Someone’s a little touchy about being properly blamed for destroying their own economy. José Manuel Barroso, the President of the European Commission, lit up at critics at the G20 summit in Mexico:
The opening day of the G20 summit was threatening to deteriorate into a fractious row between eurozone countries and other non-European members of the G20, notably the US, as EU commission president José Manuel Barroso insisted the origins of the eurozone crisis lay in the unorthodox policies of American capitalism […]
Asked by a Canadian journalist: “Why should North Americans risk their assets to help Europe?” he replied: “Frankly, we are not here to receive lessons in terms of democracy or in terms of how to handle the economy.
“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.”
Barroso was the former Prime Minister of Portugal. Right next door to him, in Spain, they had an unsustainable housing bubble. I suppose in some sense you can say that European banks learned the practices of securitization and financial fraud from their American counterparts, but that only goes so far until you realize that one of the leading trustees for mortgage backed securities here in the US was Deutsche Bank.
Obviously, US banks played a role in the initial crashing of the economy. But US banks did not tell European leaders to then exacerbate the problem by engaging in austerity that caused a double-dip recession. The European Union had agency on that. They could have also bailed out their people instead of their banks. Instead, they followed the elite course that led to ruin.
And they did this despite knowing that austerity couldn’t work given the situation in which they found themselves. If they didn’t know that two years ago, a simple check of the scoreboard makes it obvious now:
Europe and the UK are committed to austerity, and – not coincidentally – they’ve seen growth deteriorate and unemployment jump (to over 20 percent in Greece and Spain). The figure below, from this excellent – and pretty readable – paper by economist Jay Shambaugh reveals the expected positive correlation between governments that cut spending and slower GDP growth.
Bernstein makes the not-implausible statement that, in the case of many countries, the inability to borrow at affordable rates necessitated the austerity to some degree. But there were, and are, options for that as well. Most of them run through Germany, which has been so scarred by the sins of the Weimar Republic that they cannot see themselves clear to take the necessary steps. Moreover, the real trouble lies in creating a common currency in the first place, when the mechanisms surrounding it were completely unequipped for dealing with any kind of major crisis. Germany having to bail out its neighbors is obviously a distasteful scenario. But it was caused by Germany getting fat off a favorable monetary policy for almost a decade and dominating the Eurozone.
So while I feel for those suffering under the rule of Barroso and people like him, I don’t have much sympathy for the Eurozone leadership and their cascading set of problems. They got themselves into this mess.