Everyone says Europe has a debt crisis. But does it not instead have a morality crisis?
What I mean is that, technically speaking, there are lots of possible solutions to the problem, such as some mix of:
- Eurobonds, either actual or synthetic, accompanied by limits upon governments' ability to borrow.
- Recapitalizing the banks so they can withstand the inevitable write-down of PIGS' debt.
- A debt-equity swap
- A German fiscal expansion
- Full-blown quantitative easing, perhaps via changes to the SMP.
(I do not include a breakup of the euro as a solution because it's not; it would only be a massive default).
The thing is, this range of options is pretty impressive compared to those available in most political and economic crises. Of course, they all have costs, but not technically insuperable ones.
Instead, the obstacle is morality. All these options - except fiscal expansion which is only part of the solution anyway - impose costs upon northern European taxpayers. Which prompts the sort of questions posed by Clemens Wergin of Die Welt: why should German tax-payers support Greek tax-dodgers? Why should bankers who have made bad loans be bailed out?
In short, there's moral resistance, founded in part upon natural justice and in part upon the protestant bourgeois belief that hard work and prudence should be rewarded and fecklessness punished.
I say this is moral resistance rather than self-interest for a simple reason. Tax-paying Germans will lose money even if policy-makers do nothing. A Greek default, and contagion losses on other PIGS' bonds, will lead to a banking crisis and to recession in southern Europe which clobbers the German economy.
Whatever happens, Germans lose. The question is whether they lose by doing nothing or by formally supporting banks and/or PIGS. Insofar as there is resistance to the latter, it is founded on morality - a desire to punish sinners - rather than narrow self-interest.
Herein, I think, lies the cause of the markets' annoyance at Europe's lack of leadership. If you regard the crisis as a merely technical one, you'll see lots of possible fixes - or at least improvements on the status quo - and will therefore be frustrated that these aren't being pursued. What you miss is that moral aspect.
This, though, merely raises a more general point about politics - that there is not only often a clash between moralists and technocrats, but a mutual incomprehension between them.