And that wasn’t just the judgment of the Europeans. Ireland was touted here, too. Their low-tax, pro-business economic policies were considered a rare triumph for free market ideals in Europe. In October 2008, Sen. John McCain told conservative TV host Sean Hannity, “You’re going to go on my first overseas trip. And I think it might be to Ireland.”
Or consider this August Wall Street Journal article on Italy: “As fears mount that Italy could be sucked into the vortex of the euro-zone debt crisis, consider this: The country’s public finances are among the strongest in the European Union.” Yes, even now, Italy is running a primary surplus. They have made many mistakes in the past, but so have we, and we haven’t made the tough decisions to work our way back to a primary surplus yet. (Nor, I hasten to add, should we make our way back to a primary surplus yet.)
I bring this up because there’s suddenly a lot of moralizing about the European debt crisis. Columnist David Brooks, for instance, portrays the German position as: “People who work hard and play by the rules should have a fair shot at prosperity. Money should go to people on the basis of merit and enterprise. Self-control should be rewarded while laziness and self-indulgence should not.” That’s about as black-and-white as it gets.
But it only works if you think of the European debt crisis as a crisis of Greece, where the governance really was terrible, the economic institutions weak and the labor market coddled. It doesn’t work for Ireland. Or for Spain, which was running a budget surplus as recently as 2005. And is anyone in this conversation really pretending to have deep knowledge of the character of Portugal?
Perhaps the best way to see this is to note, as Matt Yglesias in Slate does Friday morning, that “if you went back to the halcyon days of 2005 and 2006, nothing the governments of Ireland and Spain and Italy were doing would violate” German Chancellor Angela Merkel’s proposed budget rules. And it’s not as if Ireland’s moral character weakened in 2007. Rather, a massive, international credit bubble collapsed -- a bubble fueled in part by German banks -- and a lot of countries got hit very hard.
That doesn’t make Germany wrong for refusing to bail out Italy. But it makes it wrong to think of this as some sort of pat morality play, where the Germans have done everything right and the Irish have done everything wrong.
Some of this is economic mismanagement, some of it is bad luck, some of it is America’s fault, some of it is the way different growth strategies interacted with this particular period in economic history, and some of it is the fact that no one would ever form the euro zone in the middle of a crisis like this one because it’s glaring flaws would be too apparent. Teasing all that apart in order to assign blame is, in all but the most extreme cases (cough, Greece, cough), impossible.