Krugman didn't criticize Latvia; he said that, by pointing to Latvia, the austerians were getting it wrong, because Latvia is small and its recovery wasn't that good -- in fact it still remains below its potential, absent the global recession of 2008.
The Latvian president went ballistic because...well nationalism. Just as Greeks are calling out German austerians as Nazis and Chinese are trashing Japanese cars over a diplomatic row over a bunch of islands, so did the Latvian president proceed to attack an imagined adversary.
If Greeks are to stay in the EU monetary union, there are basically two outcomes: Greeks accept a real decline in incomes, or Germans and other northern neighbors accept hyper inflation to make Greek goods, services and real estate cheaper. If Germany enters a slowdown, it only worsens Greek economic conditions.
The fall of the Euro lies in the inability of the ECB and the EU to function as the United States, where we have an internal redistribution, a re-balanced Balance of Payments. If a state is doing well, its net surplus income taxes are redistributed to help another state beset by high unemployment, as that state transitions itself towards becoming more competitive, both within the US and globally.
BERLIN — Cranes accent the skylines of Düsseldorf, Frankfurt and Berlin, while high-rise offices and apartments sit empty in Barcelona and Madrid. Unemployment in Holland hovers around 6 percent, meanwhile Greece is grappling with record numbers of its citizens unsuccessfully seeking work.
Though Germany’s economy appears to finally be slowing, the economic fall from grace of ailing E.U. member states shows a rough north-south split. The battle for a single-currency European Union in which Germany’s chancellor Angela Merkel is embrued has underscored even more enlightening economic, political and social distinctions within Europe. But what really makes the success of the Euro so seemingly elusive?
“You have to realize: there’s what you could call an ‘anti-western’ tendency in Greece,” Greek philosopher Nikos Dimou told Germany’s Die Zeit weekly.
“It began with the break-off of the Eastern Orthodox church in 1030. In the Byzantine Empire, the church was all-mighty and proclaimed that the west was the spawn of Satan. When the Turks went after Constantinople, the Greeks wouldn’t accept help from the West.”
Not unlike the Civil War in the U.S., the Euro crisis has elicited calls for every type of corrective action between conflicting sides, from secession to rejection from the Union and, of course, inclusion with conditions. Unlike the U.S., however, Europe has spent the last half-century synthesizing the already-existing economies of a geographical area roughy the size of the continental U.S.. That’s some 1,500 years more of social, political and economic history than the United States began with — and Europeans tend towards a longer collective memory than their North American counterparts.
“Our Europe… wasn’t founded on big idealistic proclamations,” Spanish author Antonio Munoz Molina told Die Zeit’s German audience.
“It resulted from the pragmatic decision to ease the trade of coal and iron between France and Germany, also remembering that the growth of the Flemish textile industry at the end of the Middle Ages had its basis in the wool of Spanish shepherds.”
Under the motto “United in diversity”, E.U. politicians have struggled to play up the Union’s differences as strengths, economically as well as politically. But with old trade patterns having kept international business partners at arm’s length for centuries (thus preserving old political and economic housekeeping habits), the E.U. has always had strong “states-rights” issues to contend with. Culturally and politically, member countries have been more than determined to retain a significant degree of sovereignty.
“I think [Merkel as European taskmaster] is counterproductive in [the case of demands on Greek austerity],” Dimous says.
“The people say, ‘Sure, that’s a good set of reforms, but we’re not going to accept it because it comes from the Germans. Heil Hitler! The Nazis are back.’”
In a surprising turn of events in 2009, Latvia voluntarily chose the path of austerity for a chance to adopt the precariously-positioned Euro. Bloomberg reported on the public retort of Latvia’s president Toomas Hendrik Ilves after Nobel Prize-winning economist Paul Krugman criticized Latvia as an austerity success story, saying it had implemented painful economic measures to what he viewed as little avail.
Ilves tweeted his distaste for Krugman’s assessment multiple times; meanwhile, his country plodded on, successfully adopting the Euro and showing modest, but steady growth with low national debt since the implementation of its reforms.
Despite doubts about how to keep member states in the E.U. and hold them fiscally accountable without overstepping boundaries, Chancellor Merkel seems to be waiting for decisions from the three-point European troika currently assessing the progress of states such as Greece. On the other hand, Mario Draghi, head of the European Central Bank, will also have to decide whether to stick to his statement that the Euro is “irreversible”. But many of the continent’s intellectuals seem to cherish Europe’s inherent interconnectivity.
“[In parting ways], we are robbing ourselves of that which is most important to us…” author Molina says.
“…the balance between freedom and solidarity, between technical efficiency and lifestyle, between capitalism and justice, as it only exists in Europe.”
PHOTO: Flickr/jeff_w_brooktree
