Doc Cleveland: Horse Race? Or Hindenburg?
Ramona: I'm Offended By My Country
The wave of anti-austerity swept Hollande into power in France, and for good reason - Merkel's austerity program, while sounding nice and grownup, doesn't work.
Nor has Greek tax evasion and profligacy - relying on economic statism.
With half the country avoiding taxes, 30% of income and 1/4 of GDP off the books, and about 60 billion € owed to the leisurely tax authorities, the responsibility spreads far and wide.
One touted effort at accountability showed 17,000 swimming pools around Athens with only a few hundred declared. But when a businessman confronted with a 600K € tax debt gets away with paying 11,000 €? Good luck to all that.
Even on the international scale, Greece carried 2 sets of books, the public one with 2% lopped off of debts thanks to some tricky Goldman Sachs moves - moves that cost the Greeks dearly in the long run. Though allowing her to get more loans from EU sources at better rates, plunging her further into debt.
Even if you don't think the original Goldman Sachs deal was as fraudulent as proclaimed, its followup was scandalous, with Goldman Sachs gaining both usurious rates plus betting against its own client in the currency markets.
Greece's economy is built on thin pillars - over 50% of GDP is from shipping and tourism, with a massive chunk going to government fraud and an unproductive state monopoly sector with its mandated pensions.
Greece couldn't really afford the €10 billion cost of the Olympics, including the post-9/11 security costs as well as building 21 unused facilities to maintain after.
The sensible thing of course would have been to deny Greece entry into the EU to begin with, and certainly not the Eurozone.
It's tempting to equate Greek voter outrage (I almost typed "taxpayer") with complaints of cheated mortgage holders in the US. But aside from a few individuals betting too much on housing growth 4evuh and inflation-indexed mortgage rates, the typical US homeowner was reasonably responsible and thrifty.
Most people were harmed not so much by the popping housing bubble, but by the financial crash that took jobs and killed income & ability to pay - exposing people to the whims of health crises and unscrupulous mortgage houses (grabbing individuals' property while knowing the average Joe can't respond as quick and powerfully as a major bank even if in the right).
So while it may be fun to cheer against Merkel as a deficit-scold, the fact is that Germany has been propping up this deck of cards for 2 decades even while it rebuilt East Germany. And still the EU zone has done little to strengthen the credentials of many of its weaker countries. (with some exceptions - Ireland's problems weren't structural, but mostly due to the financial tsunami, while new entrant countries like Poland are more stable than a number of incumbents).
And Germany didn't loan to Europe purely from speculation - there's a ton of WWII-schade still left to pay off, so that Berlin has responded to this kabuki as thinly-veiled charity, and the beggars never fail to play off this guilt.
However, this time the charity has proven dangerous - the debtors are lining up outside the door, and they no longer give the pretense of being contrite and responsible. It's Germany's fault, it's the (Euro) banks fault, it's the EU's problem - everything but their own behavior.
While Hollande may have ridden this sentiment to victory, the next budget is his, and he won't get cooperation from Germany without some significant spending from Paris. French industry has been unusually productive while others reel, but it's already overtaxed, overvacationed, over-early pensioned.
The challenge is that Krugman's idea of stimulus spending works when there's industry to be stimulated. But when it's dried-up shipping and tourism, and paying for lying on the beach, total economic velocity drifts towards zero.
The ones who need austerity are the ones who are protesting and can't produce anyway, while the ones who could benefit from stimulus are already producing and will be asked to pay more so as to produce less.
Unless some hero can find some unwatched golden apples in the Hesperides, Hollande will soon be begging for a 3rd way. What that way is, Krugman hasn't written yet up on Olympus, but likely the Greeks will still find the need to respond to the wrath of the Gods. Perhaps they can start with Aesop, say The Ant and The Grasshopper.