Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, and leave the public to scrimp, sacrifice and struggle to pay more debt.
As we predicted, the stock-lifting EUporia over the European rescue plan that arrived last Monday morphed into market-pounding fear and skepticism by Friday. The Euro currency is pretty much in a shambles, too. It looks like another huge bailout plan, like the initial incarnation of the TARP that was supposed to buy up billions in toxic assets, has been widely rejected as impractical and one that cannot possibly perform as intended. European leaders and central bankers have been left scratching their heads and wondering what hit them after they emerged from their Chamberlain moment, having pronounced their version of economic peace in our time.
The problems of Europe, and indeed, other nations that have too long been on a debt joy ride to fantasyland cannot be solved by either the profligacy of more debt accretion or the draconian paternalism of the IMF. When economies need to grow, you can’t tax them and shrink them into expansion, which is what they need to pay off their debt. The formula devised for Greece, which will see paychecks decimated, pensions slashed and taxes hiked, can have only one outcome — and it is neither pleasant nor a track to the growth that is needed. Nor can you push a country into greater debt for its salvation any more than you can make an addict recover by giving freer access to the source of the substance abuse.
TARP-type bailouts have become a flashpoint not just for the markets but also for the electorate. On this Super Tuesday of U.S. primaries, look to see Washington insiders who have been connected to these massive bailouts take a big hit. By tomorrow, one-time Pennsylvania Republican Senator, turned Democrat, Arlen Specter, will have lost his chance for a sixth term. Rand Paul, who has become a darling of the Tea Party, the quintessential anti-bailout brigade, is likely to receive the Kentucky Republican nod for the Senate. Democratic Senator Blanche Lincoln will probably lose her bid for renomination in Arkansas. Last week, it was three-term Republican Senator Robert F. Bennett of Utah who was turfed out by his party. This is just the opening act for the main event that will come in November, when the full effects of what we have dubbed turbo populism will see some seismic shifts in the political landscape and in the culture of excess that has come to define it.
Ordinary people from Athens to Little Rock have had it with a bloated system where politicians take care of themselves, along with insiders and powerful interests when they run amok, while leaving the public to scrimp, sacrifice and struggle to pay more debt. They know that approach is fundamentally corrupt and cannot be sustained either by precepts of ethics or principles of economics. That is the lesson of the bailout backlash in Europe and the anti-TARP movement in America.
Those in positions of power who ignore it do so at their peril.
In a way, we have all become Greece. The common element to democratic countries everywhere is a willingness to allow public debt and deficits to gallop out of control and to permit politicians to ride those horses to the edge of financial oblivion as they promise a better world all along the way.
Is the Eurozone bailout going the way of the infamous U.S. TARP? There are reasons why the initial EUphoria over the one trillion dollar package, hastily pulled together by the IMF, the European Central Bank and EU governments led by France and Germany last weekend, should give way to some sober second thoughts.
The scheme offers no stimulus to Europe’s sluggish economies and amounts to already heavily indebted countries going into even more debt to bail out others in seriously crippling debt. No doubt it will generate profits for bond traders and make Goldman Sachs wealthier. But what will it really do for countries experiencing economic downturn? Forcing Greece to take on and pay back more debt and loans at a time when citizens are facing a firestorm of draconian spending and pay cuts, mounting unemployment, slashed pensions, higher taxes and lack of confidence in the future is not an economic strategy. It is a formula for social upheaval and the worst kind of extremism that once before left Europe in flames.
There is no certainty that the scheme will prevent a default by Greece either, even if everyone in the country were rowing in the same direction, which clearly they are not. The IMF seems certain to inflame conditions, not improve them, given its record. Not even the prospect of a trillion dollar bailout could get the Euro to rise. It continues to slump, imposing what amounts to an added tax upon the citizens least able to afford it.
Related currency swaps with the U.S. will mean that the Fed’s already bloated balance sheet will balloon further, ultimately leaving U.S. taxpayers on the hook for those commitments. Currency swaps were all the rage in late 2007, when they were entered into by various global central bankers and the Fed in the hope of combating the credit crisis. They did not live up to those expectations.
We were among the first voices to express skepticism about the TARP, which was never used for its intended purpose and over which members of Congress and the general public have repeatedly registered chagrin. The EU fund created by an unusual, perhaps worrisome, coalition of central bankers and various governments is also facing a clash with sectors of the public and opposition politicians. The fund was cobbled together too fast with little creativity or imagination and a level of recidivism regarding debt that is as mind-boggling as the sum involved. It was done without the slightest bit of consultation with the public. The TARP, too, was heavily criticized for many of the same shortcomings. It never shook loose of its tattered image as a result.
