Paris, May 8, 2012 – The weekend elections in France and
Greece seem widely to have been taken, at least on the European and
American left, as solving the great European economic crisis.
The Greeks will hold another election which a leftist coalition may
(or may not) win. A masterful François Hollande will unveil his plan
to tame Angela Merkel and the European Central Bank, and reinstall
growth in Europe and terminate sacrifice through pan-European
infrastructure building, just as soon as the June legislative
elections are over and Socialism rules, while Marine Le Pen – as
planned -- dominates the scattered and demoralized remnants of the
French center and moderate right.

“Time is clearly running out for the strategy of recovery through
austerity,” Paul Krugman of The New York Times writes. He has won his
argument against austerity, in France at least, and would that this
were so everywhere. But there still are Germany and Angela Merkel to
confront, and the 23 other European Union countries already signed up
for austerity and still more of it. Moreover, the French were not
reading Paul Krugman when they voted; they were not voting on
economic theory but voting their anger at Nicolas Sarkozy, and their
nostalgia for the good old days before Wall Street greed, folly and
malfeasance wrecked the world economy.

In Europe the effect is much like that in 2005, when
France and the Netherlands voted against the proposed European
constitution the EU majority had believed that Europe needed, and had
commissioned Valery Giscard d’Estaing to draft for them. Then as now
the rule was unanimity, and the EU Commission and Council were
appalled to have the constitution rejected by Giscard’s own French
compatriots and by the Dutch, founding members of European Union.
What to do now? Then as now, the crisis was surmounted and the
problem was recognized as one in which the ideology of European
unification had overreached political good sense and been rejected.

The same generous and ambitious error of over-reaching is
also at the root of what now has happened in Europe. The alluring
idea of a common currency, cementing the economic progress made with
the European Common Market, darkened the prudential imagination of
Europe’s leaders, and produced the euro – Europe’s common currency
(with aesthetically wretched bills by comparison with most of the
European currencies it replaced!).


The common currency lacked the three elements that could
support it: commonly managed European economies, budgets and fiscal
policies (and to add a fourth absent quality, a sensitivity to
history, which would have told them that previous European monetary
unions, of which there have been several more limited ones, have
failed for lack of those elements).

The advantages of the euro have been enormous, banishing
currency speculation and saving trillions to the banks and financial
institutions of Western Europe and those who deal with Europe. But
the common currency has robbed Europe’s weaker economies of the
flexibility that their own monies gave them. If Greece, Spain, and
Italy had been able to adjust the values of their currencies against
the major ones, the dollar, Deutschmark, Swiss and French francs, all
would have been well. Those countries would have retained their
export competitively and indeed might have gained against the dollar,
weakened by American deficits, despite that printing machine in the
Treasury’s basement.

Germany would have saved its D-mark, which
psychologically speaking, is what all of this has been about in
Germany – no repetition of the Great Inflation of the 1920s! The
Deutschmark, if it had not been replaced by the euro, would dominate
Europe’s monies today and Germany’s manufactures would still have
prospered, but not as much as they actually have done recently, since
the Europeans (and others) buying German goods would have been paying
in francs, lira, and peseta, which like sterling and the dollar
would have fallen in value since the great credit crisis began. But
these customers would nonetheless have been buying, because they
could afford to do so.

(An incidental remark: Is it not possible that some savant could
invent – or reinvent -- a system for the Euro Zone where a constant
euro would nominally exist as an accounting unit against which
individual currencies in the zone could float? Wasn’t the ‘snake’
and Ecu system something like this?)

Returning to the United States, whence the Great Credit
Crisis came, the current debate is ideological, to be sure – neo-
Kenysianism (Krugmanism, shall we say) versus monetarism and the
theory, born in the Austro-American academy, of a market economy in
which an Invisible Hand corrects economic errors, with dispassionate
indifference to the crooked stuff of which humanity is reputedly
made, even capitalist humanity. In this perspective, Republicans say
it needs only to fix certain structural problems that have
unaccountably arisen in the globalized economy, the inconveniences of
which the poor and middle classes will have to put up with (after
all, we are doing it for them, aren’t we?).

The US answer to the crisis is to cut spending on schools, health,
welfare programs (American tea-partiers would add, “for people who
don’t deserve them, and whine about it”), while properly rewarding
the business executives who have made our nation great. The Germans
have been attacking a real problem of profligacy in certain euro
economies. They haven’t made it work, but it’s not crank theory.

© Copyright 2012 by Tribune Media Services International. All Rights
Reserved.