EUROPE; SOCIALISM AND THE EURO


Armando Ribas, julio, 2012.

Up to that point, the vices of the system are so much
stronger than the virtues of those who practice it.

Alexis de Tocqueville

In 1937 José Ortega y Gasset in his book “The Rebellion of the Masses” was conscious of the the increasing role of the state in Europe.and so he devoted a chapter to this development.”The Greatest Danger, The State” Needless to say that at that time he had been able to perceive the beginnings of fascism. He was also able to foresee the sort of nationalization coming from the welfare state that is today drowning the European Union under the aegis of social democracy, that is marxism without the “Dictatorship of the proletariat”. That was Bernstain creation.


In that chapter Ortega wrote: The nationalization of life, the intervention of the state, the absorption of of every social spontaneity by the state. The burocratization of life produces its total decay in every case. The wealth decreases and women give birth very little” It is evident that the present European crisis reflects that world view, and notwithstanding, socialism prevails in the area. Hence, unfortunately, it is possible that Schumpeter was right when he predicted the triumph of socialism.


In the recent French elections the socialist Hollande won, facing an assumed rightist, the president Sarkozy, who during his government had public expenditures at the level of 56% of GDP. Notwithstanding that reality, Hollande proposed not austerity but growth. That is, not to reduce public expenditures, and afterwards his proposed solution is to increase taxes for the rich. Apparently he ignores that the recent European experience shows the development described by Ortega. Then we can see the burocratization of life that is reflected in the level of government expenditures that have reached to around 50% of GDP for the main countries of the European Union. That produced the decrease of economic growth that in the decade of 2000, went down to less than 1.0%. And even more, the population growth has also been reduced and the Europeans are then afraid of the moslem immigration.


Of course the budgetary evolution of the countries included in the Euro Zone was different as a result of obvious different fiscal policies, and consequently the relative competitiveness of them was notably different. In spite of this reality, they decided to create the common currency, conceived as a political project. They were not conscious that what is possible in politics, it is not necessarily so in economics. Consequently the European crisis today is facing the overvaluation of their currency for the majority of the countries of the zone.


It is really surprising that the economists, including Mr. Krugman who has even proposed that the United States should learn from the European system, agree that the creation of the Euro was a mistake. They recognize that it is not possible to have a common currency amongst countries that do not have a common fiscal, monetary and labor policies. The logic of the above criterium is uncontrovertible. And even though they have accepted such conclusion, they sustain that it is necessary to maintain the Euro by all means, though they do not say how. They have even considered the Greece leaving the Euro as what they called a dracmageddon.


I do believe then, that in front of those premises, it is not necessary to be Aristotle to realize that they are contradictorials. Hence, the conclusion of that syllogism lacks validity for a common economic policy to sustain the Euro. And this is true in spite of the fact that the rupture of the Euro will have negative consequences at the first instance. But we should have learnt already, that it is not possible to avoid the consequences of our mistakes. That is why I cannot consider that while the creation of the Euro was a mistake, its maintenance could be pure wisdom.


Unfortunately, those who want to keep the Euro, do not know very clearly what are the necessary policies to achieve it. There is the last summit of the European Union in Brussels that has left a vacuum in respect of an agreement concerning the policies to be followed. Notwithstanding that the financial markets have been showing a sort of euphoria. According to The Economist “The summit has been billed as a make or break affair, and that the political leaders have to lay out their vision for economic integration to save the single currency”.And finally The Economist asked if the euphoria is about to fizzle as in the past?


Even though Mrs. Merkel seems to have changed her insistence that help should be given only to governments which have accepted tough fiscal conditions, her position appears not to have been accepted in her own country. But she has not accepted the mutualization of the debt that apparently is needed for the Euro Zone. Mrs. Merkel proposal concerning the austerity need, according to our judgment is essential to overcome a crisis that has been caused by the increase in government expeditures which has made impossible to finance them. And consequently it has created such a level of public debt that it is impossible to pay them as long fiscal deficits remain in the zone.


In spite of the fact that there was not an agreement respecting the a banking union, at least it was accepted the direct financing of the banking system. In our view, that was a learning historical process, as it was clearly explained by Milton Friedman and Charles Kindleberger with respect to 1929 depression. In his book “Free to Choose” Friedman blamed the Washington Federal Reserve for the monetary collapse that worsened the economic crisis for not providing cash to the banks. And in the same line Kindleberger in his “The World Depression” said: The 1929 depression was so wide, so deep and so prolonged because there was no international lender of last resort”.


Well, undoubtedly the Euopean crisis is the final result of socialism, and of course it affects the rest of the world including China. Now the economists including the IMF, seem to be worried because China growth rate this yea will fall to only 7.5%. That is seven times the European growth rate. But even more, I can say that an increase of 7.5% respecting the 2011 GDP that grew 8.5% respecting the previous years almost equivalent in absolute terms to the increase in the year 2011. I insist then that the problem in Europe and also in Latin America is the search for equality, which actually substitutes one of the main individual rights that is the right of men to the pursuance of their own happiness. Let’s remember Lamartine judgment respecting the personality of Marat: “ He loved the people and hated men”.