Right in the middle of last week's announcement of the epic bailout of
sovereign debtors in Greece, Portugal and Spain came news that German voters
had rejected Angela Merkel comprehensively in an important state election; this
bit of news evidently had no impact on the ability of the European Union to
pass on the bailouts.
Meanwhile, the job of representing the United Kingdom at the important meeting
of European finance ministers fell to Alastair Darling of the Labour party -
which had just lost the United Kingdom elections. Alongside, you had the comic
spectacle of the people of the country being bailed out, Greece, protesting the
austerity measures that their government had agreed to in return.
Europe may well be a lot of things, but a democracy it most
certainly is not. The decisions being taken by Brussels appear to have nothing
to do with the popular will of Europeans. As I mentioned a couple of weeks ago,
the trick to understanding such paradoxes may well be to focus on the
entertainment value. In times like this, it isn't art that imitates life but
rather the exact opposite. (See
South Park - the Markets, Asia Times Online, May , 2010.)
It has been my observation of the British people that when they get annoyed
about something, they send the BBC off to make a documentary on the subject.
But when something really, really annoys so much as to gnaw at their collective
fabric, they send off the BBC to make a comedy series on the subject. Their
reaction to the collective social, economic and industrial ennui was the
inimitable Monty Pythonseries. Sick of complaining about poor service in
the hospitality industry, the British made Fawlty Towers.
Another comedy was the stunningly witty, path-breaking series called Yes,
Minister, dealing with the establishment of a super-class of
bureaucrats who had, in the unforgettable words of Sir Humphrey, "no
responsibility".
Unelected and unaccountable, the bureaucrats ran the government to their whims
and fancies, using their absolute control of policy matters and mind-numbing
procedural minutiae to overwhelm reform-minded politicians. The most famous
exchange is between James Hacker (the democratically elected government's
minister) and Sir Humphrey (the bureaucrat in charge of the department for
which Hacker is minister):
Sir Humphrey: Minister, I have something to say to you which you may not
like to hear.
Minister Hacker: Why should today be any different?
Sir Humphrey: Minister, the traditional allocation of executive
responsibilities has always been so determined as to liberate the Ministerial
incumbent from the administrative minutiae by devolving the managerial
functions to those whose experience and qualifications have better formed them
for the performance of such humble offices, thereby releasing their political
overlords for the more onerous duties and profound deliberations that are the
inevitable concomitant of their exalted position. Minister Hacker:
Now, whatever made you think I wouldn't want to hear that?
Sir Humphrey: Well, I thought it might upset you.
Minister Hacker: How could it? I didn't understand a single word.
Humphrey, for God's sake, for once in your life put it into plain English. Sir Humphrey: If you insist. You are not here to run this
Department. Minister Hacker: I beg your pardon.
Sir Humphrey: You are not here to run this Department.
Minister Hacker: I think I am. The people think I am, too. Sir Humphrey: With respect, Minister, you are ... they are wrong Minister Hacker: And who does run this Department?
Sir Humphrey: I do.
I have been reliably informed that
English comedy series are big hits in Europe, and in Germany in particular. It
is possible that after working their way through the "Don't mention the war"
sequence of Fawlty Towers, the Germans may have finally stumbled upon
the joys of Yes, Minister. Or they may have watched the series as
documentary evidence of what Brussels, with its infestation of French
officials, is apparently doing to their politicians. The modern incarnation of
the Yes, Minister series is therefore the EU bureaucrats in Brussels who
have apparently apportioned themselves powers and roles that are far in excess
of what the national (democratically elected) politicians are able or willing
to support.
Think of it as a new television series playing in the corridors of power
everywhere in Europe. The supervening objective here is of course to do
everything that ostensibly favors over-extended debtors, be they banks,
companies or sovereign governments. Meanwhile, just as in the comedy series,
the real beneficiaries are hidden behind the curtains in the form of lending
banks, grandiose cross-border subsidy programs or indeed central banks.
