Who’s to blame for the euro crisis? Let the Planet Ponzi Rating Agency help you decide
by Mitch Feierstein about 10 years 9 months ago
Jose Manuel Barroso, the President of the European Commission, got snappish when asked about the Eurozone crisis by a Canadian journalist.
‘Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy,’ he said. ‘This crisis was not originated in Europe; seeing as you mention North America, this crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market.’
Hmmm. So evil Americans are responsible for European woes, huh? That’s an interesting claim, but does it really stand up? And who, really, is to blame for this extraordinary mess?
Who’s to blame? World leaders assemble for the G20 summit in Los Cabos, Mexico
In the spirit of Euro 2012, I thought I’d follow a system of ‘player ratings’. I’ve listed the major players in the Eurozone crisis below. A score of 10 implies, ‘Totally to blame. Why are these guys not in jail already?’ A score of 0 implies … well, it doesn’t really matter: there are no zeroes. Who’s to blame for the Euro crisis? Here are the major players with their scores.
1. American Banks 4/10
OK, I’m no fan of the US banking system. US regulators completely failed to enforce their own rules. The banks screwed up horribly and did a vast amount of damage to the the US economy. But there’s the point: they blew up the American finance system, not the European one. Get a map, Manuel. That big blue thing? It’s the Atlantic Ocean.
2. European banks 9/10
European banks, on the other hand, are vastly to blame for the mess in Europe. For one thing, a lot of the mess in the US was created by the US subsidiaries of European banks: outfits like HSBC, Deutsche, RBS. But then Societe Generale, Paribas, Lloyds, Northern Rock, Bankia, Unicredit, Dexia – these are all home-grown awful, and it’s their problems which have added so much to the European debt load.
Star performer: Greece must take full responsibility
3. Greece (Star Player) 10/10
Every team needs a star man, a Steven Gerrard, Captain Reliable character. The Euro-Blame Team has to name Greece as that €500 billion star. It cooked its books. It never even attempted to reform its economy. It doesn’t get its citizens to pay taxes. It offers crazy pensions. Its rail system notches up losses that exceed its sales. It has a mountain of Ponzi debt that, even after vast write-offs, will be unpayable. You can’t beat that performance. Greece: it’s ten out of ten, all the way.
4. Spanish Real Estate 9/10
It wasn’t so long ago that the Spanish state looked prudent. It had debt levels way lower than those of Germany. (Indeed, it still does.) Its economy thrived. It had a team that played beautiful football. What could possibly be wrong with this picture? Answer: a real estate bubble even worse than the one in America and Ireland. A bubble that Spanish regulators never even attempted to address. A bubble that is currently threatening to wreck not just the Spanish government, but the entire Euro project.
Spain is higher up the radar of international investors at the moment, but Italy is a whale of even larger dimensions. In the decade to 2010, do you want to know how many economies had worse growth than Italy’s? Answer: just two. Zimbabwe and Haiti. If you add to that terrible economic performance a mountainous debt and a corrupt and dysfunctional state – well, 8/10 seems way too generous. I must be Mr Nice Guy as it’s sunny in London today. Portugal, by the way, has somewhat similar problems, but the country’s size means I can’t award it more than a 6/10. Think of it as an impact sub.
6. France 6/10
France lies even further from international radars than its two big southern neighbours, but when you think about a highly indebted country with an exceptionally leveraged banking system, gigantic unfunded pension liabilities, an addiction to state spending, and huge assets parked in the not-so-safe countries of the Mediterranean … well, you probably don’t feel like putting your funds on deposit anywhere that smells of garlic. Stay away.
7. The European Central Bank 9/10
The ECB. What can you say? How Ponzi-ish, irresponsible, non-transparent and undemocratic can a central bank be? The answer, it seems, is ‘very’, four times over. The ECB enabled asset bubbles to form in Spain and elsewhere. It permitted a vastly overleveraged financial sector. And its response to crisis: to extend trillions of euros in soft loans to insolvent banks to gamble on dubious bonds issued by failing governments. That’s not monetary policy. It’s monetary insanity.
Damaging to Britain: But can Sir Mervyn King and Gordon Brown really be blamed for the eurozone crisis?
8. Gordon Brown & Swervyn Mervyn King 6/10
If we were talking about how far this pair of superheroes had injured the UK economy, we’d be pulling out perfect tens. But the question here is about the damage to the European economy and although Britain has been saddled with eye-watering debt, hideous inflation, rotten banks and a stagnant economy, those things have only a marginal impact on the Eurozone. That little strip of blue, Manuel? It’s the English Channel. (And don’t call it La Manche.)
9. Angela Merkel 7/10
OK, this is a tough one. Germany has a strong economy. It has weak and overleveraged banks, a scarily under-recognised pension problem, and too much government debt. But still. Angela and team didn’t create this problem, they’ve only compounded it. They’ve compounded it by always choosing to kick the can down the road, instead of addressing and fixing the giant issues in the European system. Germany’s not mostly to blame, but still. It should have done so much better.
10. Jacques Delors 9/10
Jacques Delors, the principal architect of the Euro, has admitted that the project was structurally flawed from the outset. He’s even admitted that British objections to the idea had real substance. (Thanks, Jacques, and it only took you 15 years to figure that out.) Basically, this project could never have worked and now here it is not working. Quelle surprise.
L’homme culpable: European Commission President Jose Manuel Barroso should take a look in the mirror
11. Jose Manuel Barroso 9/10
Manuel Barroso: if you have a mirror anywhere in your €1.4 billion offices, take a look. The person looking out at you is responsible for maintaining and boosting an impossible system. If EU officials had ever had any respect for democracy, this crisis would never have occurred. If the EU had ever recognised the real gravity of the crisis, if it had allocated blame and responsibility in the right quarters and in a timely way, this would never have happened. Manuel Barroso, l’homme culpable – c’est vous.
Meantime, and in light of the football theme of this article, I have a simple, neat suggestion to make everything right. Spain wants to be bailed out by the German taxpayer. German taxpayers, understandably, aren’t all that keen with the idea. But there’s a footie tournament on, right? Spain and Germany: the two favourites. So what about a simple little wager, double or quits according to which team fares better. And that’s a game I’d pay to see.
I published this in todays Daily Mail
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