5 Reasons Greece and the Rest of the Eurozone Are On the Road to Hell
Continued from previous page
4. Flaw in the Euro Architecture. Nobody seems to want to acknowledge that the eurozone has a fundamental architectural flaw. Right now, there is no fiscal authority over member nations that can adequately respond to economic crises. This has been the story of Greece, the rest of the European periphery and now the disease is spreading into the core (Dutch April retail sales were down 11 percent year-over-year, so this is no longer a "north vs south" problem in the eurozone). A good economy with rising public deficits and ECB support to keep it all going isn't even a consideration at this point. The eurozone apologists have painted themselves into an ideological corner, as Europe's banking system continues to suffer from the throes of a massive bank run. The Greek election results won't change that fact.
5. The German Problem. German Chancellor Angela Merkel may actually understand the nature of the problem, and it is likely that she is also aware (via her economic advisers) of the extent of the eurozone's bank run, which is now massive (probably in the trillions of euros). But to draw attention to the real problem risks highlighting Germany's legal conundrum in which unintended losses to the German people due to risks involved in bailing out countries like Greece may go against their constitution. Ironically, the more Mrs. Merkel says "Nein" to any genuine proposal that could avert a solvency crisis, the more likely that these risks become real. Merkel rejects policies that would be better for the eurozone because they are politically unpalatable and because she hasn't been honest with her own electorate in spelling out the real implications of Germany's position if the eurozone blows up. She's in a corner.
Back to Greece. It looks like the economic torture chamber of mass unemployment can persist indefinitely in practice, even in the face of massive political resistance. Increasing evidence in the last few weeks or so suggest that the public deficits across the EU are propping up demand just enough to stop the currency union from blowing up.
But the actions of the Troika are neither politically desirable, nor sustainable over the longer term. The recent election results, not just in Greece, but all across Europe, continue to demonstrate this. Note that the Socialists claimed a huge majority in France's Parliamentary elections held this past weekend. And thank goodness for that! Because if misguided austerity economics continues, the crisis will surely spread to America's shores, just at a time when the American ideological soulmates of Europe's austerity brigade are seeking to shred what's left of our own social safety net through a manufactured fiscal crisis.
You know the drill by now. The financiers create an economic crisis; their political puppets demand budget cuts; and the rest of us are left holding the bag while the fatcats pop the champagne.
Marshall Auerback is a market analyst and commentator.