finally starting to realize that some countries & companies have run up so much debt they won’t be able to pay it back. But pressure is on the European countries in question to cut way back on expenditures & try to pay it back anyway.
When the (elected) Prime Ministers of Greece & Italy were unable to persuade their (elected) national parliaments and citizens in general to agree to the reductions in government spending and/or increased taxes to pay back the debt, they were recently removed from their positions and new Prime Ministers were put in place in both countries WITHOUT ELECTIONS BEING HELD.
Which means national sovereignty in the European Union is being surplanted by other principles. And that wasn’t the way the European Union was supposed to work when it was first started & when the various treaties were first signed.
Part of this — and a general criticism of the European Union project in general — is way too much authority is placed in people who are never actually elected by citizens but are appointed by various elected parliaments — or in many cases, are appointed by people who are appointed by various elected parliaments. Meaning if you are a European Union citizen, your life is affected in many ways by people who you can never ever influence through your own vote. (Even in the United States, as much as we’re starting to build up our own perpetual and unelected governing class in the form of various government bureaucrats in various government agencies, we can still participate in the national presidential elections and the state governor’s election. And the president and state governors can drastically change various government bureaucracies.)
Another part of this — and Ambrose Evans-Pritchard has written extensively on this — is that the various parts of the European Union will never fit together without a drastic change in national character and culture on the part of multiple countries. There’s multiple European countries whose governments and citizens are much more frugal and financially conservative than the average European. And there’s multiople European countries whose governments and citizens are much more free-spending and financially extravagant than the average European. So if you join them all together under one currency without making some sort of change in governing styles and lifestyles, you’ll either have the frugal ones feel like they are being forced to unfairly support the freewheelers, or have the freewheelers feel like they have been unfairly grounded for life by the frugal ones.
Or, as is happening right now, everyone in Europe feels that the other side is getting away with something unfair.
But Germany — one of the frugal ones — currently has the upper hand (sort of) because they have the strongest economy in Europe and if there’s anyone who can bail out the countries & companies that got into too much debt, it’s Germany. In fact, they’re about the only one who has a large enough and strong enough economy to do so.
But German citizens don’t want to bail everyone else out. Especially when some of the national debts run up by Greece & Italy were caused by very lavish government paychecks, pensions, and retirement programs. If you were a German citizen, would you want to pay extra taxes and maybe work a couple extra years before retirement — to fund countries where tax evasion is rampant, national retirement age is 55, and there’s been riots in the streets over suggestions such as raising the retirement age by 2 years over the next 15 years?
But if Greece & Italy start defaulting on debts, a lot of big European banks are going to be in a lot of big trouble. Including French banks and German banks. There’s already been hundreds of billions (depending on how you count it, even trillions) of dollars (or the equivalent amount of EU currency) given to the Italy & Greece. Much of which has gone to pay interest on Italian & Greek bonds — many of which are owned by European banks. Hence many critics stating that it’s not European taxpayers bailing out European countries, it’s European taxpayers bailing out European banks who were foolish enough to loan large amounts of money (which is what you are doing when you buy someone’s bond — you are loaning them your money in return for a promise that you’ll be paid a certain amount of interest at set intervals) to countries whose national histories includes repeated episodes of excessive debt & defaults on said debts.
So Germany really doesn’t have the upper hand, because Greece or Italy can still decide to default, and then German banks will be in a lot of pain because a lot of German banks still hold way too much debt from Greece or Italy. But they’re trying to make sure the money gets paid back, and part of that is by saying they won’t extend the next part of various bailout packages to countries which haven’t passed the necessary laws to cut back their expenses.
In reality, there is more debt there than will ever be able to be paid back. The debt has to be written down. The banks have to take a hit, the bank personnel who made bad investments have to be fired, the bank presidents who ran the banks while those investments were being made have to be fired too, and people have to realize that just putting your savings in “a bank” might not be enough, you need to actually keep an eye on said bank & make sure they’re a good bank. (Same thing is happening in the United States.)
And then the European Union will have to make a choice they should have made a while back — either consolidate more, turn the European Union into an actual “United States of Europe” where there is a federal government that can override subsidiary governments; or split the European Union into two, one group of the frugal states and one group of the profligate states. The profligate states will see their national currency lose a lot of value, which will make imports more expensive — but it will make their exports less expensive for buyers which will in turn help bring jobs into their economies. The frugal states will see their national currencies gain a lot of value, which will make their exports more expensive on the world market — and did I mention that much of Germany’s economic strength comes from goods they export? And that much of the problems in profligate European countries comes from not being able to compete in productivity per wage with Germany, who has held their own wages down and consequently has seen much of the European manufacturing base move to Germany because of cheaper wages there — which would reverse if the European Union split and suddenly the profligate states had much cheaper currencies and much cheaper workers?
And no matter what happens, will a lot of people get hurt (hopefully just financially, not physically, although there have already been deaths in the riots) who were guilty of nothing more than being in the wrong place at the wrong time & not realizing it? Yes.
So right now, we’re back to Mr. Farage’s rant about an unelected man going into a supposedly sovereign nation and stating “now is not the time for elections, now is the time for actions” and removing an elected Prime Minister and replacing him with a new unelected Prime Minister. All to protect some banks who loaned more money than they should have to countries who have a long history of taking on more debt than they can — or intend to — pay back.
And we’re back to principles — is it okay to break the system if you can claim it’s for good reasons?
I say no, because once you start down that path, there’s always “good reasons” to keep breaking the system more and more.
We’ll see what the Europe says. As I noted before, no matter what happens it will be painful for a lot of people.