Why the eurozone is still headed for total disaster
For a few months in 2015, U.S. writers paid rapt attention to eurozone politics.
It seemed like tiny Greece was going to force European elites to finally fix some of the crippling defects with the currency area. Left-wing Syriza, led by Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, leveled a challenge to the German-dominated eurozone grandees. With the economic situation in Greece worse than the Great Depression — very obviously the result of elite-imposed austerity — and much of the rest of the currency area doing only somewhat better, they demanded an end to austerity and a return to growth and shared prosperity.
Alas, the hopes of internationalist leftists worldwide were crushed.
Elites, mainly through the European Central Bank holding a gun to the head of the Greek banking system, forced Syriza to capitulate and give up their reform program even after they won a popular referendum. Varoufakis resigned, Tsipras seemed content serving as a local administrator for an economic empire run by eurozone technocrats, and politics settled down.
However, the lull is only temporary. The political force of anti-austerity is still there, just waiting to be picked up by a sufficiently bold political movement. If the technocrats are lucky, it will be a better-prepared left-wing movement. If they aren't, it will be fascists.
Varoufakis is out with a new book trying to pave a way out of the continuing crisis, and by his account the various eurozone grandees were totally uninterested in any substantive argument. Instead nearly all "discussion" was centered around how to coerce Greece into accepting technocrat domination:
Prearranged communiques, prefabricated votes, a solid coalition of finance ministers around [German Finance Minister Wolfgang] Schäuble that was impenetrable to rational debate; this was the order to the day and, more often, of the long, long night. Not once did I get the feeling that my interlocutors were at all interested in Greece’s economic recovery while we were discussing the economic policies that should be implemented in my country. [The Guardian]
It's a somewhat self-serving narrative, but it rings true. Basically every major economic policy decision made in the eurozone since 2010 has been utterly deranged by academic standards, and the ensuing disasters have arrived exactly as predicted. If someone wanted an example of management by a bunch of irrational incompetents immune to rational argument, the eurocrats could scarcely have done a better job if they tried.
What's more, the eurozone has only barely improved since Syriza was cudgeled into submission in 2015. Eurozone GDP growth briefly nudged a pitiful 0.6 percent in early 2015, and has since fallen back down to 0.3 percent. Unemployment in Greece is still over 24 percent. In Spain it is nearly 21 percent. In Portugal it is over 12 percent. In Italy it is nearly 12 percent.
And in the meantime, the Syrian refugee crisis has added another screaming emergency to an already teetering system. Though to be fair, this crisis has been shouldered much more equally than the economic one, some of those same hardest-up countries — particularly Greece and Italy — have had the worst of it.
So countries suffering a second Great Depression, imposed from outside because of rancid politics and blinkered ignorance, have now been forced to deal with hundreds of thousands of foreign refugees. Traditionally, that's how one develops a severe case of right-wing extremism.
Even the core of the eurozone economy, Germany, is now looking distinctly winded. The developing world has been going through an economic rough patch, and so they're buying a lot less high-quality German exports — a situation that could continue indefinitely, as places like China transform from a manufacturing export-led growth model to a consumer-led one. Incidentally, that's something Germany itself could stand to try — its workers are among the lowest-paid in Europe, and some domestic growth and spending might help quell the electoral gains by the German far right, which has been energized by the over one million refugees entering the country over the past year. (Will they do this? Haha! Of course not.)
At any rate, all this is to say that any political-economic structure which cannot mend extreme depression conditions will either reform or collapse eventually. The failure of Varoufakis' attempt to convince the eurocrats has simply foreclosed one potential route. At this point I would typically urge the eurocrats to see sense, but frankly there is no reason to expect this. Some future movement, perhaps in Spain or Greece, or perhaps even in Germany or France, will eventually break the austerity straitjacket, and overthrow eurocrat control. It's only a matter of time and will.