When the euro was introduced in 1999, there was a brief discussion among the EU member states regarding which portraits would be given a place of honor on the face of the crisp new euro bills.
Would Bismarck join George Washington, Queen Elizabeth and Emperor Hirohito as a leading visage of global moolah? Charles de Gaulle? Gina Lollobrigida?
Alas, our friends in the Old World could not reach a consensus on this contentious issue. So they commissioned a graphic artist to noodle up some computer-generated images of non-existent bridges and buildings to adorn the euro notes. In other words, the renditions of modern Europe engraved on the euro are fakes.
It now appears the European currency and the Euro Zone it represents also are not reality-based. The entire artificial edifice of European unity seems poised to break apart under the crushing weight of a self-inflicted debt crisis.
The global financial disaster has exposed deep fissures within the EU. These tectonic cracks have existed in the foundation of the grand European experiment since its beginning. The anomaly inherent in the creation of an economic union without a unified political, cultural or financial core has hidden in plain sight for decades, like a defective gene programmed to spin out of control and metastasize. It can lie dormant for decades, but eventually it will destroy its host.
The Europeans managed to convince each other to lash their nations to a common currency, but they never had the stomach to integrate all of the other essential elements of a unified financial system. So there were no unified government policies on borrowing, no unified regulations, no unified growth strategies and a central bank in name only, without the adequate capital or credibility to shape monetary policy across the continent.
And there was no political union, without which none of the above could be enacted. The faceless bureaucrats who convene periodically in Brussels have the combined political muscle of a soggy sprout. The first full-time president of the new European Council, Herman What’s-His-Name, is nowhere to be seen as the elected leaders of Germany and France now chew the scenery in what may be the final act of the tragicomic farce that is the Euro Zone.
The EU member states who have had the misfortune to be the first to catch the fiscal contagion — Greece, Portugal, Ireland, Spain and Italy — are being instructed to consign their citizens to years (perhaps decades) of economic stagnation in order to bail out the feckless European banks that have piled up an Alpine mountain range of sovereign debt.
What they really are being asked to do is sacrifice their futures to preserve the myth of European unity.
Under normal circumstances — e.g., before the existence of the euro — any nation confronted with a combination of deflation and crushing debt would immediately devalue its currency, making its exports cheaper. It would then begin the arduous task of growing its way out of disaster. This is Global Economics 101 (see South Korea, circa 1997, or Argentina, circa 1999).
This cure is not possible with a single, pan-European currency. So Greece, et al must pay the price. Unless, of course, the Greeks decide that their national interest outweighs the benefit of being part of the Euro Zone.
It’s not hard to figure out what they would choose. This is why Angela Merkel and Nicolas Sarkozy are furiously threatening to kneecap George Papandreou if the Greek prime minister does not cancel his plan to hold a referendum permitting his people to decide whether to accept the EU’s bailout plan.
As this is being written, Papandreou appears to be capitulating, his tenuous hold on his job hanging by a single vote in the Greek parliament. Perhaps his successor will be made of firmer stuff. Greece, after all, is the birthplace of democracy.
Frau Angela and Monsieur Nicolas can see the handwriting on the Parthenon wall. Sarkozy, who has threatened to expel Greece from the Euro Zone if it rejects the European terms of economic surrender, must already feel the sharp end of his petard. Surely he knows that the day after Greece puts this matter to a vote of its people, it is the Euro Zone rather than Greece that probably will head for history’s exit.
Would the end of the Euro Zone and the return of drachmas, francs, liras and deutschmarks really be a bad thing?
We’ve heard all the dire predictions of an Armageddon-sized global fiscal meltdown in the wake of a European crackup. Panic is in the air. But does anybody really think China, currently sitting on about $3 trillion in cash reserves — most of it in U.S. dollars — will let the whole thing collapse?
It would be very messy and painful for some, but perhaps the end of the euro would force everyone to abandon the notion that some sort of centralized triage can preserve a system that clearly has failed. Perhaps it will open our eyes to the reality that nations, just like their banks in an unfettered market, always will adhere to self-interest.
Much as we’d like to, we can’t pretend that human nature and the laws of physics don’t exist. Nothing is too big to fail and entropy can’t be reversed by artificial inflation. Bailouts and phony balance sheets only postpone the inevitable.
Europe has gone belly up and the U.S. is teetering on the brink. The age of competing mega-currencies is coming to an end. The colonial empires of finance are going the way of their geopolitical predecessors. As the little message in the fortune cookie says, those who refuse to learn from history are doomed to repeat it.
Before we run out of cliches, here’s one more:
It’s time to make money the old-fashioned way — earn it.