The emergency fund was created in the hope of avoiding something called contagion, where one country’s ills would affect another and eventually spill over into North America. But here is the real contagion concern: in a way, we have all become Greece. The common element to democratic countries everywhere is a willingness to allow public debt and deficits to gallop out of control and to permit politicians to ride those horses to the edge of financial oblivion as they promise a better world all along the way.
Not every nation sees rioting in the streets as we did with Athens, but in democracies throughout the world there is an unsettling and growing gap between those at the top of government and business (and central banks, to be sure) and ordinary citizens. Trust in major institutions to do the right thing has rarely been in shorter supply. Populism is on the rise. In the United States, querulous voters are in a mood to throw out Washington incumbents. That trend also spilled over to Europe where Angela Merkel’s party last weekend lost key regional elections and Gordon Brown’s government was forced to resign after defeat at the polls. The toppling of icons like three-term Republican Senator Robert F. Bennett of Utah, who lost his party’s nod for a fourth-term last weekend, is as frightening to political insiders as any rock-throwing mob. People are looking to narrow the gap between those at the top and everyone else; they want to be viewed as more than a stepping-stone for self-aggrandizing politicians and a cheap source of capital for the financial world and Wall Street. They want a fair deal and honest talk, not Fed speak or talking point spins that rattle any lie detector within a ten mile radius.
We will know progress is being made when we hear the word “trillion” a lot less often and when we find central bankers and politicians who view bailouts and deficits as symptoms of a chronic problem and not the knee-jerk solution they have been turned into.
What is happening in Greece and elsewhere in Europe should cause leaders to recall how easily the seeds of disaster are sewn amid the winds of resentment and desperation.
Sixty-five years ago, the Allied forces accepted the unconditional surrender of the German military regime, bringing an end to the war in Europe. It took formal effect on this day in 1945. The Third Reich, and the once-underestimated monster who led it, Adolph Hitler, were dead. Tens of millions perished. Great cities of the world lay in ruins. The folly of Versailles in 1918, and the miscalculations made in dealing with a discontented Germany in subsequent years, proved more costly than anyone ever could have imagined. It was the 20th century’s ultimate breakdown in governance, leading to the most horrific ordeal the world has ever known. Hitler was a madman, of course, but he was an elected madman born of a democracy and a time when hunger and dejection drove people to desperation. Many Germans saw a man on a white horse who offered them hope; they could not see, or did not want to see, the monster who was a horseman of the apocalypse.
Today, much of Europe is in the throes of a firestorm of a different kind. Many of its countries, including Spain, Portugal and Greece now struggle under the jackboot of massive debt and unemployment. Bands of discontented Athenians riot under the shadow of the Acropolis. Uncertainty is knocking the value out of the EU’s currency and anxiety again grips financial markets on a global scale. Across the old world, fear has once more taken to the saddle and is galloping to unknown destinations. It may well arrive in North America, as this week’s sudden drop of nearly 1000 points in the Dow possibly augurs. An important measure of stock market volatility has skyrocketed in recent days. The interest rate at which banks lend to each other, known as LIBOR, has also spiked, as it did during the credit crisis of 2008.
As the leaders of the EU meet this weekend in Brussels to deal with the economic crisis in Greece, they would do well to remember the nightmare — a nightmare when psychopaths controlled every lever of government and when torture and fear became its reserve currency — that finally ended in a red schoolhouse in Rheims in the early hours of a cold May morning long ago, but which began decades earlier with the misjudgments of the old men of Europe who set it in motion. The seeds of disaster are easily sewn amid the winds of resentment and desperation.
For many, this period is a timeless reminder of why governance matters and why power must always be tempered by the utmost respect for the individual. When people champion the need for leaders who are grounded in reality and driven by honesty, when they accept no less than the highest standards of transparency and accountability in the running of major institutions and stand up for responsibility in the boardroom, when they declare that the powers of government, and increasingly, of great economic might, are powers held in trust for the ultimate benefit of all society, they are giving testimony to those painful lessons of the past and honoring their debt to those who sacrificed to preserve their freedoms.
The crisis that is unfolding in Europe is in many ways the product of men and women who also failed to anticipate the unintended consequences of their decisions and were oblivious to the mounting costs of their profligacy. Today’s leaders ought not to repeat the folly of the past by forgetting what horrible events can be unleashed when ordinary people are forced by despair into the dark corners of intolerant and facile worlds where monsters dutifully await their call.