Obligatory Jubilee

“Jubilee” has many definitions. Right now I’m talking about a debt jubilee, meaning a time when debts are forgiven, and we can start again on more secure ground. (It’s from the Bible.) More and more, it looks like debt jubilee will be necessary to restore the EU to a viable economics. Whether that will happen is far less certain.

One of the major failings of WWI, which gave rise to Hitler and WWII, was that German debt was not forgiven. Germany was expected to pay back the entire monetary expense of the war. Only Haiti was similarly punished, when France demanded repayment for the loss of their slave colony (which of course they never paid for to begin with) after Haiti’s successful revolt in 1803. (Unfortunately, Haiti failed to charge them for their years of unpaid labor. It took them 80 years to get out of debt.)

One of the major failings of WWI was that
German debt was not forgiven.

The same mistake was not made after WWII. German debt was forgiven in a general jubilee. Moreover, the Marshall Plan assisted devastated Europe to recover, and (West) Germany became a modern, economically sound, democratic nation.

Thirteen years ago, the nations of the European Common Market united to bring the Euro into existence, having developed the plan over several decades. It seemed like a grand idea, one that would tie all of Europe to a common currency and common economic goals, and bring to an end forever their long history of horrible wars.

There were two things wrong with the Euro plan. First, there was a marked difference between the fiscal soundness of northern and southern European countries. Second, there could be no central financial authority, since the EU is not a federation. The easiest way to appreciate this is to contrast it with the United States. The US is a single entity, a federation, and federal financial authorities have the power to affect changes in any state. So when the savings and loan scandal of the 1980s went down in Texas, it was the feds (i. e., us) who stepped in to pay the damages, not the people of Texas, who would have been wiped out by the cost. The EU cannot do the same thing for Greece today.

There were two things wrong
with the Euro plan.

Southern nations were weak, and
there was no central banking authority.

Everything went along more-or-less smoothly for the EU and the Euro until Wall Street banksters’ criminal activity brought us global economic collapse in 2008. Then the Euro’s faults were exposed, and they were most evident in the southern European nations, particularly Greece. I need not spell out in great detail the very high unemployment, the unpayable national debt, and the general economic dysfunction of those nations. But the EU can’t rescue an independent sovereign nation; the country can only rescue itself.

Without a central fiscal authority, just about the only thing the EU can do is demand “structural” changes in the southern economies in hopes that their economies will eventually improve. That boils down to demanding steep payments on their national debt and improving their accounting procedures.

Making structural improvement is something they might profitably do—under any conditions other than the ones we have now. And that is because the inevitable outcome of such austerity programs during economic downturns is high unemployment, diminished tax revenue, and general contraction of the economy, exactly what is not needed. The largest study of austerity measures was undertaken by the International Monetary Fund. The findings: economic contraction occurred during such conditions in every case.

What the EU’s stricken nations need is the same thing the US needs: significant economic stimulus to improve employment figures and restore tax revenue, the same thing that brought about the only significant employment improvements in US, until the stimulus ran out.

Two things would help:
job stimulation and a debt jubilee.

There is one other improvement the EU could bring about: a debt jubilee. The countries in deepest trouble are drowning in debt. Forgiving debt would not create jobs, but at least those countries would have some cash in the kitty. With less debt to pay and more revenue retained, higher employment might eventually follow. So far there is neither stimulus nor jubilee.

Last weekend there were several important elections, including one in Greece. The old government was retained, and the big bankers breathed a sigh of relief: Greece would not leave the EU and return to the drachma. That means the bankers can continue to force their ineffective and hated austerity programs into the indefinite future. Or is it possible that the EU bankers were listening to what practically everybody was shouting at them and will do something that is known to actually work?

Instead of stimulus and/or jubilee,
“Beatings will continue until morale improves”.

The EU may well continue failing to create new jobs, the one thing that could improve the situation immediately. And almost no one is pushing for a jubilee, which would help in a different way. We can only wait and see. As Paul Krugman is fond of quoting now and then, “Beatings will continue until morale improves”.

Why should Americans care? Americans should care about Greece for the same reason that Greeks should care about the Wall Street criminals. We are all tied together in a global economic net. Disaster in one place can only make things worse in a thousand ways everyplace else.


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