The European debt crisis is inspiring public radio to literary analysis. Last week NPR’s Planet Money put the French‐German relationship into a “threepenny opera”:
All
Everyone is counting on you
You’ve got the money
We’ve got the debt (Oh yes, we’ve got a lot of debt!)
And do we need a bailout—you bet
Germany
Zat’s it, I’ve had enough
Looks like it’s time now for me to leave…
France
Oh?
Germany
Vhy is ze door locked? You must let me out.
France
Dear when the times are tough
It’s better to give zan to receive
Then Monday Marketplace Radio turned to classics professor Emily Allen Hornblower and economist Bill Lastrapes to discuss Greek debt as classical tragedy—Oedipus? The ant and the grasshopper?
Loyal Cato readers will recognize Bill Lastrapes as the coauthor of the much‐discussed Cato Working Paper “Has the Fed Been a Failure?”
And then, if you prefer prose and sober analysis to literary analogies, let me recommend Holman Jenkins’s perceptive column on why Europe hasn’t solved its crisis yet, which unfortunately appeared in the less‐read Saturday edition of the Wall Street Journal. (OK, not less read than Cato‐at‐Liberty, but probably less read than the weekday Journal.)
Neither leader has an incentive to sacrifice what have become vital and divergent interests to produce a credible bailout plan for Europe. To simplify, German voters don’t want to bail out French banks, and the French government can’t afford to bail out French banks, when and if the long‐awaited Greek default is allowed to happen.…
There is another savior in the wings, of course, the European Central Bank. But the ECB has no incentive to betray in advance its willingness to get France and Germany off the hook by printing money to keep Europe’s heavily indebted governments afloat. Yet all know this is the outcome politicians are stalling for. This is the outcome markets are relying on, and why they haven’t crashed.
All are waiting for some market ruction hairy enough that the central bank will cast aside every political and legal restraint in order to save the euro.…
And then the crisis will be over? Not by a long shot.
All these “solvent” countries and their banks will be dependent on the ECB to keep them “solvent,” a reality that can only lead to entrenched inflation across the European economy. That is, unless these governments undertake heroic reforms quickly to restore themselves to the good graces of the global bond market so they can stand up again without the ECB’s visible help.
It’s just conceivable that this might happen—that countries on the ECB life‐support might put their nose to the grindstone to make good on their debts, held by ECB and others. Or they might just resume the game of chicken with German taxpayers, albeit in a new form, implicitly demanding that Germany bail out the ECB before the bank is forced thoroughly to debauch the continent’s common currency, the euro.