Federal Disunity: Civil-War-era US and the Eurozone

Global Policy, a fairly new world affairs journal, has some interesting things to say on the current eurozone troubles. Its quality of links is slightly derivative, with liberal borrowing from the Economist and even Wikipedia. But it's still a worthy read, if for nothing else that its unorthodox comparison of leadership styles of US President James Buchanan (predecessor to Abraham Lincoln) and Angela Merkel.

"... If Buchanan is remembered as one of the worst American presidents of all time, his successor Abraham Lincoln is remembered as perhaps its greatest. Although lacking in executive experience his underlying principle was unwavering: preserve the union at all costs. To this goal he was willing to subsume all other concerns, including his moral repugnance of slavery. To its end he was willing to commit to and sustain a bloody civil war and rebuff suggestions of compromise. Everything else was negotiable, but union was not. The result was a nation ripped apart by an enormously destructive and prolonged civil war, but also one reborn on a stronger footing. The slavery and secession issues that had, since America’s founding, threatened to rip the nation apart were (at an enormous cost) settled once and for all.

"It is from this parable-like take on the American Civil War era that perhaps lessons can be drawn for Europe’s undisputed present-day leader, Angela Merkel. The seriousness of the conundrum she faces is immense. Preservation of the European project requires a willingness to risk political martyrdom on her own part. The case for Germany continuing as the backstop of the Eurozone grows more unpopular domestically every day. Meanwhile the irresolute action and half-measures that characterised earlier attempts to save the single currency have merely postponed the day of reckoning. They have also, at almost every turn, increased the cost and the stakes of the next move. The case of the Greek Bailout is perhaps the most blatant example. Yet time and again her approach has seemed reductionist and pedantic. Bowing to national pressures she has proven more adept at tinkering with the terms of bailouts and turning the screws on profligate states, than on securing a long-term fix for the single currency. The result has been a continuing narrative of core vs. periphery and an ominous slide towards a series of defaults, which even the German coffers will not be able to rebuff."

See the piece in full here. 

Hewitt on Europe and Youth in 2010

Gavin Hewitt of the BBC has posted a wrap-up of the year 2010 in Europe. I'd like to underscore his recurring theme of the beleaguered status of European youth. He begins with three sketches of young people down on their luck: seemingly intelligent and educated young Spaniards queuing for unemployment benefits; a roomful of raised hands when Hewitt asks trade school students if they anticipate emigration; young Italians ready to riot at the broken promises of their government and the generation in power. 

Hewitt goes on to describe their lives in the crushing uncertainly of economic souring, and the new civic religion called "austerity" that most accept only begrudgingly -- because they see no other choice. The year 2011, according to Hewitt, portends to be no less bleak.

"Youth unemployment and austerity are a dangerous cocktail that will play out on the streets of 2011. Austerity challenges a deeply-held idea of a European way of life where the state offers layers of protection. Old certainties are being swept away. Social contracts snapped. An ever-expanding public sector is being pruned. Europe, in the long term, may benefit from a smaller state sector, but no one should underestimate the shock of the new. [...]

In 2011 the orthodoxy of austerity, I suspect, will be challenged. The Greeks are tiring of the lean years that seem to stretch out before them. A new government in Ireland may try and renegotiate the terms of the EU/IMF loan. Increasingly voices question the fairness of it all. In Ireland the banks' debts were taken onto the government's books and the country headed for insolvency. A proud country [and in Ireland's case, an overwhelmingly young one] has sacrificed its independence - that's how many in Ireland see it.

It is a fair bet that in 2011 one or more country will restructure its debt.

Increasingly, when one returns from the streets of Greece or France or Italy, Brussels seems a side-show. While the unemployment lines lengthen for young people Europe's elite is preoccupied with institutions, with their place in the world. They have strategies for growth - but in the distant future. The discussions too often appear inward-looking. Occasionally there is a flicker of reality. The European Parliament, for instance, led the way in challenging bankers' bonuses. [...]

Roubini on European Recession : "Hangover"

The economist fabled to have predicted the global financial crisis shoots from the hip on European recovery -- and describes a still-dire bill of economic health for the Old Continent. Nouriel Roubini, professor at New York University, dubs the European condition a "hangover" and one sure to continue galling livers for a good while to come.

The professor employs a host of disparaging idioms in his take on the EU's present status, decrying 1) the policies that "stole demand from the future," 2) the laughable "stress tests" (quote marks his) that only "kicked the can down the road,"  and 3) the lingering "fundamental problems of the eurozone." He singles out sitting EU president and Belgian head of state Yves Leterme as "unable to keep his own country together, let alone unite Europe."

