Euro Fools Can't Solve Their Own Problems but Tell Israel What to Do

UPDATED 11-21-2011 See at bottom.

The Eurozone countries, the 17 that use the common euro currency, have failed to solve their own economic problems and their solution for Greece's debt crisis in 2010 only made the situation worse. This has been obvious for a long time. Some economists even foresaw that the solution put into practice in the Spring of 2010 would only make the situation worse. The mistakes were so obvious that even the usually rock-headed Obama supporter, Paul Krugman, sumarizes the mistakes in his column in the Int'l Herald Tribune & The New York Times.

If it weren’t so tragic, the current European crisis would be funny, in a gallows-humor sort of way. For as one rescue plan after another falls flat, Europe’s Very Serious People — who are, if such a thing is possible, even more pompous and self-regarding than their American counterparts — just keep looking more and more ridiculous.

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at this point, Greece, where the crisis began, is no more than a grim sideshow. The clear and present danger comes instead from a sort of bank run on Italy, the euro area’s third-largest economy. Investors, fearing a possible default, are demanding high interest rates on Italian debt. And these high interest rates, by raising the burden of debt service, make default more likely.It’s a vicious circle, with fears of default threatening to become a self-fulfilling prophecy. To save the euro, this threat must be contained. But how? The answer has to involve creating a fund that can, if necessary, lend Italy (and Spain, which is also under threat) enough money that it doesn’t need to borrow at those high rates. Such a fund probably wouldn’t have to be used, since its mere existence should put an end to the cycle of fear. But the potential for really large-scale lending, certainly more than a trillion euros’ worth, has to be there. And here’s the problem: All the various proposals for creating such a fund ultimately require backing from major European governments, whose promises to investors must be credible for the plan to work. Yet Italy is one of those major governments; it can’t achieve a rescue by lending money to itself. And France, the euro area’s second-biggest economy, has been looking shaky lately, raising fears that creation of a large rescue fund, by in effect adding to French debt, could simply have the effect of adding France to the list of crisis countries. . . . You see what I mean about the situation being funny in a gallows-humor fashion? What makes the story really painful is the fact that none of this had to happen.

Think about countries like Britain, Japan and the United States, which have large debts and deficits yet remain able to borrow at low interest rates. What’s their secret? The answer, in large part, is that they retain their own currencies, and investors know that in a pinch they could finance their deficits by printing more of those currencies.

If the European Central Bank were to similarly stand behind European debts, the crisis would ease dramatically. Wouldn’t that cause inflation? Probably not: whatever the likes of Ron Paul may believe, money creation isn’t inflationary in a depressed economy. . . . . But such action, we keep being told, is off the table. The statutes under which the central bank was established supposedly prohibit this kind of thing, although one suspects that clever lawyers could find a way to make it happen. The broader problem, however, is that the whole euro system was designed to fight the last economic war. It’s a Maginot Line built to prevent a replay of the 1970s, which is worse than useless when the real danger is a replay of the 1930s.

And this turn of events is, as I said, tragic. . . . .

Yet that achievement is under threat because the European elite, in its arrogance, locked the Continent into a monetary system that recreated the rigidities of the gold standard, and — like the gold standard in the 1930s — has turned into a deadly trap. Now maybe European leaders will come up with a truly credible rescue plan. I hope so, but I don’t expect it. The bitter truth is that it’s looking more and more as if the euro system is doomed. And the even more bitter truth is that given the way that system has been performing, Europe might be better off if it collapses sooner rather than later.

[ A version of this op-ed appeared in print on October 24, 2011, on page A23 of the New York edition with the headline: The Hole In Europe’s Bucket.]

Those oh so clever Europeans who have solutions for everybody else's problems, can't solve their own. In Greece's case, they gave the country billions in bailout funding but left Greece to borrow money in the open market without a guarantee from the European Central Bank [ECB] or any other institution, like the IMF, that it would back up the loan repayments on Greek state bonds. Hence, the interest rate that Greece had to pay went up and up and Greece obviously could not pay back loans at 40% or higher. Moreover, the solution that the wealthier or more fiscally sound Eurozone states forced on Greece just happened to kill growth in the Greek economy. That too made it impossible for Greece to pay off debt at high interest rates on its own. How come nobody in Euroland foresaw this outcome 18 months ago? If somebody did foresee it, it was not part of the "rescue" plan for Greece. As Krugman says, the Euros took a problem and made it worse. The solution was itself a problem. The remedy made the illness worse. And the foolish Euro physicians who made the disease worse may end up by killing the patient. In light of all this, how can we trust the Euros' proposals for "solving" Israel's problems?? Are the Euro solutions for Israel meant to kill the patient?? Of course, the US State Dept's cures for Israel's problems might be just as deadly as those of the Euros.
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11-21-2011 Barry Rubin wonders why the EU, in the midst of its own dire economic crisis, has just increased its financial aid to the palestinian authority, headed by the corrupt Mahmoud Abbas & Salem Fayyad.
Bat Yeor offers a philosophical explanation of the European Union's Judeophobia & Arabophilia/Islamophilia [here]