In my last post (What Is The Cost To Europe Of Individual Actions?) I looked at the apparent movement of money out of Greece and into potentially safer locations. That is, of course, only one form of individual action.
This weekend has seen another sort of individual action which has the collective power to cause economic disaster: voting.
The results from France and Greece provide for further rounds of potential trouble in the eurozone crisis.
While France is the bigger economy, it is in much better health at the moment, so should this weekend’s election cause problems, they ought to be much further into the future. However, if increased spending leads to debt problems in France – and the indicators seem to suggest that the economy is slowing – they will be very big problems. Quite simply, the euro and the EU cannot afford for their to be economic problems in France. When I say, “the EU”, I don’t just mean that problems could be a pain for policy wonks in Brussels to deal with, I mean that the future of Europe could be at stake.
In the shorter term, the possibility of renegotiating the fiscal compact will appeal to no-one. Since virtually everyone has come to agree that the compact achieves very little, despite the effort that went into it, there seems to be little point in raising the subject. But still, it is symbolic. The real problem is that it will simply be a distraction from solving the actual crisis, while reminding the markets just how difficult it is to reach a political agreement between member states and how far Europe remains from a solution to the crisis.
The Greek tragedy continues
More immediately, the election results look like they will throw Greece into another round of chaos. On one level, it would seem reasonable that voters may not worry about the threat of default since Greece is already broke. Why not vote for an anti-austerity party?
I have no doubt that the average Greek voter is going through some very real pain right now and would like for it to stop. However, the country has been shielded by it’s continued membership of the euro. If Greece is forced to exit the eurozone – and an anti-austerity result would seem to increase that possibility – then the devaluation that would likely follow would be a much more painful experience. By voting for an end to today’s pain, the Greek electorate may be causing much worse pain tomorrow.
This is the natural reaction to hard times from an electorate. When things don’t seem to be going well, a change may be in order. However, looking at the changes being voted for, it is not clear to this blogger that they are a step in the right direction. The discussion between austerity and growth is a vital one, but it is not clear that governments have much to add to it. With the best will in the world, I find it difficult to imagine that French politicians are the right people to stimulate growth. Is any politician?
Individuals hold the key to European economic recovery
The Keynesian approach of allowing governments to borrow and spend during a downturn is well known, but it is reliant on repaying debt during the good times. Since the good times caused a boom in borrowing, it is not clear why the downturn should still enable governments to spend. All that debt leaves government with the job of balancing budgets to repay it.
Growth is the job of small companies that can hire staff, make profits and drive the economy forward. To assist that, governments need to cut red tape and make their nation more start-up friendly. I don’t recall hearing or reading anything substantial about that in the French presidential race (though with my French, there is a limit to comprehension in place).
The individual actions needed across Europe are not making protest votes or waiting for a politician to make things better. They are for bright people to put their ideas into action and start their own companies. If things go well, they have created an economic opportunity that can provide for themselves and hopefully their family. If things go really well, they can create one or more jobs for other people, pay some taxes and spend some money in the economy.
Can the politicians promote that instead of renegotiating?financialguy