He also dismisses the notion that the EU bail-out created anything beyond transient relief. Though Brussels policy heads managed in May to slap together a rescue fund, risk spreads have returned to their pre-bail-out levels for several European countries. Roubini sniffs that operatives "fudged" this summer's round of financial "stress tests" for European markets, serving to pep up world markets' frail confidence only temporarily -- a move that is already beginning to wear thin.

Even the sunniest eurozone example, Germany, suffers Roubini's ire, and he shrugs off that country's supposed promise as the EU's post-crisis front-runner:

"Even Germany’s temporary success is riddled with caveats. During the 2008-2009 financial crisis, GDP fell much more in Germany – because of its dependence on collapsing global trade – than in the United States. A transitory rebound from such a hard fall is not surprising, and German output remains below pre-crisis levels."

In what may bear nightmarish implications,  the "double dip" recession so feared throughout the world may actually be taking root as we read his words.

"Indeed, the latest data from Germany – declining exports, falling factory orders, anemic industrial-production growth, and a slide in investors’ confidence – suggest that the [double dip] has started."

His forecast on current and future European politics provides little sustenance for optimists. He cites a litany of bummer political events ranging from Angela Merkel's recent shallacking in German regional elections, to unlikely odds that Sarkozy will initiate real (Roubini says "cosmetic") structural reforms in France -- and that is concurrent with sobering competition prospects from the Socialist Party's presidential likely, one Dominique Strauss-Kahn. Similarly unpopular leaders also face grim predictions across the EU's southern belt, from the vulnerable Presidents Silvio Berlusconi (Italy) and Jose Luis Rodriguez Zapatero (Spain), to the bete noire of EU fiscal cohesion, George Papandreou (Greece).

If all that wasn't enough, Roubini finishes by going for broke on two scenarios for the eurozone's future. The first, the "best" case scenario (though hardly a good one) says the monetary bloc limps on some years longer. The second -- this is the 800-pound gorilla whose presence EU public officials from across the 27 states refuse to entertain -- predicts that "the eurozone will break up, owing to a combination of sovereign debt restructurings and exits by some weaker economies."

The Wane of Danish "Flexicurity" and European Safety Nets

Liz Alderman, economist and blogger on the NY Times' Economix blog, has some compelling things to say about the down-scaling of Denmark's welfare programs in light of the global recession, and how the northern country serves as a cautionary study on social safety nets and "two-speed markets" in Europe and the U.S. (...)

Italy and the Dimming of Old-World Artisanship

The sensibilities of old-world artisans and 21st-century economic forecasters collide in this NY Times article on the sinking industry of Italian textile manufacturing. Veteran clothier Luciano Barbera claims "this tradition is finita," lamenting the demise of his label with its "spa for yarn" where the Barbera line alchemizes its top-end menswear -- and tries to sell $4,000 suits in a global recession. 

Meanwhile, American outsourcers such as Jos. A. Bank are doing just fine, with the Maryland-based brand reporting $770.3 million in profits over the last fiscal year. Is this another death knell for Old Europe traditions, precipitated by globalization?

For Italy in and of itself, economist Francesco Giavazzi deplores the white-knuckle grip of the "associazioni di categoria" and other guilds and unions on the Italian economy. The article describes:

"... Economists said that worrying about [the decline of artisanship] was like fretting about the head cold of a patient with Stage 3 cancer. They see a country with a service sector dominated by guilds, which don’t just overcharge but also raise the barriers to entry for the millions in ill-fated manufacturing jobs who might otherwise find work as, for instance, taxi drivers. They see a timid entrepreneur class. They see a political system in the thrall of the older voters who want to keep what they have, even if it dooms the nation to years of stasis. 

They see a society whose best and brightest are leaving and not being replaced by immigrants, because Italy has so little upward mobility to offer. 

To Professor Giavazzi, the future here doesn’t look like Greece. It looks like Argentina. 

“Before World War II, Argentina was rich,” he says. “Even in 1960, the country was twice as rich as Italy.” Today, he says, you can compare the per capita income of Argentina to that of Romania. “Because it didn’t grow. A country could get rich in 1900 just by producing corn and meat, but that is not true today. But it took them 100 years to realize they were becoming poor. And that is what worries me about Italy. We’re not going to starve next week. We are just going to decline, slowly, slowly, and I’m not sure what will turn that around.” (...)"