Project for Philosophical Evaluations of the Economy |
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How to deal with Southern Europe’s lack of competitiveness
Dialogue with the Alter Ego on the hardliner position in the EURO-zone, first drafted on Dec 17, published on Dec
19, 2011
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Question by Alter Ego of Noah denkt™ (AE): Have you read the interview which the former Head of Economics of
the European Central Bank, Juergen Stark, has given to the German weekly “Wirtschaftswoche”?
Answer by Noah denkt™ (Nd): Well, we’ve seen an excerpt of that interview. But it would be good if you
summarize his point of view again for us and for our readers.
AE: Okay. Let’s see. If we understand Prof. Stark correctly, he resigned from the board of the ECB because he
was and, still is, in disagreement with the ECB’s policy of buying Southern Europe’s bad debt. His main argument
is that all these countries had been warned ahead of time about the imbalances under which their respective
economies were operating so that it should be now up to them to do what is necessary to restore their financial
credibility. In other words, Prof. Stark believes that the bond buying program of the ECB is in violation of the
statute of the bank and that continuing this will ultimately be a bigger threat to the existence of the EURO than
abandoning it.
Nd: Did he specify why, in his mind, the bond buying program will wreak more havoc than dismantling it?
AE: Not to our knowledge.
Nd: Okay. Well, perhaps he refers to the fact, that violating the statute of the bank will not only set a bad
precedent for the future but that it will also lead to an erosion of trust in the ECB which may ultimately cause some
of the EURO-member states to withdraw their support from it.
AE: And there is obviously the moral hazard question too, isn’ it? After all, it is somewhat hard to see, why
Southern Europe should get its act together in the future, if they can’t do it now, when they really are in dire straits
Nd: Sure.
AE: But you still don’t entirely agree with Prof. Stark’s analysis, do you?
Nd: No, not altogether.
AE: And why is that?
Nd: Well, it seems to us, that Spain, Portugal, Italy and Greece do in deed deserve some degree of clemency from
their more prosperous Northern neighbors. And they deserve this clemency not only because they have already
put in some considerable effort to remedy their ailments. No, the main reason why they should be granted
leniency lies in the fact that their historical disadvantages are so huge that you simply cannot except them to
erase all of them in one giant leap.
AE: So how long do you want to continue to bail them out?
Nd: As long as it is necessary.
AE: Is this a sustainable strategy? Is it not more likely that people elsewhere will rebel against the fact that their
hard earned tax payer money will for ever be put at the disposition of some uncompetitive brothers in the South?
Nd: Of course, this is a lot to ask. But the real question is: What is the alternative to this? Should we distance
ourselves from our neighbors who will continue to be our neighbors until the end of time? No, unfortunately, we
have to accept some of their historical package as our own, if we want to do away with that effectively.
AE: What are these historical disadvantages that the South is supposedly suffering from?
Nd: Well, the most important baggage which they carry around with them is the fact that hey didn’t have anything
similar to Northern Europe’s age of reformation. Instead they kept being stuck in old catholic and orthodox
paradigms which have made it impossible for them to develop the emotional independence that a well functioning
market economy so desperately requires.
AE: But come on, Spain, for instance, is a lot less catholic than it used to be 500 years ago?
Nd: Sure. But this hierarchical, patronizing view of things that the Catholic Church to this day stands for, is
lingering on in that culture until today. That is why they have such a huge unemployment rate among young
people. And that is also why the ideology of choice for most educated people in Spain is a left-leaning, take-from-
the-rich one.
AE: So what you are saying is that these Southern countries simply lack a good enough dose of the American
dream in their day to day operation?
Nd: Exactly.
AE: But isn’t it also true that even the North doesn’t have enough of that can-do-mentality ingrained in its DNA?
Nd: That is true too. But the matter of fact is that the situation is a lot worse in the South.
AE: And this limited optimism in the north shall now shoulder the burden of the uninspired entrepreneurialism of
the South.
Nd: In our mind, there is no other option, but to shoulder part of that, at least for the time being.
AE: Well, we can only hope that you get this right here. Because if you drain the Northern States too much that
may also end in a right-wing disaster?
Nd: You are right. So let’s pray that our interpretation is adequate.
