“THE Greeks not only have massive debts but are still running big deficits. Trapped by an artificially strong currency, they cannot turn these deficits into surpluses, even if they do everything outsiders want them to do. Their exports, priced in euros, remain expensive. The German government wants the Greeks to slash the size of their government, but that will also slow economic growth and reduce tax revenues. And so one of two things must happen. Either the Germans must agree to integrate Europe fiscally, so that Germany and
Greece bear the same relationship to each other as, say, Indiana and Mississippi – the tax dollars of ordinary Germans would go into a common coffer and be used to pay for the lifestyle of ordinary Greeks – or the Greeks (and probably, eventually, every non-German) must introduce “structural reform,” a euphemism for magically and radically transforming themselves into a people as efficient and productive as the Germans. The first solution is pleasant for Greeks but painful for Germans. The second solution is pleasant for Germans but painful, possibly even suicidal, for Greeks.
The only economically plausible scenario is that the Germans, with a bit of help from a rapidly shrinking population of solvent European countries, suck it up, work harder, and pay for everyone else. But what is economically plausible appears to be politically unacceptable. The German people all know at least one fact about the euro: that before they agreed to trade in their deutsche marks their leaders promised them, explicitly, they would never be required to bail out other countries. The rule was created with the founding of the European Central Bank and was violated in 2010. Public opinion turns more against the violation every day — so much so that Chancellor Angela Merkel, who has a reputation for reading the public mood, hasn’t even bothered to try to go before the German people to persuade them that it might be in their interest to help the Greeks.
That is why Europe’s money problems feel not just problematic but intractable. It’s why Greeks are now mailing bombs to Merkel, and thugs in Berlin are hurling stones through the windows of the Greek consulate. And it’s why European leaders have done nothing but delay the inevitable reckoning, by scrambling every few months to find cash to plug the ever growing holes in Greece, Ireland, and Portugal, and praying that bigger and more alarming holes in Spain, Italy, and even France do not reveal themselves.”
Boomerang: The Meltdown Tour by Michael Lewis. Published by Allen Lane £20. Out tomorrow.