Wednesday, December 21, 2011

The EU goes for broke

It is really amazing to see how the eurocrats have managed to once again solve an EU problem with more power for Brussels. It is obvious that to the question "double or quit" they know only one answer "double". Unfortunately - as many gamblers know - this strategy often leads to it that you loose everything. Most likely we will see something similar here too.

Germany keeps advertising that the problem is irresponsible spending of Southern European countries while in fact it is that the countries are no longer competitive compared to Germany. For years Germany has lowered its wages and cuts its government spending in order to become more competitive. But that competitiveness came at the expense of the South Europeans. Now they need to lower their wages and cut their government spending too in order to catch up again. But as Germany keeps doing the same they are facing a moving target and it is doubtful whether they will be able to catch up before the things start to fall apart.

Germany seems very allergic to any proposal that might hurt its exports. It has refused to cancel defense orders from Greece, it blocks an expansive policy by the European Central Bank that might take some pressure from Southern Europe and it forces the Southern countries to very restrictive economic policies that hurt their prospects - in the hope that that way they will be able to pay to Germany. So in the end all those massive European funding programs serve mainly to keep Germany's economy going.

Of course this is window dressing. On the short term Germany gets the other countries to foot its bills. But in the longer term it may find that Southern Europe is not capable to pay every loan it granted back. The damage that it does to the Southern economies will harm Germany's economy in the long term. And one can only hope that the EU will find a nice way out once things are no longer tenable.

The present strengthening of the power of Brussels carries another risk: it may cause Southern Europe to become permanently in debt and dependent on aid from the North. The "great" example is Southern Italy that since Italy's unification in the 1860s has become poorer and poorer and keeps exporting people instead of products.

There is a remarkable similarity between Merkel's behavior in Kosovo and regarding the EU. In both cases she seems totally out of control and no longer capable of common sense. It looks like her power has risen to her head.

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