Only politics is preventing a solution to the eurocrisis. Uh-oh.
So the eurozone crisis is metastasizing from really bad to even worse. Over at The New Yorker, James Surowiecki blogs that what’s so frustrating about the situation is that the impediments to a solution are easily surmountable: [W]hat’s easy to miss, amid the market tremors and the political brinksmanship, is that this is that rarest ...
So the eurozone crisis is metastasizing from really bad to even worse. Over at The New Yorker, James Surowiecki blogs that what's so frustrating about the situation is that the impediments to a solution are easily surmountable:
So the eurozone crisis is metastasizing from really bad to even worse. Over at The New Yorker, James Surowiecki blogs that what’s so frustrating about the situation is that the impediments to a solution are easily surmountable:
[W]hat’s easy to miss, amid the market tremors and the political brinksmanship, is that this is that rarest of problems—one that you really can solve just by throwing money at it….
The frustrating thing about all this is that there is a ready-made solution. If the European Central Bank were to commit publicly to backstopping Italian and Spanish debt, by buying as many of their bonds as needed, the worries about default would recede and interest rates would fall. This wouldn’t cure the weakness of the Italian economy or eliminate the hangover from the housing bubble in Spain, but it would avert a Lehman-style meltdown, buy time for economic reforms to work, and let these countries avoid the kind of over-the-top austerity measures that will worsen the debt crisis by killing any prospect of economic growth.…
So the problem is not that the E.C.B. can’t act but that it won’t. The obstacles are ideological and, you might say, psychological.
As someone who agrees with Surowiecki on the economic diagnosis, the political scientist in me is forced to call a flagrant foul on this kind of analysis. In labeling the problem as one of "ideology" or "psychology," Surowiecki is explicitly arguing that it’s just so absurd that the correct policy is not being pursued. If only someone could talk some sense into the key policymakers, then — snap! — the crisis would be resolved.
As someone who studies this stuff for a living, simply saying that political ideology, interest, or institutions can be easily changed borders on the comical. Ideas, interests and institutions are the bread and butter of politics, and all of them are far stickier than economists would like you to believe. There’s more than seven decades of entrenched thinking that would require the Bundesbank and the ECB to alter their approach. Crisis or no crisis, that’s not just easily dismissed.
Furthermore, looking at the Franco-German crisis bargaining, any actual deal to bolster EFSF resources, empower the ECB, and/or create something approximating a fiscal union would require that Southern Europe agree to remake their domestic economies to more closely resemble the German model. This has always been Merkel’s bargain: she’s been willing to cede greater power to the EU provided that EU policy preferences looks more like Germany. This makes sense for Germany, but the kind of wrenching changes and adjustments that will be asked of Spain and Italy are massive. The fact that Berlin — rather than Brussels — is the source of this diktat will add a fun new level of political difficulties as well.
A deal could be reached, but no one should be kidding themselves — it is fantastically difficult, and saying that just "politics" or "ideology" or "psychology" is getting in the way doesn’t make it any easier.
Daniel W. Drezner is a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University and co-host of the Space the Nation podcast. Twitter: @dandrezner
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