Euro­pean Union: R.I.P.?

The Washington Times Weekly - - Commentary - Pat Buchanan

When com­mu­nism col­lapsed in Moscow, Prague and Bel­grade at the end of the Cold War, eth­nic na­tion­al­ism surged to the sur­face in all three na­tions and tore them apart into 24 coun­tries.

Eco­nomic na­tion­al­ism is now resur­gent across Europe. And it is hard to see how a transna­tional in­sti­tu­tion like the Euro­pean Union, run by face­less bu­reau­crats, and the 16-nation eu­ro­zone it cre­ated long sur­vive.

As of Nov. 29, Greece and Ire­land had been bailed out, Greece with $145 bil­lion, Ire­land with $89 bil­lion. All eyes have now turned to Ibe­ria, to Por­tu­gal and Spain, where bond prices are sink­ing and in­ter­est rates are ris­ing, and in­vestors are ey­ing the ex­its.

The stock and bond sell-off across Europe tes­ti­fies to a be­lief that this storm is far from over.

Why can­not a se­ries of bailouts, cob­bled to­gether by the EU and In­ter­na­tional Mon­e­tary Fund, con­tain these se­rial crises?

Two rea­sons: pop­ulism and a re­turn of eco­nomic na­tion­al­ism.

Con­sider two telling com­ments from the Ir­ish about the terms of the bailout of their coun­try.

“(S)enior bank bond­hold­ers are to be pro­tected, while the low­est paid and those most vul­ner­a­ble peo­ple de­pen­dent on pub­lic pro­vi­sion are to be cru­ci­fied,” said trade union leader Jack O’Con­nor.

“I think the govern­ment should de­fault on the bonds,” said writer Va­lerie Wil­son. “We are suf­fer­ing so the bond­hold­ers don’t suf­fer. It’s cap­i­tal­ism gone mad.”

Trans­la­tion: Put Ir­ish peo­ple first, be­fore any for­eign­ers hold­ing bonds.

An­gela Merkel, whose Ger­many is fronting much of the bailout money, has been de­mand­ing that bond­hold­ers take a hair­cut, lose some of the face value of their bonds, in all fu­ture bailouts.

The EU agreed to con­sider it for all bailouts af­ter 2012. But we may not get there be­fore ner­vous in­vestors de­cide to dump their bonds first and the Euro­pean house of cards comes crash­ing down.

For if bond­hold­ers know they will be among the first vic­tims burned in bailouts in 2013, they may sus­pect a singe­ing even be­fore then.

This will im­pel them to start shed­ding the bonds of any nation with deficit and debt prob­lems, which will deepen those deficit and debt prob­lems.

While the EU-IMF bailout fund is now suf­fi­ciently flush to han­dle a Por­tu­gal, Madrid has an econ­omy twice the size of Greece, Ire­land and Por­tu­gal com­bined.

If Spain is forced into a bailout, and Italy, which has a huge debt, tot­ters, a Euro­pean panic is on, and a global panic may not be far be­hind.

More­over, the Ger­mans, who will have to cough up more eu­ros for any new fund to res­cue the gov­ern­ments and banks of na­tions that are nei­ther as con­sci­en­tious nor work as hard as they, are fed up with bail­ing out the La Dolce Vita na­tions of Club Med.

If Merkel does not mir­ror the mood of her peo­ple, her CDU could find it­self out in the cold.

These bailouts come with painful con­di­tions.

The gov­ern­ments res­cued must cut deficits and debt, which trans­lates into cuts in pub­lic salaries and ser­vices af­fect­ing the mid­dle classes, stu­dents, the vul­ner­a­ble and the poor.

Yet though the time of aus­ter­ity has only just be­gun, there have been mass protests in Dublin, ri­ots in France, an­ar­chist as­saults on Tory Party head­quar­ters in London and lethal vi­o­lence in Athens. And while aus­ter­ity may be nec­es­sary to re­store fis­cal and fi­nan­cial health, aus­ter­ity alone can­not re­store pros­per­ity. That will take years. Which re­turns us to the char­ac­ter of the peo­ple of Europe upon whom these strin­gen­cies are be­ing im­posed.

How long will Greeks, Ir­ish, Por­tuguese, Span­ish, Bri­tish, French and oth­ers, fac­ing a sav­aging of so­cial safety nets, ac­cept aus­ter­ity, with­out search­ing for pop­ulist can­di­dates and par­ties who will de­fault on the debt and let banks go un­der?

Why not break free of the dis­ci­pline of the euro, re­store the old na­tional cur­rency, de­value and stiff the cred­i­tors? Ar­gentina did it.

If one or two of these coun- tries, even the smaller ones, de­fault, Amer­ica may not be di­rectly af­fected, as we own lit­tle of the debt of these coun­tries. But what if the big banks of Europe face wipe­outs of cap­i­tal and eq­uity due to de­faults?

Are Amer­ica’s banks so well in­su­lated from Europe’s that their end of the boat can sink and ours stay afloat?

The Credit An­stalt cri­sis of 1931 leapt from Aus­tria to Ger­many to Ja­pan to Bri­tain to the United States.

How long will Ger­mans play the “good Euro­peans” and use their sav­ings and a solid credit rat­ing earned through years of sac­ri­fice to bail out dead­beat na­tions whose wel­fare states are more lav­ish than their own? Af­ter con­stant rep­e­ti­tion, the Three Mus­ke­teers’ slo­gan of “all for one, and one for all” can get rather tire­some.

Hav­ing seen how the Asian cri­sis of the 1990s leapt from coun­try to coun­try and con­ti­nent to con­ti­nent, it is hard to be­lieve the Euro­pean debt-de­fault cri­sis stops with Ire­land and Greece.

As Dubya once said, “Boys, this looks like a five-spi­ral crash.”

Pat Buchanan is a na­tion­ally syndi­cated colum­nist.

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