The EU becomes the disunited bailout union

The European Project, as it is known, has been treated as an almost sacred process by the continent’s elite. Nothing — certainly neither fiscal responsibility nor popular sovereignty — should be allowed to stand in the way of creating a united Europe like the dominating American republic across the pond.

No doubt European cooperation has had beneficial effects. However, the negatives have become ever more evident.

Brussels has aped Washington by hosting a growing bureaucracy dedicated to micromanagement and social engineering. An Eurocratic elite, made up of the usual gaggle of politicians, academics, journalists, businessmen, bureaucrats and related folk, is determined to create a continental consolidated government irrespective of the desires of European peoples.

The eurozone crisis has brought the European Project’s failings into bright focus. Where but in the councils of Europe would so many people believe that the solution to an over-indebted nation unable to pay off its debts is to increase its debt load?

The Eurocrats always thought big. In 1992 German Chancellor Helmut Kohl predicted “creation of what the founding fathers of modern Europe dreamed of after the war, the United States of Europe.”

The eurozone was added in 2001. The more thoughtful Eurocrats realized that establishing a monetary union without joining fiscal policy created dangerous incentives for irresponsible fiscal behavior. However, this flaw was seen as a benefit, since it would offer an additional argument for political integration.

When Greece, with one of the continent’s most corrupt, least efficient, most sclerotic, least open economies, adopted the euro, everyone knew they were lying about their budget numbers. But no one cared.

Athens borrowed at German interest rates but spent at Greek speed. With a fixed exchange rate relatively high-cost Greeks could not compete with relatively low-cost Germans. Someone finally noticed what was going on and realized that Athens probably couldn’t cover its debts. All sorts of riotous fun ensued.

There were numerous villains. The Eurocrats knowingly created a potentially unstable monetary union without a fiscal union. The Greek people wanted the good life without paying for it. The Greek political establishment found someone else to pay for it, while profiting mightily along the way.

Banks and governments lent money to the Greeks at near-German interest rates. The French and German governments used their taxpayers’ money to bail out their banks in the name of helping the Greeks.

The International Monetary Fund broke its own rules to back two unsustainable Greek bailouts. The European Central Bank abandoned fiscal responsibility to subsidize heavily indebted states. Syriza imagined that more government spending, taxing and regulating would generate economic prosperity.

The bailout of 2010 was followed by another in 2012. Greek debt rose while the Greek economy shrank and unemployment rose. The established political parties imploded. In January, Syriza won a near majority promising to reduce debts and increase benefits.

With the second bailout officially expiring at the end of June, the continent turned squabbling into a fine art. After negotiations broke down the ECB shut off the credit line for Greece’s banks, bringing the economy to the brink of disaster.

Greece’s Prime Minister Alexis Tsipras was stuck between his promises to reduce Greece’s debt and stay in the eurozone and called for a referendum. More than 61 percent of Greeks voted against more austerity while assuming Europe would come around to paying for the benefits they’d come to expect. When the Europeans still said no, Tsipras capitulated, agreeing to a new bailout with even tougher conditions.

Now everyone in Europe hates everyone. Most of the other 18 eurozone members demanded tougher conditions on Greece. France and Germany broke their entente over how to treat Athens.

The Greek people were betrayed by another government. The IMF broke with the ECB and European Commission. Greece’s Syriza party risked collapse. The Left discovered that political centralization now meant austerity topped redistribution. Most important, the Eurocrats again proved that the desires of the people of Europe don’t matter.

Even if the third bailout is implemented, the latest episode of “extend and pretend” seems doomed to fail. Greece’s debt will hit 200 percent of GDP. Another Greek crisis is coming.

What of the European Project?

The European Union looks impressive but remains hollow. No one other than the Eurocratic elite believes in the EU. And no one would fight for Brussels, not even the Belgians, who have barely held their own nation together.

The eurozone debacle may be only the start. In the future the debate on the continent may increasingly be about how fast and far to roll back “Europe.”

Doug Bandow, a senior fellow at the Cato Institute, is the author of a number of books on economics and politics.

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