Wednesday, 2 November 2011

Xenophobia and the art of economic maintenance

The Greek Prime Minister, George Papandreou, has announced a referendum to decide whether to accept the latest loans from the troika (and the attached austerity commitments). It is uncomfortable but poetic that democracy, conceived by Athenians over two thousand years ago, should be tested to destruction by their distant descendants in the modern age.

The knee-jerk reaction from commentators is to assume the Greeks will decline their medicine. In any other circumstances such sweeping generalisations about national work ethic would attract accusations of racism. But when commenting on the European debt crisis, deciding where economic analysis ends and bigoted bandying begins is problematic.

An underlying premise of most commentators is that the Germans (in particular) want the Greeks (in general) to be more German. Not by switching their chitons for lederhosen, but by exchanging their profligacy for austerity. The Germans, so the conventional wisdom goes, are savers and workers while the Greeks are less well-known for their efficiency or get-up-and-go.

The Germanic qualities currently being celebrated include saving more than they spend (or selling more than they buy) - academics will argue that trade is a “positive sum game” (everyone benefits), but it still remains impossible for everyone to simultaneously be a net saver (or net exporter). As Martin Wolf put it in this morning’s FT: “Since the World cannot trade with Mars, creditors are joined at the hip to debtors.”
Globally, governments are inclined not to let this logic stand in the way of austere policy. Beyond the Mediterranean, Anglo-Saxon economies (the UK, US and Ireland) have also been less German than their shared collective adjective implies. In fact, these economies have all suffered from speculative bubbles in their property markets - which have given them their own savings vacuums to fill.

Perhaps such speculative fervor is a Celtic trait. If so it is shared by the Latins. The Spanish add a property bubble to their litany of economic shortcomings. Weak banks and weak growth are others - which they share with the Italians.

And, as the FT reports (Draghi does not fit Italian stereotype), the continent now looks to an Italian as the crisis enters what could be a decisive new phase. Mario Draghi replaces Jean-Claude Trichet as President of the European Central Bank and, if national stereotypes hold, then this could square the circle of delevering which entraps Europe’s economies.

Italians, so the theory goes, are imprudent debasers of currency, implying that a historically hawkish central bank may yet print enough euros for everyone to save more (the longed-for inflating away of debt). Alas, however, Signor Draghi may yet turn out to be as German as the Frenchman he replaced. Many central bankers like Monsieur Trichet share a predisposition towards discipline which defies national sterotypes – as the French would say plus ça change, plus c'est la même chose.


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