Transition in Europe is hard to ignore, even if the upcoming irrelevance of the
continent makes it quite tempting for us to do exactly that. Democratically
elected governments have effectively been subsumed by an inflexible EU
bureaucracy. In the past, that could have produced wars, but given the
demographic collapse of Europe, it will instead lead to economic implosion.
Sir
Humphrey: You know what happens when politicians get into Number 10;
they want to take their place on the world stage. Sir Richard Wharton (a senior Foreign Office bureaucrat): People on
stages are called actors. All they are required to do is look plausible, stay
sober, and say the lines they're given in the right order.
Sir Humphrey: Some of them try to make up their own lines.
Sir Richard: They don't last long.
The reference or this
particular quote will be wholly appropriate for Chancellor Angela Merkel of
Germany. Despite continuously demanding tough austerity measures on the part of
countries asking for bailouts, including supervision by the International
Monetary Fund (IMF), Chancellor Merkel in the end blinked under the full
assault of various European bureaucrats, including the president of the
European Central Bank (ECB), Jean-Claude Trichet. In this case, the mistake
that Chancellor Merkel made was to pretend a degree of independence that she
clearly couldn't command when it came to the crunch.
The deal to "save Europe" was stitched together with no apparent regard for
what exactly was actually being saved. Market reaction was savage (as the
following chart from finance.yahoo.com for the three-month history of the euro
shows) but evidently this has no bearing on the penchant for pushing through
such asinine policies:
If she, or any other political leader in Europe who had doubts about why the EU
was implementing such policies, they only needed to pick up another excellent
scene from the series:
Sir Humphrey: Bernard what is the purpose
of our defense policy?
Bernard Woolley (a junior bureaucrat): To defend
Britain.
Sir Humphrey: No Bernard. It is to make people believe Britain
is defended. Bernard Woolley: The Russians? Sir Humphrey: Not the Russians; the British! The Russians know it's not.
Applied to
the current situation, the bureaucrats merely catered to their own
constituency, namely the self-interest of banks (that had lent billions to
countries like Greece), mutual funds (which bought bonds issued by these
countries), other governments (for example President Barack Obama is reported
to have pressed for a European bailout for Greece to stop contagion). The
"Russians" in this example are the financial markets, of course, which have no
illusions of either what is happening nor what the likely end result would be.
The point about more grandiose strategies on the lines of "European
integration" are that they can always be employed as an all too convenient
bromide behind which to hide the real beneficiaries, such as the ones I named
above.
An objective look at European government finances over the past 10 years shows
that government deficits have been increasing to the point where the structural
elements have long overwhelmed the cyclical aspects. Put more plainly, it is
unlikely that European governments will reduce indebtedness without sufficient
spending cuts. The objective of the Eurocrats therefore is to push through
policies that help to postpone rather than confront the tough decisions
required.
Sir Humphrey:Don't you believe that Great Britain
should have the best?
Minister Hacker: Yes, of course.
Sir Humphrey: Very well, if you walked into a nuclear missile showroom
you would buy Trident - it's lovely, it's elegant, it's beautiful. It is quite
simply the best. And Britain should have the best. In the world of the nuclear
missile, it is the Saville Row suit, the Rolls Royce Corniche, the Chateau
Lafitte 1945. It is the nuclear missile Harrods would sell you. What more can I
say?
Minister Hacker: Only that it costs 15 billion pounds and we don't need
it.
Sir Humphrey: Well, you can say that about anything at Harrods.
That particular quote was to prove interestingly interlinked this week, when a
new government involving the UK's Conservative and Liberal Democrat party took
office (one of the key areas of disagreement was the renewal options for
Trident missile delivery systems); even as a Qatari group paid 1.5 billion
pounds (US$2.2 billion) to purchase Harrods, the iconic London department
store.
The more serious point is that, much as deficit-laden developing countries
spend more (proportionately) on weapons than do stable, developed countries,
the European bailout has been engineered by a bunch of bureaucrats who lack the
democratic mandate required to pull this off. The biggest mistake that
investors could make in the markets now is to imagine that the bailout of
Greece may have engineered an upward trajectory for risk assets.
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