Rod Dreher

While I’m busy freebasing Claritin and you’re doing that thing you do on the weekend, some very, very important things are happening in Europe that will likely bear on our immediate future in the US.
Today in the German state of North Rhine-Westphalia, voters are going to the polls in what may be a rebuke of the federal government’s participation in the Greek bailout. The area has been soaked by the German feds for two decades to pay for reunification with East Germany, and now its people, who are suffering from deindustrialization, have had it with their money being taken out of their region by federal politicians and sent to others. Can you blame them, really? From the NYT story:

“I’ve lived in this state for 20 years and I’ve never seen the people so concerned about the future, about the economic and the social situation,” said Franz Lehner, professor of applied social science at the Ruhr University of Bochum. “The capability to survive of these cities is really at stake.”

Meanwhile, British political parties are trying to figure out how they can form a government, though it will almost certainly be a short-lived one, given how painful the austerity measures will be. The last thing the UK needs right now is a weak government, given the magnitude of the economic challenge ahead of them, but that’s what they’re going to have. Yet BBC economics editor Robert Peston says the Tory-LibDem negotiations aren’t the most important economic doings this weekend. Rather, that would be negotiations among governments and the European Central Bank to stabilize the Euro. They seem to have reached some sort of agreement on Friday night, but the details will have to be put into place on Sunday. Excerpt:

Bankers and economists see this strain in the financial system as horribly reminiscent of conditions prior to the meltdown of the global banking system 20 months ago.
“If the Europeans ‘disappoint’ tomorrow it’s back to the autumn of 2008”, is how an influential banker put it to me.
In simple terms, as you know, if banks can’t borrow, they can’t lend – which leads to cessation of vital flows of credit, bank collapses and recession.
What investors are looking for, at the least, is some mechanism to allow banks to borrow for a year or so against the collateral of their stocks of Portuguese, Spanish, Italian and other eurozone government bonds.
As an optimal outcome, many investors would want a eurozone version of quantitative easing, where the European Central Bank would buy eurozone government bonds for cash.
This last initiative would be particularly controversial, because it would see eurozone taxpayers indirectly taking on a liability to the financial health of individual eurozone states over which they have no democratic control (so German taxpayers would be exposed via the ECB to Portguese government bonds and the credit-worthiness of the Portuguese government, for example).

You see the problem: responsible German taxpayers would be on the hook for the behavior of irresponsible Greek taxpayers, and so forth, because as bearers of a common currency, their fates are joined. What a catastrophe a generation or two of Eurocrats have brought upon the nations of Europe! The nationalist backlash could be pretty nasty. If I were a German voter today, in a city that couldn’t afford to pay its own bills, but being soaked to bail out the Greeks, I would be incandescently angry — not at the Greeks as much as my own political elite, who got us into this mess.
Thanks to globalization, though, we Americans can’t sit back calmly and watch Europe struggle. As someone I read yesterday, can’t remember who, put it, we are now approaching where we were in 2008, with big banks teetering on the brink of collapse … except now instead of banks, the endangered institutions are sovereign governments. And there is no money left for a large bailout package. Peston:

Anyway, depending on whether a credible plan to limit the contagion from Greece’s woes is announced tomorrow by the ECB and eurozone ministers, markets will open on Monday in a state of black despair or renewed optimism.

Stay tuned. Peston says re: the markets, the possibility of nothing good happening on the Euro front, and the UK governmental future remaining unsettled, is too depressing to contemplate.

Join the Discussion
comments powered by Disqus