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Sunday, October 9, 2011

On the Euro Crisis

Although this blog is focused on immigration, I have been following the crisis in Europe and will also start sharing some of my thoughts on this issue.  As I tell my students on a regular basis, what happens in the next few months will have ramifications for European integration, global markets, and Transatlantic politics for the foreseeble future. Europe is in the process of dragging the U.S. and other parts of the world into a double-dip recession.
After reading various analyses and following the economic and political manuevers over the last two years it has become clear to me that two underlying factors are important to unerstanding the current situation:

1) the political scene and type of political leadership has shifted dramatically since the passage of the Maastrich Treaty at the end of the 1990s.  This shift began with the election of mostly conservative governments in the early 2000s.  These leaders came to power at a time when voters were rejecting an EU constitution, and a backlash against immigration, multiculturalism, and issues about national identity were driving policy.  European integration was taking a backseat to a revival of nationalist sentiment, often embodied in the rise of far right politicians like Geert Wilders and Marine Le Pen.  Parties like the United Kingdom Independence Party (UKIP) embodied rising Euroskepticism.

It also doesn't help that the most important politician in this developing drama, Germany's Chancellor Angela Merkel, has proven undecisive, and unwilling to take bold measures when needed.  She has left the situation for the IMF, ECB and European Commission to play out, dragging out the Greek default so they can prepare the ground for bailing out the banks that will be damaged.

2) A blind pursuit of integration in late 1990s and early 2000s led European leaders to ignore major warning signs from Greece, even before they joined the Euro.  Others have done a good job of chronicling this mess, and I recommend Michael Lewis' new book Boomerang (and the interview on Fresh Air).  Without any means of sanctioning governments who weren't meeting convergence criteria, the Eurozone left itself open to exactly the scenario we are seeing today, a country which will have to default because there was no fiscal discipline.  I do believe Greece will have to default and leave the Eurozone, but it will be a long drawn-out process, which will leave Europe in an economic mess for years to come.

More later...

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