How can people in Greece and Spain make sense of what’s happening? I certainly can’t claim to have wrapped my mind around it all.
But one thing is clear: Europe’s probable calamity — I hate to write those words, but that’s what it looks like to me, even if the can has a few good kicks left in it — throws into relief the profound way elites have failed. The euro crisis is a reminder of how much depends, in the end, on the quality of a society’s elites. This is an unfashionable sentiment in Western democracies, but it’s true nonetheless.
Consider a partial catalogue of elite miscalculations or misbehavior here:
First, elites across Europe decided that giving up the power to run an independent monetary policy was a good idea for a nation — even though that meant there would no longer be a way for individual countries to fight economic downturns by cutting interest rates, or to cure a loss of competitiveness by devaluing the national currency.
Next, elites assumed that at some point ordinary Europeans would agree to hand control over much of national spending and taxes to some pan-European authority as well. Huh?
What’s more, in a move that quietly helped fuel today’s crisis, regulators decided banks didn’t need to hold any capital in reserve against loans made to European governments. As a result, banks stocked up on sovereign debt that turned out not to be riskless but very risky indeed. Top bankers were happy to go along with this charade because running banks with even less capital and more leverage than the already reckless U.S. system turned out to be a way for bank executives to pay themselves more (since bonuses are often tied to a bank’s return on equity, which, at any given level of profit, rises the more leverage you employ).
What kind of “leaders” pursue such an irresponsible, shortsighted course? To ask the question is to answer it.
Which brings us to Angela Merkel. The German chancellor should listen to Franklin D. Roosevelt’s first fireside chat, delivered on March 12, 1933, eight days after Roosevelt took office. Banks had failed in droves, as citizens who’d lost confidence in the system withdrew their cash. Fear and panic were palpable. Some version of this psychology could afflict big chunks of Europe soon.
Even at a distance of eight decades, FDR’s 13-minute address is a marvel. The new president explains in clear terms what’s happened, and what the government is doing about it. He treats Americans like adults who can be trusted to back a plan that’s reasonable. He’s honest about the pain some will suffer but confident the country will come out the other side. Listening to the scratchy recording today, one can imagine the reassurance the talk gave a scared nation.