Why the European Bailouts?

You are the first commentator I've seen to note that the EU and the Euro project had nothing to do with democracy, was shielded from the democratic process at every step of the way, and is a creature that should matter only to the autocrats who designed it (except of course for the collateral damage that it creates for the peoples who have been subjected to it). Well done.

Arnold, You're on a roll since vacation! Sharp post. Keep 'em comin'.

"I fail to see the connection between the bailouts and the common currency."

I absolutely agree. It was puzzling to hear so many commentators urging the european governments to bail out the greek government in order to "save the euro".

The only connection I see is that the ECB buys greek bonds on the secondary market or takes them as collateral (so long as they are AAA, that is...). This creates a moral hazard, as does the fact that a small country can leverage its banks like crazy, counting on the big central bank to save it. In other words, the euro creates a moral hazard situation, a prisoners' dilemma situation where irresponsible governments are rewarded. That's nothing new.

"My view of the bailouts is that they are primarily to save French and German banks."

This is your insider/outsider narrative applied to the Eurozone.

Interesting, but completely misses Barroso's point.

He's simply saying that these countries may revert back to military/fascist dictatorships if things get too tough.

Seems unlikely but not unthinkable to me.

"I see the primary issue as fiscal imbalances." By 'fiscal imbalance' I think you mean *deficit*. Why do you prefer the more cumbersome term? (And wouldn't a *surplus* also be an "imbalance"?)

A few points.

(i) There is a connection between a common currency and the bailouts. One based around self-interest, another around politics, and another around ego. The self-interest angle corresponds to two reasons. Firstly, Other nations (primarily Germany) don't want a run on their banks. Secondly, other nations do not want a speculative attack on the Euro, particularly a second-generation attack (out of fear countries will depart the Euro in harsh times). The political-based interest is that the Euro is also a political union and I believe they feel almost indebted to helping a fellow Euro country. Which gets to the ego-based point. If they let a few countries fail because they have the Euro, then the European elites must admit the Euro was a failed experiment - something they are unlikely to admit out of hubris.

(ii) You really don't understand the issues with the Euro. The issue of how the debt was denominated is not the key problem. It's a problem, but would be a manageable one in a Greece with their own currency. Greece's debt problems are substantial, but they wouldn't be insurmountable if they had their own currency. If Greece's growth prospects over the coming years were higher they could service the debt and have gradual fiscal contraction. The problem is, they aren't going to have good growth over the next decade. Why? Because the ECB monetary policy is way too tight relative to Greece's economy. If Greece had their own currency they could engage in expansionary monetary policy by devaluing their currency. That would push up inflation expectations, increase competitiveness and increase exports. But they can't do that because they lack their own currency. If they had control over their own monetary policy, Greece would be in much, much better shape and likely wouldn't need any external support of any kind.

(iii) I don't think democracy would end in any of those countries, even with a crisis - but I suppose it's possible and I see no problem citing that as one possible reason of several others that have been cited. The EU is undemocratic in some sense, but it's hardily ending democracy in Europe. Member countries still have strong autonomy.

I use "fiscal imbalance" not to be polite but to be more general than deficit. The current deficit in Medicare is not a big issue. The fiscal imbalance represented by future Medicare benefits that we will not be able to afford is a big issue.