[Vision2020] Easy Credit, Fiscal Fraud Cause of Euro Crisis

Nicholas Gier ngier006 at gmail.com
Mon Dec 26 15:17:11 PST 2011

Dear Visionaries:

This is one of two columns about the financial crisis in Europe.  Those who
take the Daily News may have seen the 650-word version on Wednesday.

The second column explains why "socialism" is not the cause. The short
answer is that Nordic welfare states have the highest taxes, but they have
some of the lowest national debt.  They go by the common sense rule that
governments must balance expenses with revenue.  When will the GOP ever

Happy New Year,



For every irresponsible borrower there is a
reckless lender (often a German bank)
~*The Economist* (December 3, 2011)

Beginning as the European Economic Community of six nations in 1958, the
European Union (EU) now has 27 members consisting of 502 million people.
The Treaty of Rome committed the countries to an “ever closer union,” which
echoes the “more perfect union” in the U. S. Constitution. The EU motto is
“Unity in Diversity,” very similar to *e pluribus unum*, out of many states
comes one United States of America.

Twelve years ago 17 EU countries adopted a common currency called the euro.
When Greece applied for membership in the euro zone in 2001, it assured the
other nations that it had sufficient fiscal discipline to meet the budget
deficit target of 3 percent and total national debt of 60 percent of GDP.

It is now clear that both Greek conservative and socialist governments
consistently falsified their economic records. For the week of December 3,
2011, the budget deficit was 9.6 percent, the unemployment rate was 18.4
percent, and 2012 estimate for national debt is whopping 183 percent of GDP.

Consultants from Goldman Sachs were quite eager to advise the Greeks how to
disguise their mounting debt. As the German magazine *Der Spiegel* reports:
“Goldman Sachs helped the Greek government mask the true extent of its
deficit with the help of a derivatives deal that legally circumvented the
EU Maastricht Treaty deficit rules” (2/8/10).

EU scholars have speculated that euro zone states knew that the Greeks’
data were shaky but they chose to admit them anyway.  There are at least
two reasons why this happened.  First, Italy joined the euro with equally
suspicious books.  After allowing Italy in at the beginning, leaders of the
original twelve found it difficult to deny entry to Greece.

Second, and more significant, a larger euro zone was a great advantage to
strong exporting euro economies such as Germany, Austria, the Netherlands,
Finland, and Belgium.  About 40 percent of Germany huge export market is in
the euro zone. One of greatest dangers of investing in other countries is
the possibility of currency devaluation in the recipient nation, and a
common currency would prevent that.

European and American banks were more than willing to give overgenerous
terms to businesses and governments in Greece, Ireland, Italy, Portugal,
and Spain. America’s six largest banks have $50 billion at risk in these

Under a conservative government Ireland’s Anglo-Irish bank went from making
loans of $3 billion in 1987 to $91 billion in 2007.  As a proportion of
population this would be the equivalent of an American bank loaning out
$3.4 trillion.  About 300,000 homes in a nation of 4.4 million now stand
idle because of an irrationally exuberant real estate boom/bust.

Easy credit all over the world has allowed people and governments to go on
the greatest borrowing spree in human history.  World debt, private and
public, has increased from $84 trillion in 2002 to $195 trillion today.

Many Germans complain that they are sick of bailing out lazy Greeks, but
the Greeks work more hours a week than the Germans do.  (How do
hard-working Irish and Icelanders fit into this North/South bias?) Rich
Greeks, just as their American counterparts, are doing well and are
notorious for not paying taxes, but it will be poor and the disappearing
middle class that will suffer most from their corrupt politicians and

Critics have said that the U.S. historically was more comfortable with
military dictators in Spain, Portugal, and Greece, because they were able
to keep leftist parties at bay.  With dictators only 40 years fresh in
their memories, Spaniards, Portuguese, and Greeks are still struggling to
build successful democratic systems without outside interference.

At the most recent European summit leaders agreed to put more money in a
general rescue fund, but only if all 27 nations agree to tough enforcement
of budget deficit rules.  Many experts believe that the new infusion of
funds is insufficient to bail-out countries such as Italy and Spain,
Europe’s third and fourth largest economies with trillions of dollars of

One solution is to allow the European Central Bank to act like the U. S.
Federal Reserve Bank, which issues treasury bills for the entire nation and
is able to transfer funds from economically strong areas of the country to
weaker regions.

The free-market journal *The Economist* recommends that “if Europeans wish
to avoid the nuclear option of complete disintegration, they will have to
make the leap toward fiscal union”—a true United States of Europe. We
should all wish Europeans well as they attempt to find a more perfect union.

Nick Gier taught philosophy at the University of Idaho for 31 years. Read
his other columns on Europe at
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