Why Eurozone Scare-Mongering Appeals To The Worst In Us

READER SUBMISSION – No one knows for sure what’s going to happen in Europe. But to suggest that a disorderly exit in Greece is inevitable, followed by the almost certain exit of Spain and Italy, seems hugely irresponsible given what’s at stake in Europe.

READER SUBMISSION – No one knows for sure what’s going to happen in Europe. But to suggest that a disorderly exit in Greece is inevitable, followed by the almost certain exit of Spain and Italy, seems hugely irresponsible given what’s at stake in Europe.

I read with great interest the recent piece featured on EconomyWatch.com entitled ‘World in Denial: Why The Eurozone’s Woes Are Worse Than We Think They Are,’ by Christopher T. Mahoney.

In this piece, Mr. Mahoney argued variously that, first, the Eurozone response to its debt crisis has been not inadequate but actually non-existent, to the extent that European leaders can be compared to Adolf Hitler in the final days of World War II, feverishly fantasising an alternate reality in which he has no problems, and his defeat is not inevitable.

Second, Mr. Mahoney posits that the collapse of the European financial system is in fact inevitable, following an election in which Greece tumbles out of the currency with no alternative, followed by Spain and Italy, and the coming down of the whole house of cards.

He suggests no alternative: in this vision of things, the only responsible thing to do is to agree an immediate breakup plan (which, of course, Eurozone politicians have not thought to do, because according to them there’s no problem, everything is hunky dory.)

In this rebuttal piece, I would like to take issue with each of Mr. Mahoney’s points, and further argue that combined they amount at best to scare-mongering, which is an entirely inappropriate response to what’s befalling Europe, given what’s at stake.

In his piece, Mr. Mahoney argues that “the global situation today” can be described in terms of the delusions of Japan’s Imperial Cabinet following the Asia-Pacific War, in which in spite of the overwhelming odds facing them, Japan would be fine because “no enemy could set foot upon the country’s sacred soil.”

This is to suggest that the world, not least Europe’s policy makers, have not just acted inadequately in the face of the debt crisis, but constructed an alternate reality for themselves in which there’s no crisis whatsoever. Is this the case?

Take for instance comments from German Chancellor Angela Merkel just this morning:

[quote]“If the euro fails, Europe fails… We need not just a currency union; we also need a so-called fiscal union, more common budget policies. And we need above all a political union.”[/quote]

Or these comments from European Commission president Juan Manuel Barroso, from yesterday:

[quote]”We must recognise we have a systemic problem. We need a vision and a concrete path… We are now in a defining moment for European integration.”[/quote]

These are not the words of politicians pretending they don’t have a problem.

Of course, this isn’t to suggest that the Eurozone response to the debt crisis to date has been adequate. That’s far from the case. But to argue that Europe has not done enough, and to argue that Europe pretends it doesn’t have a problem, as Mr. Mahoney does, are two completely different things. The second is to suggest Europe’s politicians are monstrously negligent, which they are not.

Second, I would like to take issue with Mr. Mahoney’s vision of things to come in the Eurozone. He argues that, regardless of the result of Greece’s forthcoming election “a disorderly eurozone exit, default, and currency redenomination will follow” [my italics.] Is this the case? Is it true that Greece election this Sunday is in fact a waste of time, insofar that regardless of the result, a euro exit will follow?

That seems to me to ignore the very point of the current market uncertainty about Greece, which is that no one knows what’s going to happen. If a Greek exit were written in stone, as Mr. Mahoney seems sure, the markets would already have factored it in. Instead, the effect of Mr. Mahoney’s writing “will”, instead of “might” or “could”, is to reinforce a point he hints at throughout his piece, which is that the Eurozone is effectively doomed.

Now, I don’t know what’s going to happen in Europe. No one does. But to suggest that a disorderly exit in Greece is inevitable, followed by the almost certain exit of Spain and Italy, seems to me hugely irresponsible given what’s at stake in Europe. We’re talking about massive disruption and potential suffering in the lives of 350 million people. Is that something we should be characterising as a dead certainty, especially in a market situation where, the worse things look, the worse things get?

This for instance is the reason the Eurozone has not publicised any contingency plans it might have. At one point in his piece, Mr. Mahoney complains, “There are no safeguards, no plans, no roadmap – nothing.”

But could you imagine the market panic if Jose Barroso or Angela Merkel held a press conference one day, handing out euro breakup plans? That more than anything would instigate an immediate crisis and collapse of the system.

[quote]In other words, you can’t go around talking as though the worst is going to happen, because it just creates fear. That’s especially true if you’re in a position of power, but it’s true for us all, in that each one of us forms a part of the political debate. It’s irresponsible because, as we’ve seen in Greece and Spain and every day for the last two years, the terms of the discussion can have a real and immediate impact on the lives of millions of people. We owe it to each other to take more care.[/quote]

In short, if Mr. Mahoney had been less intent on scare-mongering, he might have included some points to the contrary of his apocalyptic vision. He might have noted, for instance, that the vast majority of Greeks favour remaining in the euro, which looks set to limit the actions of any future government. He might have noted that, though Greeks are preparing for the worst by withdrawing hundreds of millions from ATMS, the latest polls show support of pro-bailout parties rising. He might have noted that life, itself, is not a series of acute crises.

There’s nothing inevitable about what’s going to happen in Europe. Why you’d want to suggest otherwise, and especially suggest that the worst possible scenario is the most likely, I can’t understand.

By Peter Lavelle

Peter Lavelle is an economist at . Lavelle contributed this piece as a rebuttal to “World In Denial – Why The Eurozone’s Woes Are Worse Than We Think” published on EconomyWatch.com on 12^th June 2012.

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