The Eurozone Crisis Continues
The Olympic games, ancient Greece's gift to the contemporary sports world, ended with a closing ceremony featuring British pop stars, aging rock icons and classical musicians. The show's promoters described it as a "mash-up" of British music.
Now the summer party's over, and the prospect of a eurozone smash-up has returned to the headlines, as key European Union leaders and international lenders meet to discuss modern Greece's fiscal menace to the eurozone and the global economy.
The menace to the eurozone is most immediate. Though Greece is by no means the sole culprit in the eurozone crisis, Greece is the eurozone's foremost economic mess. It is likely the zone's foremost political mess.
Greece's fractious government, organized in late June, yokes the center-right New Democracy Party, the Socialist Party and the Democratic Left Party in an uncomfortable coalition. To their credit, the troika understands that Greece must cut its government budget, begin to reduce its long-term public debt, reform the tax system, attack corruption and encourage private enterprise.
Yes, even Greece's old socialists now know that the private sector is where real, sustaining wealth is created.
However, the coalition has so far failed to convince the Greek people that they must accept economic sacrifice. Two weeks ago, in the midst of the Olympics, the three parties were once again squabbling over specific budget cuts.
To its discredit, Greece's hard-left opposition movement, Syriza, continues to spew reckless populist propaganda that portrays the Greek people as a victim of dark forces. The dark forces include international lenders, banks, Northern Europeans (especially Germans), capitalism, imperialism and the legacy of Greece's domination by the Ottoman Empire.
Greek revolutionaries tossed the Ottomans out almost two centuries ago, lenders have given Greece extraordinary slack, and hardworking German taxpayers have funded the entire eurozone experiment — but facts don't matter when ambitious, ethnocentric political operatives prey on despair and anger.
The Greek political mess deeply worries European leaders. Populist demagogues have a dismal historical record in Europe, with Hitler and Mussolini as two disastrous examples. A Greek exit from the eurozone might politically "de-tether" Greece from European democracies. This worst-case scenario has an angry Greek dictatorship sparking trouble in the Balkans. It is a compelling argument for keeping Greece in the zone.
Domestic polls in productive European economies like Holland, France and Germany show continued support for maintaining the euro as a common currency. However, German Chancellor Angela Merkel knows German voters won't continue to fund vacations and pensions for Greek government workers. France has a stagnating economy.
Which leads to a compelling argument for shrinking the zone: Greece cannot remain a permanent fiscal drain on other European economies. "Bailout creep" propping up Greek political and economic failure could drag the rest of Europe into a depression; suddenly the political troubles Greece confronts become Europe-wide.
In this scenario, the surviving eurozone members accept the severe short-term economic costs in order to avoid more costly long-term economic damage. Better to drop one or two "weak branch" economies (Greece and Spain) than have the entire eurozone collapse.
Last week, Finland's foreign minister told London's Daily Telegraph that eurozone member Finland is preparing for a "full-blown currency crisis," precipitated by continuing weakness in vulnerable Euro economies. The Finnish government quickly denied it was preparing for a zone breakup. The foreign minister's comments, however, confirmed what everyone knows. The "trim the weak branches" scenario is under serious consideration.
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