Thursday, August 4, 2011

When Compromise Fails

We're in trouble. I'm saying this for quite some time now. Certainly I feel like being in trouble after watching part of my money melt at 0.3% the hour today. Was a hell of a lot of fun !

.. Europeans are great at compromise. We can get 17 parties at a table with 17 different opinions and walk out pretending that the found solution, while not the best, is good enough. According to U.S. media we live in paradise.

And in many respects we are. But sometimes every now and then there's a problem that cannot be solved with compromise.
.. The U.S. debt crisis is not such a problem. All parties agree that debt has to be reduced and the question is just what has to be cut and what (whether, lol) taxes have to be raised. You can find any compromise here and it's (comparatively) ok. Sure, if you don't do anything you obliterate yourself, but anything else is (kind of) a solution.

The European debt crisis is different. There are two opposed positions and a third way that is the 'compromise'. Unfortunately, that third way is by far the worst. Not just for Europe, but every single human on this planet.

Solution #1 is to create a European Super-state; most powerful economic zone on Earth. Sounds great - but not everybody likes that. It means that Germans have to pay for Greek debt. And there are a lot of institutional problems to be solved. We need some kind of constitution, right? Future moral hazard has to be prevented. We would need to have elections.
Getting something like this right is not easy and it does take a lot of time, even if all parties agreed. Of course, they don't. And we don't have time.

Solution #2 is to split the Euro Zone up again. This is a bit easier to do from an institutional point of view. Unfortunately, it also means that a lot of banks go bankrupt and this would probably lead to a world-wide second great depression. But at least this process could be organized.

And then there's the compromise: We chain ourselves together and at the same time split up ... yeah, right.
Now, this is just as bad as doing nothing! The parliaments of countries like Germany, Netherlands, Austria or Finland might soon not allow their governments to spend the peoples' money at the necessary rate to save Greece, Portugal, Ireland, Spain or Italy. And if that happens we have numerous unorganized bankruptcies. This will also lead to a second great depression. Just that we would probably have to invent a new name for this kind of crisis.

Right now, we are going straight for the third way; the holy compromise. But not all problems can be solved by compromise .. We need a tea party: a party that somehow manages to push the own agenda through - any agenda - in a totally undemocratic way.


  1. I was watching CNBC (financial network) commentator during the US debt ceiling negotiations after someone blathered about the need for compromise. He essentially said that compromise can be overrated and ask "how many compromises have they had on Greece? 3? 4? and it's still not solved"
    Is one of your options (#2) to just get rid of the Euro? I.e., keep the common market/community but retreat from the common currency? Is that viable/discussed? I remember the initial skeptics on the Euro; it can't be a complete surprise if it does not make it. In tough times, politicians in sovereign countries don't put central planning ahead of their reelection.

  2. Getting rid of Euro is what splitting up means. Problem is: All those bonds that the banks own are in euro. Means. Right now banks own many, many bonds that are valuable, because Greece & co. said that the owner of the bond will in a few years get the money back.

    Completely switching to another currency doesn't help. It just means that all those bonds are worthless. And that means that the banks are bankrupt. And that means that banks that own shares/bonds of those banks go bankrupt. And then the banks that own shares/bonds of those banks ...

    Suddenly no bank is not bankrupt anymore. Means no consumer can get his money from his bank. Means nobody can buy anything. Means all businesses go bankrupt ...

    Well, it's more complicated than that, but an uncontrolled bunkrupty of Greece & co. is not just a financial melttdown, it is a cultural melddown. And hundreds of thousands would starve and die ...

  3. We're in that terrible alternate universe where King Solomon told the two women that the baby should be cut in half and they both said: "Yeah, ok."

  4. The problem is that burying the Euro would mean bury the whole European experiment, most likely. There's strong centrifugal forces at work at the moment, outside of the Euro crisis too; I'm furious at what the Danish government is doing to Schengen, for example.

    The idea of a European community is too precious to risk it.