Eurozone - October 2011 Rescue

27 Oct 2011

We can think of the Eurozone as a hot air balloon with 17 passengers. Not only is the balloon losing height, the basket below is splitting apart, and the passengers are fighting amongst themselves. Yesterday the financial markets were worried that the weakest passenger, a man called Greece, was either going to be thrown overboard, or the entire balloon would crash in the sea killing everyone. However, in the early hours off this morning, the balloon was finally spotted emerging from the clouds with all 17 passengers still aboard. Whilst this has lifted all our spirits temporarily, the problems are far from resolved, the saga continues...

According to this morning's news: EU Banks have agreed to accept a 50% haircut on their Greek debt. This is expected to reduce Greek debt to about 120% of GDP, which is the same as Italy. The German Parliament has also given Angela Merkel the green light she needs to increase the financial firepower of the European Financial Stability Facility.

Angela Merkel said yesterday the Euro must be saved to prevent Europe disintegrating, and she even mentioned the second world war. But Merkel must not loose sight of the fact that Greek haircuts and EFSF firepower cannot solve the Eurozone crisis in of themselves. All these things do is buy her time, unless she can implement radical economic reforms across the EU the car is going to come off the road eventually. Furthermore, if the car does come off the road, the longer she waits the more money she spends, so the more life threatening that accident is going to be. So if she fails to implement reforms this latest response simply makes war more not less likely. She must repeat to herself like a mantra: "Unless I can get the Greeks, Portuguese, Spanish, Italians etc to reform this show is going to end in absolute disaster. The external economic environment is atrocious, 80% of German voters wants to start kicking failing states out instead of saving them, and the financial costs of breakdown are growing every day we hold this thing together artificially."

The trouble with politicians is that they constantly delude themselves. I was listening to the BBC on the radio last night, and some European technocrat was fielding calls from ordinary Germans repeatedly saying "Kick the Greeks out of Europe!". The technocrat kept replying "That's not the kind of Europe I want to live in". But this answer only make sense if you can actually implement reforms. His reply is a bit like that film "The Mission" in which a priest played by Jeremy Irons marches a crowd of children carrying crosses against soldiers, and the soldiers simply shoot them all dead. This EU technocrat was not thinking ahead, he was just saying what he feels is right morally.

What the EU are now planning is some kind of federal authority that will impose better policy making across the Eurozone, but the EU need to think whether this idea is actually workable. The danger is that this non-democratic federal governance structure doesn't have sufficient popular support and Europeans revolt against it. Philosophically speaking, what we are talking about is a degree of Chinese technocracy in Europe. I study Chinese government, and I can tell you that the Chinese get away with technocracy because they control the media and have the world's highest performance legitimacy - but the EU is in a completely and utterly different boat. So I have given this matter a great deal of thought, and I just don't think their technocratic federal plan is going to work. As far as I can tell they are all in the dark, there is no-one in the world trying to giving them good advice, the journalism is simply appalling, and so I feel I should write something in case it helps.

At the end of the day you realise government is all about "justice". If you need to impose something radical on a person you do it by appealing to the majority's sense of justice and the individual's sense of shame. For example, Thatcher got her labour market reforms implemented by campaigning against "lazy" "spoilt" unemployed people etc. She made it a moral issue, and people could connect with that and supported her. The EU are dreaming when they think they can radically overhaul the Eurozone from an ivory tower in Brussels without winning the hearts or minds of the people. The whole problem in Greece is that you can't create growth by cutting spending or raising taxes, you have to rip the box apart and implement the profound structural reforms which restore life. So what the EU are talking about is the idea that they can sit in their ivory tower and impose the sort of radical things Thatcher did on three hundred million people without their permission. In fact, I am understating the extent of the challenge, because the problems today are far more complex than the problems Thatcher faced and involve squashing much loved things such as NIMBYism as well. Politicians get votes and journalists sell copy by turning such issues into political footballs, the EU are mad to think they can just impose the sort of things that have eluded European politicians for thirty years in an apolitical Chinese technocratic way. Right now even the UK Conservatives are taking about leaving Europe, yet they are barely touched by the EU. These EU politicians just don't understand the scale of what is going on, they are still asleep, and in their woolly sleep they are dreaming up muddle headed ideas that make no sense in the cold light of day.

In order to implement these radical policies you need to be honest with the people, you need to fight a huge political war on the streets of Europe which appeals to universal arguments about justice, you need to wake people up by talking about terrifying consequences in order to win, and when you have won you need to hold in your hands an agreement which gives you the popular legitimacy to overrule local politicians and do what no one has ever done before. That's why I recommend going back to basics and working out a popular political strategy based around punishing injustice. The European elite are hung up on trying to interpret humanitarianism, but the next future is not the moral compass that points to good, but rather the moral compass that points at bad and punishes it. We see that today in the anti-capitalism protests, which don't have a "good cause" to aim at, but rather just an "evil enemy" to destroy. This hunt for evil is part of the evolutionary cycle, and it is the part of the cycle we are coming into, and it's the energy that can make these reforms possible because you don't have to win people over to your reform, you sell them as punishment for those who have behaved irresponsibly. You are exploiting the children's fear and individualism, not trying to appeal to their idealism or knowledge of economics. So the toughness of them works in your favour instead of against you. We already see its power in the angry German masses looking to punish Greece, politicians have to stop being afraid of this anger and start to exploit it, it can't be stopped and if they don't embrace it the next guys will with more bloody consequences. That's why I have designed this simple technocratic prison system which everyone can understand. It revolves around justice in a very simple way, embodying the idea that "the worthy will live free and the unworthy will be punished and supervised". It is also a sort of divide and conquer strategy, and it throws the majority a bone by giving them more not less sovereignty. It has an idealistic side, because the punishment reforms society and eventually impresses everyone so much they submit to bit of it voluntarily. This is the solution the EU need, what they are proposing right now is just extremely unlikely to work. This about this strategy, 80% of Germans want to kick Greece out, instead you just sell the the idea of punishing Greece. The Greeks can't resist because you offer them reform or ejection from Europe. This is an easy political battle to win, but trying to fight it the other way around is insane.

I really didn't want to write another piece about the Eurozone, but last night I had a dream in which I was having painful "anti-Eurozone plague" inoculations injected through my fingernails three times a day. I don't like medical procedures, and I ending up refusing the treatment. At that point I woke up feeling extremely guilty and thinking about how all those people gave their lives for their country in the Great Wars etc. So I have deleted the angry post I wrote yesterday about the bozos running Europe etc, and written something which does its bit to save the world.