Dialogue with the Alter Ego on the hardliner position in the EURO-zone, first drafted on Dec 17, published on Dec
19, 2011
------------------------------------------------------------------------------------------------------------
Question by Alter Ego of Noah denkt™ (AE): Have you read the interview which the former Head of Economics of
the European Central Bank, Juergen Stark, has given to the German weekly “Wirtschaftswoche”?
Answer by Noah denkt™ (Nd): Well, we’ve seen an excerpt of that interview. But it would be good if you
summarize his point of view again for us and for our readers.
AE: Okay. Let’s see. If we understand Prof. Stark correctly, he resigned from the board of the ECB because he
was and, still is, in disagreement with the ECB’s policy of buying Southern Europe’s bad debt. His main argument
is that all these countries had been warned ahead of time about the imbalances under which their respective
economies were operating so that it should be now up to them to do what is necessary to restore their financial
credibility. In other words, Prof. Stark believes that the bond buying program of the ECB is in violation of the
statute of the bank and that continuing this will ultimately be a bigger threat to the existence of the EURO than
abandoning it.
Nd: Did he specify why, in his mind, the bond buying program will wreak more havoc than dismantling it?
AE: Not to our knowledge.
Nd: Okay. Well, perhaps he refers to the fact, that violating the statute of the bank will not only set a bad
precedent for the future but that it will also lead to an erosion of trust in the ECB which may ultimately cause some
of the EURO-member states to withdraw their support from it.
AE: And there is obviously the moral hazard question too, isn’ it? After all, it is somewhat hard to see, why
Southern Europe should get its act together in the future, if they can’t do it now, when they really are in dire straits
Nd: Sure.
AE: But you still don’t entirely agree with Prof. Stark’s analysis, do you?
Nd: No, not altogether.
AE: And why is that?
Nd: Well, it seems to us, that Spain, Portugal, Italy and Greece do in deed deserve some degree of clemency from
their more prosperous Northern neighbors. And they deserve this clemency not only because they have already
put in some considerable effort to remedy their ailments. No, the main reason why they should be granted
leniency lies in the fact that their historical disadvantages are so huge that you simply cannot except them to
erase all of them in one giant leap.
AE: So how long do you want to continue to bail them out?
Nd: As long as it is necessary.
AE: Is this a sustainable strategy? Is it not more likely that people elsewhere will rebel against the fact that their
hard earned tax payer money will for ever be put at the disposition of some uncompetitive brothers in the South?
Nd: Of course, this is a lot to ask. But the real question is: What is the alternative to this? Should we distance
ourselves from our neighbors who will continue to be our neighbors until the end of time? No, unfortunately, we
have to accept some of their historical package as our own, if we want to do away with that effectively.
AE: What are these historical disadvantages that the South is supposedly suffering from?
Nd: Well, the most important baggage which they carry around with them is the fact that hey didn’t have anything
similar to Northern Europe’s age of reformation. Instead they kept being stuck in old catholic and orthodox
paradigms which have made it impossible for them to develop the emotional independence that a well functioning
market economy so desperately requires.
AE: But come on, Spain, for instance, is a lot less catholic than it used to be 500 years ago?
Nd: Sure. But this hierarchical, patronizing view of things that the Catholic Church to this day stands for, is
lingering on in that culture until today. That is why they have such a huge unemployment rate among young
people. And that is also why the ideology of choice for most educated people in Spain is a left-leaning, take-from-
the-rich one.
AE: So what you are saying is that these Southern countries simply lack a good enough dose of the American
dream in their day to day operation?
Nd: Exactly.
AE: But isn’t it also true that even the North doesn’t have enough of that can-do-mentality ingrained in its DNA?
Nd: That is true too. But the matter of fact is that the situation is a lot worse in the South.
AE: And this limited optimism in the north shall now shoulder the burden of the uninspired entrepreneurialism of
the South.
Nd: In our mind, there is no other option, but to shoulder part of that, at least for the time being.
AE: Well, we can only hope that you get this right here. Because if you drain the Northern States too much that
may also end in a right-wing disaster?
Nd: You are right. So let’s pray that our interpretation is adequate.
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| Keywords: Juergen Stark, hardliner in the EURO-zone, bond-buying program of the ECB, emotional independence and competitiveness, solidarity in the EURO-zone, North-South-divide in the EURO-zone, structural imbalances in the EURO-zone, transfer union in the EURO-zone |