Europe has is encountering another canary the mine. The Greeks have voted in a radical Leftist party called Syriza. They won as an opposition to the so-called austerity measures placed on Greece since the 2008 economic meltdown that resulted in it not being able to pay its debt.
The 2008 economic calamity was initially caused by a meltdown in the US mortgage markets. Thhis crisis was not by happenstance or caused by normal market forces. It was inflicted on financial markets worldwide as a result of broad-reaching governmental interventions in the economy. This included bailouts of equity markets and industries when the markets attempted to rebalance supply and demand through normal recessionary action. In addition, central banks, particularly the US Federal Reserve, intervened with artificially low interest rates, again in efforts to forestall the normal corrective market actions through recessions.
As a result of the intervention, not only has the recovery been the weakest since the Great Depression, but at the same time the financial imbalances have not been corrected. Instead, they (the debt) have been moved from the private sector to sovereign debt. The most recent economic manifestations that have now become systemic include the significant turmoil in currency markets. However, a potentially more serious issue has surfaced on the geopolitical front, especially in Europe, where the euro and European Union itself is in jeopardy.
George Friedman of Stratfor.com has published an article titled The New Drivers of Europe’s Geopolitics that offers insight into the current building crisis within Europe that is posted in full below. Friedman’s concludes that “I am focusing on fragmentation partly because it is happening before our eyes” referring to the fragmentation of the European Union. In addition, “The coalition of the Radical Left party, known as Syriza, has scored a major victory in Greece. …. It is drawing along other left-wing and right-wing parties that are united only in their resistance to the EU’s insistence that austerity is the solution to the ongoing economic crisis that began in 2008.”
Friedman discusses two views within Europe as why the financial crisis of 2008 continues in the EU.
- “The German version, and the one that became the conventional view in Europe, is that the sovereign debt crisis is the result of irresponsible social policies in Greece, the country with the greatest debt problem. These troublesome policies included early retirement for government workers, excessive unemployment benefits and so on. Politicians had bought votes by squandering resources on social programs the country couldn’t afford, did not rigorously collect taxes and failed to promote hard work and industriousnes
- The other version that is beginning to gain traction, especially in the poorer European countries is: “The loans German banks made to countries such as Greece after 2009 were designed to maintain demand for its exports. The Germans knew the debts could not be repaid, but they wanted to kick the can down the road and avoid dealing with the fact that their export addiction could not be maintained.”
Friedman points out that problems caused by government-imposed austerity in countries like Greece have been amplified by governmental intrusion into their economies. For example, many workers in fields such as medicine and other services are state-controlled with these workers being employed by governments. Therefore the austerity programs have more significantly affected the middle class then would have been the case had the private sector controlled a larger part of the economy.
Greece cannot repay its debt. This is not only because they barrowed too much capability under normal conditions, but also because with unemployment rates exceeding 20% in many industries, their economy generates little revenue to maintain critical social services, let alone repay debt.
What started as an economic problem caused by excessive debt is now morphing into social issues that are rocking European stability. This is a major theme Friedman’s article as he concludes:
- “Europe’s mainstream political parties supported the European Union and its policies, and they were elected and re-elected. There was a general feeling that economic dysfunction would pass. But it is 2015 now, the situation has not gotten better and there are growing movements in many countries that are opposed to continuing with austerity. The sense that Europe is shifting was visible in the European Central Bank’s decision last week to ease austerity by increasing liquidity in the system. In my view, this is too little too late; although quantitative easing might work for a recession, Southern Europe is in a depression.”
- “Virtually every European country has developed growing movements that oppose the European Union and its policies. Most of these are on the right of the political spectrum. …. The left has the same grievances as the right, save for the racial overtones. But what is important is this: Greece has been seen as the outlier, but it is in fact the leading edge of the European crisis. It was the first to face default, the first to impose austerity, the first to experience the brutal weight that resulted and now it is the first to elect a government that pledges to end austerity.”
- “The issue then is not the euro. Instead, the first real issue is the effect of structured or unstructured defaults on the European banking system and how the European Central Bank, committed to not making Germany liable for the debts of other countries, will handle that. The second, and more important, issue is now the future of the free-trade zo”
- “There are then three drivers in Europe now. One is the desire to control borders — nominally to control Islamist terrorists but truthfully to limit the movement of all labor, Muslims included. Second, there is the empowerment of the nation-states in Europe by the European Central Bank, which is making its quantitative easing program run through national banks, which may only buy their own nation’s debt. Third, there is the political base, which is dissolving under Europe’s feet.”
Friedman is concerned about the specter of war once again raising its ugly head in Europe. Most find this a very improbable. However, the history of Europe has been one where peace has not been the norm. Further, during the Clinton administration there was a war in Yugoslavia and today it is occurring in the Ukraine. Add to this history the toxic mix of economic hardship and what is considered unlikely increases in probability.
Today’s instability of Europe, both economic and geopolitical, has its roots in Progressive activism that created unstable borders and economic rules within the continent. This is similar to what the Europeans created in the Middle East after World War I. The resulting mess in the Middle East has led to decades of violence that continues today. Unraveling the mess the Europeans created within its own borders will be just as complex.
The New Drivers of Europe’s Geopolitics is republished with permission of Stratfor.
The New Drivers of Europe’s Geopolitics, By George Friedman
For the past two weeks, I have focused on the growing fragmentation of Europe. Two weeks ago, the murders in Paris prompted me to write about the fault line between Europe and the Islamic world. Last week, I wrote about the nationalism that is rising in individual European countries after the European Central Bank was forced to allow national banks to participate in quantitative easing so European nations wouldn’t be forced to bear the debt of other nations. I am focusing on fragmentation partly because it is happening before our eyes, partly because Stratfor has been forecasting this for a long time and partly because my new book on the fragmentation of Europe — Flashpoints: The Emerging Crisis in Europe — is being released today. Read the rest of this entry »