24 June 2011

Another day, another bail-out

One of the principal problems with the establishment of the euro was that the system lacked a redistributive mechanism whereby the richer parts of the zone would transfer resources to the poorer parts, thus equalising the economic disparities within the eurozone or, at least , preventing them from becoming worse. It was never entirely true, of course; the structural funds were intended - in a relatively modest way - to do just that. These funds, however, were too modest to make much of a contribution.

Well now the eurozone has found its redistributive mechanism, the bail-out. Ireland and Portugal have already benefited, but the policy has reached its apotheosis in a second bail-out to Greece.

But, I hear you say, this will be the last bail-out; Greece will adopt the proposed austerity package, its finances will recover and the EU will return to its normal self-satisfied routine. Forget it, not a snowball’s chance in hell. Even if the austerity package is adopted and implemented in full (which seems unlikely), there is no possibility that the Greeks can cope with its debts. So next year, the Greeks will be back at the door of Brussels begging for another handout. And, even with the largesse of their own bailouts, the notion that Ireland and Portugal (or Spain and Italy) can develop their economies to match that of Germany is fanciful in the extreme.

So from time to time - annually in the case of Greece, probably less frequently in the case of the others - the northern nations will have to put their hands in their pockets and sling great gobbets of cash towards the PIGS.

The interesting question is how long will it take for the patient taxpayers of Germany, the Netherlands, Austria, Finland to realise that they have been suckered into a massive ongoing subsidy to what some of them might regard as their financially irresponsible counterparts in the South.

It wasn’t supposed to be like this; or maybe it was?

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