From a speech by Chas Freeman given in Macau, China, yesterday: Europe used to be boringly predictable, which was good for business. Now bits of it have reverted to being excitingly unreliable, which is bad. Repeated crises have addicted European leaders to summits, where they agree on partial solutions to problems and create new ones, then go home to think up still more ways to unnerve each other and investors. The year ahead seems certain to feature more summits and more Eurotorture of the world’s financial nervous system. The fiscal sobriety and punctiliousness of northern Europeans will not soon prevail over the bouzoukinomics and bunga bunga politics of Europe’s exuberantly irrational and overly indebted south.
More fundamentally, however, as a club of clubs, Europe has just shown itself to be much less than the sum of its far too many movable parts. In some of the clubs that make up Europe, members are seriously tired of each other as well as of the way responsibility is apportioned. The mismatch between the eurozone’s membership and that of the European Union, in particular, makes German creditworthiness, not the EU, central to the credibility of the euro. And there is an obvious contradiction between a bureaucratically administered supranational currency and the democratically exercised sovereign authority of Europe’s many nation-states.
As Greece has just demonstrated, the European project is seriously incomplete and vulnerable to disruption by reckless acts of political brinkmanship. In the absence of Europe-wide democracy, national democracy and multinational community-building no longer seem compatible. Decisions based on local interests, no matter how legitimately they are arrived at, can threaten both pan-European and global interests in market stability and economic revival. Sadly, in many ways, Europe remains more colloquium than commonwealth — more a confederation of small minds and big egos than a federal union of peoples. The incongruities and incompetencies of a still far-from-united Europe have become a problem not just for Europeans but for the world.
The destabilizing effects of financial uncertainty may now be Europe’s most notable export. But the United States seems determined to one-up the perversity of European indecisiveness. Europe has the will to act, but not the political machinery to act coherently. America has the mechanisms and the resources needed to make decisions and implement them. It lacks the wit, the will, and the spirit of political accommodation to do so. In effect, the United States now suffers from fiscal anorexia — economic self-starvation born of an obsession with curing the imagined obesity of government. But America’s civilian public sector is already too lean to sustain the nation’s socio-economic health and competitiveness. The United States is disinvesting in its human and physical infrastructure — consuming its sinews — at the very moment when it most needs to rebuild its strength. India may be the world’s largest functioning democracy but America is now seen everywhere as its largest dysfunctional one.
Ideological delusion, self-indulgence, arrogance, and unbridled greed got America — and the world economy — into their current mess. Devotion to fanciful concepts, despite their catastrophic results when actually applied, has undermined the credibility of the “full faith and credit” of the United States. Many Americans remain wedded to the bizarre notions that the redistributive functions of government are a net drag on the economy, that reducing government investment and outlays will somehow generate jobs, that financial engineering adds real value to the economy, and that unequal income distribution stimulates economic growth. In a less narcissistic political environment, people would laugh at the idea that cutting public spending — and thereby contracting the economy — could possibly create jobs and stimulate growth or that a “SuperCommittee” of the finest politicians that vested interests can keep in office could magically balance a budget that is 40 percent in the red solely by cutting non-defense expenditures, without raising revenues.