In 1993, Margaret Thatcher recalled conversations she had with John Major over what would eventually become the European Union’s defining policy accomplishment, the creation of the Eurozone.
We had arguments which might persuade both the Germans – who would be worried about weakening of anti-inflation policies – and the poorer countries – who must be told they would not be bailed out of the consequences of a single currency which would therefore devastate their economies.
Thatcher predicted that countries that used to be able to inflate away their debts would not be able to do so under a single European currency due to the strict anti-inflation beliefs of countries like Germany. However, Europe did not listen to Thatcher, and now Thatcher’s predictions are coming true. Greece has defaulted on its debt, and now has had to be bailed out for the third time in five years.
Europe, but especially Greece, could have saved themselves a lot of tense hours of negotiations if they had listened to Thatcher’s warnings in 1993. Instead, Europe has once again proved that the road to hell is paved with good intentions.
The concept of European unity has arguably been the number one policy objective of postwar Europe. The seventy year span between 1870 and 1940 saw France and Germany at war with each other on three separate occasions, including the two World Wars. The Cold War also took center stage just after the second World War. The answer to war for many Europeans was to create a European Union that would tame European nationalism, which many Europeans blamed for the decades of destruction from 1914-1945.
The modern form of the European Union has grown far beyond its original intent. The origin of the European Union was innocent enough, as it served as a way for the French and Germans (among others) to freely trade coal and steel. But what was once a free trade arrangement has morphed into a single currency, the erosion of national sovereignty, and some in Brussels that even want to create a single European Army. The creation of a European Army poses multiple problems, from disagreements on war and peace to defending overseas territories.
While none of this excuses the Greek’s spending excesses, the feelgood concept of European unity was upheld as more important than the economic consequences that Thatcher wrote about 22 years ago. The old adage that liberals think with their hearts and conservatives think with their brains has showcased itself once again in Europe.
Margaret Thatcher once brilliantly said that the problem with socialism is that you eventually run out of other people’s money. That observation has certainly proven true in Greece.
Greece has run out of money, and came extremely close to seeing its economy collapse. In 2001,Greece was admitted into the Eurozone, but by 2002 it was widely accepted that Greece had been less than honest about the size of its deficit. By 2004, it was discovered that the Greek deficit was 8.3% of GDP, not the reported 1.5%. However, due to the fact the 2004 Olympics were being held in Athens, the Greek government did not say anything because it did not want to embarrass the country. As a result, Greece ended up kicking the debt can down the road.
After the world wide economic downturn in 2008, Greece’s deficit grew even larger as Greek tax collections plummeted, due to their recent notorious history of tax evasion. In 2010, Greece accepted their first bailout which required spending cuts and as a result unemployment sky rocketed due to Greece’s massive public sector workforce and Greek tax revenue fell once again. In 2012 the Greeks accepted a second bailout and its debt owed to international lenders was 135% of GDP and unemployment reached 30% with youth unemployment reaching 50%.
Greece ultimately defaulted on its debt in June, and banks started to run out of money. Greek Prime Minister and former member of the Communist Youth of Greece, Alexis Tsipras, recently agreed to a third bailout where he more or less gave into German demands. He has faced a backlash from within his own party for surrendering–or for having been perceived as surrendering–Greek sovereignty to outside forces.
If you couple Thatcher’s predictions of the problems that a single European currency would create with the simple fact that a stagnant private sector can only subsidize an exploding public sector for so long, it become painfully clear that the Greek debt crisis was predictable. Greece has nobody to blame but themselves for spending like drunken socialists over the years. The members of the European Union have nobody to blame but themselves for putting romantic idealism in front of reality and putting their financial stability at risk.
There is plenty of blame to go around for Europe’s financial woes, and everybody has themselves to blame.