I spoke last night to a woman visiting the area from a northern European country. We talked about the economic crisis, and I said that I couldn’t see why Germany should pay and pay and pay for Eurozone countries that can’t get their economic act together. She wasn’t having this, at all.
She said that Germans are in such trouble today as a result of their idealism. A lot of European elites wanted currency union for various reasons. Among them — at least one appealing to the Germans — was the opportunity to create a powerful trading bloc capable of standing up to the US and China. The Germans saw what they wanted to see. Elites in every country did.
“I’m not defending bad behavior on the part of the Greeks and all the others,” she said, “But you have to keep in mind that German bankers pushed all this ridiculously cheap money onto those people when times were good, for their own reasons. It’s not true to think of the Germans as hard-working innocents who were taken advantage of.”
When she said this, I thought about something a real estate agent in Dallas told me back in 2005, at the height of the bubble. She said that she was selling $400,000 houses to people who had absolutely no business in houses that expensive. They were one paycheck away from default. But these homebuyers would not look at anything more reasonable; if the bank thought they were creditworthy, who were they to tell the bank it didn’t know what it was doing with its money? The real estate agent said she couldn’t very well refuse to sell houses to people who had the money to buy them, even if it was a reckless purchase. She warned me at the time that all this was going to end very badly, because the Dallas suburbs were filling up with people in McMansions that they can’t afford, because lending standards had collapsed. And then the bubble burst.
Anyway, thinking of the European situation by this analogy helped me see what the European woman was talking about re: the Germans. She went on to describe a psychological situation in which everyone in Europe made a decision not to know how they were making all this money. They came to believe, she said, that permanent prosperity had been achieved. That wealth was the natural state of things. Don’t ask too many questions, or you’ll ruin it – that was the mindset, she said. It was the mindset among the Germans, the French, the Belgians, the Spaniards, everyone.
An American in our group said that she would go back to visit her relatives in Spain during the bubble years, and was routinely shocked to see that everybody had new houses. People may have been living in perfectly fine old houses, but with all this money sloshing around, they were convinced — or allowed themselves to be convinced — that they needed to have something new.
The European woman’s overall point was that it is unjust and inaccurate to create a Thrifty Germans vs. Deadbeat PIIGS narrative. Nobody is innocent in this catastrophe. Even so, I told her, I didn’t understand why the solution to the problem was for the Germans to bleed their coffers dry to support a scheme, the euro, that is structurally unsustainable. She just shook her head, as if to say that question is now beside the point.
“If Greece leaves the euro,” she said, “the dominos fall, and the goose is cooked.” She said it in a tone of voice that telegraphed that she didn’t believe it was a matter of if, but rather of when.
UPDATE: Another lesson from all this seems to be that one should not attempt currency union without cultural cohesion. When Germany unified, the former West Germany agreed to a massive transfer of its wealth to the former East Germany. The Wessies agreed to have the screws put to them, because it was for the sake of other Germans. Similarly, we in the US are willing to accept de facto wealth transfers from wealthier states to poorer states because despite our regional differences in culture, we are all Americans, and have a diffuse but real sense that we are culturally united.
The idea that Germans are part of the same culture as Italians, or that the Irish and the Spaniards are culturally unified in a meaningful sense, is risible. So much for the pan-national European project.