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Déjà Vu? « Previous | |Next »
September 25, 2011

The powers that be in Europe are readying yet another bailout plan, this one is supposedly big enough to do the trick once and for all. The new rescue program seeks to create a sovereign debt crisis firebreak at Greece, Portugal, and Ireland. Every day its the same kind of news – Greece lurches nearer to a default, the financial markets panic, and governments come up with a few more euros or some soothing words to calm them for a few hours.

In Does the Euro Have a Future? in the New York Review of Books George Soros says that:

In 2008 the US financial authorities that were needed to respond to the crisis were in place; at present in the eurozone one of these authorities, the common treasury, has yet to be brought into existence. This requires a political process involving a number of sovereign states. That is what has made the problem so severe. The political will to create a common European treasury was absent in the first place; and since the time when the euro was created the political cohesion of the European Union has greatly deteriorated. As a result there is no clearly visible solution to the euro crisis. In its absence the authorities have been trying to buy time.

He adds that in an ordinary financial crisis this tactic works: with the passage of time the panic subsides and confidence returns. But in this case time has been working against the authorities. Since the political will is missing, the problems continue to grow larger while the politics are also becoming more poisonous.

He continues:

Under the pressure of a financial crisis the authorities take whatever steps are necessary to hold the system together, but they only do the minimum and that is soon perceived by the financial markets as inadequate. That is how one crisis leads to another. So Europe is condemned to a seemingly unending series of crises. Measures that would have worked if they had been adopted earlier turn out to be inadequate by the time they become politically possible.

The authorities have reached the end of the road with their policy of “kicking the can down the road.” Even if a catastrophe can be avoided the pressure to reduce deficits will push the eurozone into prolonged recession and this will have incalculable political consequences.
Soro adds:
There is no escape from this gloomy scenario as long as the authorities persist in their current course. They could, however, change course. They could recognize that they have reached the end of the road and take a radically different approach. Instead of acquiescing in the absence of a solution and trying to buy time, they could look for a solution first and then find a path leading to it.

The pathway is to give birth to a European treasury with the power to tax and therefore to borrow. This would require a new treaty.

| Posted by Gary Sauer-Thompson at 10:41 PM |