Arnold Kling  

The Bankers' View

Outside Offers, Matching, and ... Do Economists Study Money?...

Robert RubinRoger Altman writes,

How can Europe pull back from this brink? It needs to immediately install a series of emergency financial tools to prevent an implosion; and put forward a detailed, public plan to achieve full integration within six to 12 months.

Read the whole thing. I think it perfectly represents the bankers' view of the world. In that view, the sine qua non is that governments must never default and large banks must never fail. If the sober must bail out the profligate, so be it. If democracy must be sacrificed, so be it.

Make no mistake: under the Rubin scenario there would be no shred of democracy left in Europe. What "full integration within 6 to 12 months" translates into is a bloodless coup transferring power from elected national officials to transnational technocrats. Moreover, there would be no mechanism to undo the transfer. If the technocrats mess up (and there is little basis to expect otherwise), there will be nothing that the hapless European public can do about it.

Have a nice D-day.

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CATEGORIES: Eurozone crisis

COMMENTS (11 to date)
David R. Henderson writes:

The author is Roger Altman, not Robert Rubin.

Bruce Bartlett writes:

You have confused Robert Rubin and Roger Altman.

Eelco Hoogendoorn writes:

Ugh; I fear you are all too correct.

The united states adopted a constitution that explicitly forebode it at every turn to morph into the leviathan it is today.

The EU 'constitution' is quite different. It is pretty much designed to catapult us into the same kind of 'none of these 100s of millions people get anything remotely their way' kind of political union.

Its fascinating to see unfold. The majority of popular support still centers around the technologically obsolete 'but isnt it it convenient not to have to exchange money at the border?' 'argument'. Elite pipedreams aside, nobody (as a percentage of the voting public) seems to want or expect to benefit from this whole thing. Aside from perhaps states such as Greece who will be on the recieving end of the resulting redistribution of wealth. But I do not believe its their small voice that is driving the process.

Its happening at lightning speed nonetheless. Its a fun political-economic puzzle. Just the general democratic too-big-too-fail short time horizon? Pulling out is economic turmoil in the short term, and what democratic politician cares for the monsters that will only mature long after he is out of office?

Or does someone have a better explanation?

Jon Murphy writes:

Well...that was a cheery read.

Kevin writes:

The only appropriate comment to such utter insanity can come in the form of an outdated internet meme...

Yo Dawg, I heard you like waging disastrous wars to defend relative freedom and democracy from tyranny and dictatorship.

So we're instituting a transnational technocratic dictatorship with no 'off switch'.

Doug writes:

Well to be fair, would you bet on whether that overall that living standards in Italy, Spain, Portugal and Greece would be higher or lower if the Northern European governments exercised total control over those countries and the natives had no voting rights?

To me the answer seems pretty obvious. It seems like the only reason that Greece is a bigger dump than Germany is because of the quality of governance. Ipso facto making the government of Germany the government of Greece should solve the problem.

Better yet give control of the entire continent to the Swiss, or even Singapore.

Mike Rulle writes:

Well, this is what Euroocrats have wanted from day one of the Euro. I had half expected, back in the mid to late 90s, that there might be some concerted effort to create a constitutional convention in the 21st century. But the technocrats have always assumed they could take power without going through such a hassle.

It is difficult to state what is more disturbing about Altman's comment; his naive belief that such a union is wanted now or even remotely possible; or, his belief that it is desirable to have forced "integration" in the first place.

The advanced economies are less wealthy than we have thought. We have wasted too much money. Too many windows are already broken. Only when this is accepted and understood can the process of negotiating the distribution of the losses begin---then maybe true focus on growth will follow.

Germany has now begun negotiating with itself. Greece makes some kind of threat they fear will spread to the other "PIGS" and suddenly they are willing to at least consider a Euro-wide guarantee on debt issued. That is one way to distribute at least some of the losses. Altman is right about one thing----Europe (i.e., the Euro) will gradually fade away---or even collapse without some kind of common fiscal and monetary agreement that will hold----who knows, maybe it will--but it seems increasingly less likely.

It is unclear to me why that may not be better in the long run (say 2 to 3 years)----assuming war is avoided. Canada has managed to do quite well with a separate currency from the Giant to its South. After years at a deep discount, the C-dollar has hung around par by not getting trapped by our homemade bubbles.

As an aside, is interesting he also believes it is obvious that the Bush Administration's actions worked. I think they exacerbated the problem.

JoeFromSidney writes:

Reversing situations like that is the reason we have a Second Amendment.

Eelco Hoogendoorn writes:
Reversing situations like that is the reason we have a Second Amendment.

That has been tried, and it didnt work out so well.

All this talk about the dissolution of the Union is humbug -- nothing but folly. We WON'T dissolve the Union, and you SHAN'T. --July 23, 1856 Speech at Galena, Illinois

Or else mister Lincoln? Or else, the best of luck shooting your handguns at tanks and drones.

The states of america are not united by voluntary consent, but by force, and the same will happen to europe. Unless the whole thing comes crashing down, I do not see any plausible way out, for either the US or the EU. Whatever will be decided within the next few months will either be the final nail in the coffin of european states as sovereign entities, or will lead to the dissolution of the euro as a currency. One can hope; I would take the hit to my euro-denominated savings with a smile, but the fact that I still have any says enough about how likely I consider that possibility.

This is what will likely happen: 2 centuries of american history of the erosion of federalism will be crammed into two decades by the forward looking european progressives. We are going to centralize our fiscal policy; german productivity will pay for greek welfare (or rather, that policy will be made permanent), we will have van Rompuy-care in a decades or two tops, and the Poles will be telling the Dutch how to treat their homosexuals long before then. If you think the rules specifying the curvature of bananas are Kafkaesque now, wait till this power trip properly hits our benevolent leaders heads.

Every european I know would recoil in horror at the idea of van Rompuy care, even the good progressives with their Obama t-shirts. They think the idea is absurd, much like I would imagine an 18th century american would have sniggered at the notion. The sad thing is, these europeans will get to see it within their lifetimes.

We will get all insane traits of the US, and I see no reason to expect any of the redeeming factors of the US to come with it.

Africa never looked so appealing a continent...

John Fast writes:

Roger Altman -- not the late film maker -- warns us in his article that if the Euro collapses

A restored German mark would soar in value, like the Swiss franc, and damage German exports and employment.
I am reminded of an episode of Friends ("The One With The List") in which Chandler tells Ross to stop complaining:
This must be so hard. "Oh, no! Two women love me. They're both gorgeous and sexy. My wallet's too small for my fifties, and MY DIAMOND SHOES ARE TOO TIGHT!"
Or maybe just one of the "First World Problems" memes.
(FWIW I put my money where my mouth is: I am long on Swiss francs.)

Anyway, as a public choice economist, I would say that Altman's article would be funny if it weren't so sad. It looks to me like it doesn't use the most basic concepts about incentives, much less relatively sophisticated concepts (or at least big words) like "moral hazard" and "asymmetric information." Perhaps the author skipped taking macro in school.

Tom E. Snyder writes:

"Moreover, there would be no mechanism to undo the transfer. If the technocrats mess up (and there is little basis to expect otherwise), there will be nothing that the hapless European public can do about it."

We found that out the hard way after ratifying the U.S. Constitution.

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