Yesterday, Walter Russell Mead wrote about and quoted George Soros on the subject of Europe and its economic fate:
Regular readers know that while I disagree with George Soros on a number of points, I find him to be one of the keenest observers of world events. And of all the subjects on which George is brilliant, Europe is perhaps his best….
In a speech recently given in Trento, Italy, George lays out his vision of the crisis of the European Union and the prospects for its recovery….
The first third is a rehash of some basic concepts that George uses to distinguish between the social sciences and the natural sciences….
Once he’s worked through this concept, George turns his attention to what went wrong in Europe — and to what could be done about it. In a nutshell, he says that the Europe of the last twenty years was a kind of bubble: it was a “fantastic object” — something that was so alluring and attractive that people behaved as if it existed even though in fact it did not.
Now that the financial crisis (which George diagnoses as both a sovereign debt crisis like the third world debt crisis of 1982 and a banking crisis) is upon us….
And what does the world’s most successful financial investor thinks will actually happen?
But the likelihood is that the euro will survive because a breakup would be devastating not only for the periphery but also for Germany… So Germany is likely to do what is necessary to preserve the euro – but nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired peoples imagination. It would be a German empire with the periphery as the hinterland.
Today, Mead writes:
After months upon months of fruitless back-and-forth over the Eurozone crisis, as Greece and then Spain brought the continent ever-closer to the brink of catastrophe, the signs of a coherent German policy are beginning to emerge. The Wall Street Journal reports:
Germany is sending strong signals that it would eventually be willing to lift its objections to ideas such as common euro-zone bonds or mutual support for European banks if other European governments were to agree to transfer further powers to Europe….
Unfortunately, the end result is still anything but foreordained. The French, for their part, have balked at the kind of loss of sovereignty over fiscal matters that the Germans are demanding here. And the fact that this kind of sweeping change would require the rewriting and re-ratification of scores of EU treaties means that no solution is immediately at hand, even if all of Europe’s leaders agree to a solution. It’s not at all clear that markets will give Europe the time its sclerotic political process needs to work through — and it’s even less clear that all the other EU countries will sign up for Germany’s new plan.
But a step forward is a step forward, and given the stakes, any sign of life from Europe’s political leadership is to be welcomed.
…Pal expects a series of sovereign defaults, the “biggest banking crisis in world history”, and asserts that we don’t have many options to stop it.
A note on the presentation; the last slide is not meant to suggest that we’re going back to the economic activity of 3000 years ago. It refers to the 3000 year old trade links between the nations along the Indian Ocean, which Mr. Pal believes will be the center of world’s opportunities. Just like the West 50 years ago, they have “…low debts, high savings and a young population”….
Read it and … panic? I link, you decide.
The Causes of Economic Growth
In the Long Run We Are All Poorer
Mr. Greenspan Doth Protest Too Much
A Short Course in Economics
Addendum to a Short Course in Economics
The Price of Government
The Price of Government Redux
As Goes Greece
Ricardian Equivalence Reconsidered
The Real Burden of Government
The Illusion of Prosperity and Stability
Estimating the Rahn Curve: Or, How Government Inhibits Economic Growth
The Deficit Commission’s Deficit of Understanding
The Bowles-Simpson Report
The Bowles-Simpson Band-Aid
The Stagnation Thesis
Taxing the Rich
More about Taxing the Rich
America’s Financial Crisis Is Now
Money, Credit, and Economic Fluctuations
A Keynesian Fantasy Land
The Keynesian Fallacy and Regime Uncertainty
Why the “Stimulus” Failed to Stimulate
The “Jobs Speech” That Obama Should Have Given
Regime Uncertainty and the Great Recession
The Real Multiplier
Vulgar Keynesianism and Capitalism
Why Are Interest Rates So Low?
The Commandeered Economy
Stocks for the Long Run?
We Owe It to Ourselves
Stocks for the Long Run? (Part II)
Estimating the Rahn Curve: A Sequel
In Defense of the 1%
Bonds for the Long Run?
The Real Multiplier (II)
Lay My (Regulatory) Burden Down
The Burden of Government
Economic Growth Since World War II
More Evidence for the Rahn Curve