Economy: Greece is our vanguard

Hospodářské Noviny (Prague)

The near-collapse of Greece is the scenario that awaits other countries if they fail to get their debt under control. The aid to Athens is a sign that the European Union is still alive, but without the discipline of the fiscal pact, it won’t be enough, says a Czech economist.

Economies look for differences, and they converge. By now we are so interconnected commercially that for us the fall of a minor economy threatens such a huge emotional and economic-financial shock that we will do anything to avoid it, so long as there is at least one straw to clutch at.

Because of the two world wars that pushed Europe into a Union – we're not threatened by external attack, nor by famine, nor by “lack of living space” – we have begun to feel that we have lost the moral, political, economic, military and philosophical right to lead the world, and therefore to be a superpower.

Europe emerged from the dust and confusion of post-war reconstruction thanks to the substantial aid of the Marshall Plan. It was an American plan, to help the continent where the Second World War had broken out and from where it had spread across the whole world – and the aid came not as loans, but as gifts. Europe did get back on its feet and built something totally unprecedented out of its history: a free union of nations, which don't go to war with each other, but negotiate and trade.

Increase in solidarity

Another precept, however, is more important: to ruin (or fail to help) economically stricken nations or regions is unwise. Once we thought that we could profit only at the expense of someone else. But today the opposite is true. We can profit best working together, not against each other.

This is the beauty of economics: seeking out differences, and converging. We are so interconnected commercially today that the collapse of a small economy deals us such a huge emotional and economic-financial blow that we will do anything to avoid it, so long as there is at least a straw to clutch at.

And by the way, if the Greek (or Hungarian or Irish) bankruptcy had happened sixty years or more ago, our strong-minded politicians and our bar-stool strategists would probably have tried to work out one thing only: how to occupy the weakened country militarily as elegantly as possible. Today we set out to help these nations with nearly all of our (remaining) strength. One may object that we are helping them to help themselves. Yes, perhaps, but that is a great thing.

Whether this increase in solidarity and checks on the waging of wars may be down to lessons from history, to an increase in the European spirit or to the EU institutions (which actually preclude the use of weapons of trade wars, such as devaluation, tariffs, protectionism), I will leave to the judgement of the reader. One thing only is certain: never has there been such a long period of peace in Europe. So if the project of an integrated Europe has been quite successful at its main goal, then we should be grateful for it, though it sometimes comes at a cost.

Common rules for the unindebted states

Greeks, just like in antiquity, are ahead of us. They went bankrupt about a decade earlier than Italy and Spain, and before us too – and even Germany. Because if we all continue on an unchanged course, as we have for a generation now, we'll end up bankrupt ourselves. Markets, which appear to be too weak and too far behind the custodians who are watching over the size of the government debt, are simply unable to influence states in time to exercise prudence in their borrowing. A democratic nation, and its politicians, must also stand watch on their own.

As has been demonstrated clearly enough, we're not capable of that, and that's why we need common rules for the unindebted states, and particularly rules on paying debt back in the good years. This was and is the whole point of the fiscal compact that we recently turned down. The Czech Republic will have to come up with their own fiscal rule pretty quickly, because otherwise we'll start to stand out. Just to make things amusing, I'll bet that our rule will prove to be rather similar to the one we just rejected. And we, unlike the rest of the EU, have major enforcement issues, because there is no EU whip hand over us.

We're actually fortunate that countries in Europe threatened with bankruptcy were themselves small economies. Perhaps this warning to us (thanks to which, it's quite possible, our current government won the last election) will be enough. How many other and bigger bankruptcies will we still need before we get it right?

Translated from the Czech by Anton Baer

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