How the Euro Crisis Became a Security Problem
The predominant assessments of the Greek crisis rely on heavy financial analysis and conclude, understandably, that it is solely a financial and, thus, European problem. However, the Greek crisis has an oft-missed geopolitical undertone. The crisis has consumed our closest allies because it is all Greece all the time in Europe. The debt crisis, which ...
The predominant assessments of the Greek crisis rely on heavy financial analysis and conclude, understandably, that it is solely a financial and, thus, European problem. However, the Greek crisis has an oft-missed geopolitical undertone. The crisis has consumed our closest allies because it is all Greece all the time in Europe. The debt crisis, which has been going on in way form or another since 2009, has affected all of Europe, not just Greece, and should have been a clarifying moment for our European allies to decide the nature of the euro project. It wasn’t. At this rate it, like many other things, will be an issue for the next president. The next administration needs to clarify U.S. policy towards the eurozone.
Our message to Europe should stress that they need to do the heavy lifting to make it work or unwind things. This status quo of an unworkable system that is dragging a significant portion of European citizens through misery and debasing the coin of the transatlantic alliance is simply intolerable.
Our European allies are politically and financially overtaxed with internal European issues. As a result, they tiptoe around significant external problems that should concern them. For example, more than 200 Dutch citizens were killed when MH17 was shot down with a Russian made anti-aircraft missile, Russian troops have not so secretly invaded Ukraine and are helping to occupy a large portion of the eastern part of the country, Putin has rattled the sabre of nuclear war, and Europe is laser focused on … Greece.
The United States should be supportive of the euro. However, it should also clarify its message and stress that the EU needs to get it right. The eurozone is broken, yet Europe seems fine pretending their problems are episodic and not structural. This muddling through is unsustainable.
Pushing Europe to scrap the euro is futile and would spark needless anger. It is popular, has benefits and Europe’s belief in the euro’s transcendence borders on religious. The United States should offer its full-throated support. We won’t get into it here but there are plenty of economic arguments to be made from the U.S. perspective for a workable eurozone.
There are no economic arguments to be made about the current jalopy that is the eurozone. Europe must finally be willing to make the difficult (and expensive) decisions needed to make the European project successful. Just a few are debt mutualization (Eurobonds), a fiscal union (one centralized budget instead of each nation deciding their own), and a law preventing member nations from deficit spending. Europe also needs a common banking system and deposit insurance reform. These are critical items, the absence of which will always lead to repeated peripheral debt crises. These steps are very expensive and will require ceding significant sovereignty to Brussels — imagine if the U.N. decided the U.S. budget, for example. I can see why Germany and France don’t want to do that, but the euro is their idea.
If Europe can’t do that, the euro needs to be unwound. The United States should be pushing Europe towards that binary decision. As it stands, we allow Europe to persist in the fantasy that they can have their cake and eat it, too. Rather than speak plainly to our European allies, the White House allowed the International Monetary Fund to be dragged into the Hellenic black hole. The Fund faces the largest loss in its history when Greece has its inevitable default.
The current state of affairs takes Europe off the strategic playing field, lards too many responsibilities on the United States, opens Europe to outside (read: Russian) meddling like we are seeing in Greece, and has so messed up peripheral European economies that Germany and France now find themselves locked in a currency union with countries whose debt trades on markets at third world prices. It’s borderline insane, yet U.S. policy never pushes Europe to fix it.
Just to be clear: I’m not naïve. I seriously doubt many of the European countries would go for the reforms needed to fix the euro — but that just underscores my point. Why does Europe persist with a system that is so obviously broken and why are we enabling their behavior? We all live in euro purgatory.
As a result, America’s most important allies punch far below the collective weight of the individual member nations. While I don’t think a United States of Europe would be as formidable an ally as strong, independent, European nations, it would be far formidable than the circus that currently is the eurozone.
German frustration with Greece’s antics has received much press and who can blame them? Greece owes almost $400 billion, much of it to Germany. Over the six-year course of the crisis Greece has reneged on countless agreements and elected multiple indecisive governments. Greek protesters routinely march with pictures of Chancellor Angela Merkel sporting a Hitler mustache.
However, sympathy with Germany should stop there. Germany signed up for this and their economy has benefitted immensely. Just one example: sharing the euro with a third-world-like Greece means the euro’s exchange rate is lower than it should be. That’s a boon for an exporting country like Germany. Furthermore, that Greece was a bad investment wasn’t exactly a mystery when they were admitted into the eurozone. Everyone knew Greece fudged its numbers. Greek financial chicanery is a chronic issue. European banks, mainly German, lent to them anyway. They earned a high return and traded on an implicit state debt guarantee. It turns out that guarantee was real. Greece’s bailout had gone mainly to make those banks whole on their irresponsible loans.
This is small ball. Not only is the United States enabling a system that is neutering the transatlantic alliance, it’s participating in a massive bank bailout to boot. It’s time for the United States to clarify its policy toward the EU and stop being an enabler. We want our allies back.
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