Ezra Klein in the Washington Post:
If you want to fear for the euro, this is the reason to do it. A half dozen countries have unemployment in the 15 to 25 percent range, with youth unemployment in the 30 to 60 percent range. Politics isn’t stable amidst that sort of pain — particularly when there’s a perception that some of the pain is being forced upon the country by richer, wealthier outsiders.
Very true, and the really crucial word there is “outsider”. As the then Czech president Vaclav Klaus explained in 2009 (and, no, I cannot repeat this argument enough):
“There is no European demos — and no European nation.”
And as the then German president Wulff pointed out in 2011, the euro zone is not a family:
“With whom would you be willing to take out a joint loan, or stand as guarantor? For your own children? Hopefully yes. For more distant relations it gets a bit more difficult…”
There’s a limit to how far people are prepared to go to help out those with whom they feel little or no affinity. And there’s a limit to how far people are willing to be pushed around by those for whom they feel little or no affinity. And when these groups are bound together in a pact that they interpret—inevitably—in very different ways, it is not going to create a surplus of good feeling.
Klein quotes the Cypriot economist, Christopher Pissarides, a Nobel laureate:
Small countries be warned when joining the euro zone. You could be bullied any time by your big brothers if it suits their political objectives.
Pissarides concedes that Cyprus is very dependent on financial services, but notes:
Cyprus is dependent on them just like Luxembourg, the Channel Islands, Hong Kong and Singapore are. Every mature small nation has a large financial system. Malta is building its own now, after joining the Eurozone, and is benefiting from the Cyprus fallout. Financial services is what Cypriots are trained to do.
Malta? Oh yes. Here’s the Maltese finance minister describing what took place the other day:
All this was “agreed” to by the Cypriot government representative who, with a pistol to the head, was naturally unusually co- operative. But it took nearly 10 long hours before the Cypriot minister’s body and soul became exhausted enough for him to assent to this accord. As soon as that happened [German finance minister] Schauble demanded that all wire transfers to and from the Cypriot banks would cease forthwith.
No historical resonance there, of course.
The Luxembourg foreign minister isn’t too impressed either:
“I also come from a very small country with … an oversized banking centre,”
Pissarides concludes:
The ECB [European Central Bank] needs to realise that there are members in the Union with different needs from those of Germany and devise rules that regulate the system, not try and make everyone like Germany.
And so the poison bubbles.