By Brian Brown
vice or virtue separates them
The bailout pieced together by the EU and IMF plugged an imminent sinkhole that could have quickly devoured
The other contributing factor to the global crisis was scarcely discussed because its solution was even more evasive than the tricky matter of taming bank misconduct. Trade and capital flows in the global economy are substantially imbalanced. There are chronic surplus countries like
Our moral and ethical upbringing tends to look admiringly on the creditor and less charitably toward the debtor. However, in macro-economic terms, both are equally liable for the systemic disequilibrium. Imbalance leads to trouble in the long-term. Thus, both steep deficit and hardy surplus denote a situation that cannot endure. Both equally strain the economy because they are inseparable phenomenon. Caught between the flaming pit of excessive debt and crumbling pillar of excessive surplus, no one is safe.
The imbalance between
When crisis hit, reactions were predictable. As such, they were more regrettable than useful. While ostriches are not native to Germany, the nation’s leaders did their best imitations of the long-necked fowl by placing their heads in the sand only to come up for air long enough to harangue the Greeks: “Well, you borrowed the money. Pay it up!”
Logic called for the immediate restructuring of the debt coupled with a generous dose of financial discipline in
At the eleventh hour, the one trillion dollar EU/IMF bailout was cobbled together.
For a moment, markets rebounded because the precipice had been avoided. The euphoria was as deprived of value as a Greek treasury bond. When people examined the fine print, the workout was less than what first met the eye. The bailout is contingent on
More importantly, the bailout does not address the glaring inconsistency in the eurozone. Unless the vast gap between the fundamentals of German’s economic trajectory and the debtor quartet’s path is resolved, the eurozone will be likened to an aircraft with its nose and aft moving toward separate destinations. Dismantlement of the zone will become an inevitability like the rising of the moon.
The world financial system and the global real economy rest precariously on flawed recovery measures, themselves in need of rescue. Although the year 2008 is twice removed, the crisis it reckoned into our lives remains with us. The measures taken then to protect private banks saved them but did not reform them. They are back to their tricks of massive speculation and arbitrage that add nothing to economic productivity or genuine wealth. Now, the EU/IMF, with a little help for the American Federal Reserve, have papered over the fundamental inconsistency in the eurozone. Crises have been averted but not their causes. Beasts have been feed but not tamed or destroyed. They are bound to return but government’s ability to toss money at them is not boundless. Tough decisions about
Critical lessons are to be drawn from this episode. Those who believed the financial crisis is gone better think again. It is a predator lurking in the shadows. The international financial system is as vulnerable to shock and rapid diminution as it was the day before the 2008 crisis erupted. Great prudence is required to prevent a massive aftershock that in the injury exacted would be indistinguishable from the initial quake.
This episode also brings into question the propriety of establishing a monetary zone comprised of a large number of nations of significantly different sizes, economic characteristics and political cultures. The eurozone was formed at a time of relative economic bliss. All was optimism. Thus, its structures were not designed in contemplation of dealing with a situation where the very fundamentals of key members’ economies become diametrically opposed. The events should force any region or nation contemplating a large monetary union to pause and ask if this is the right approach.