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A View on Europe

A View on Europe

The following post is an edited version of an article that appeared in the Jerusalem Post earlier this month by Pinchas Landau, author of The Landau Report, a newsletter and consultancy service addressing the needs of foreign firms and financial institutions active in Israel and the Middle East.

“Domestic fury, and fierce civil strife
Shall cumber all the parts of Italy…”

Julius Caesar Act III, Scene 1

As it happens, Italy was not the scene of domestic fury, let alone of fierce civil strife. Instead, the Italian government and parliament – at the urgent prodding of its lecherous leader Berlusconi – rushed through more and tougher austerity measures, in an effort to persuade the financial markets that Italy is not a basket case and to convince the European Central Bank to continue buying Italian government bonds. The ECB, seemingly encouraged by this display of political determination by the Italians – although over the firm objections of the German members of its governing council, did step up to the plate and buy both Italian and Spanish bonds, thereby preventing a total rout in the markets.

However, even with this support from the ECB, the Italian and Spanish stock markets lurched from one low to another over the week. This came as the markets were swept daily and almost hourly by rumors of liquidity problems at leading Italian banks and, far worse, major French banks as well. So while the Italian domino trembled – but did not (yet) fall – the next domino down the line, namely France, began to shake. Here, too, the response was seemingly firm: not only did the ratings agencies confirm that they had no problem with FrAAAnce’s triple A rating – despite having knocked the USA down a notch – but President Sarkozy summoned his senior ministers and instructed them to prepare further austerity measures for discussion and approval later this month. Here, too, the aim is to demonstrate that the political determination exists to do whatever it takes to stabilise the economy.

Formidable. But there is a problem with tough economic policies. They are great when you see the Powerpoint slides and Excel spreadsheets that show how expenses will be reduced and the deficit trimmed, so that key debt ratios improve over time. But if these fierce austerity measures are legislated and implemented as planned, they cause serious hardship to many people and engender major social dislocation. Economists will explain, rightly, that the alternative is worse – eventual breakdown of government and total collapse – but that sensible line still doesn’t play well among the people who actually bear the brunt of the budget cuts, the public sector firings, the elimination of welfare programs, etc.

Just how problematic it is to impose severe and prolonged austerity on a large country became abundantly, painfully, shockingly, clear in the UK this week. The Conservative- LibDem coalition that came to power last year had a mandate to cut government spending and raise taxes, so as to prevent Britain reaching the parlous financial state that Italy, France et al are now facing. The Cameron government has gone ahead with massive cuts in public spending. These measures have been fiercely opposed, as might have been expected. There have been major demonstrations by students and others, and some of these have turned very violent and very nasty. But that was to be expected – in Athens the austerity measures were worse and the intensity of the opposition was greater.

Yet the protests and demonstrations seen hitherto in the UK were in no way similar to, nor did they in any way prepare people for, the events of the last week. These were not demonstrations, or protests against anything specific. Instead, there has been a wave of wanton vandalism, perpetrated for the most part by kids.

Fortunately, this wave of violence has not cost lives, except for one incident in Birmingham. Unfortunately for its perpetrators and would-be imitators, it did something even worse, in the British scale of values. It attacked property. If, in earlier times, it could be said that “an Englishman’s home is his castle”, in the current secular age in which real-estate is the national religion, his home is also his church and sanctuary – and shopping centers are the social cathedrals. By attacking and burning shops and homes, the stupid, greedy kids have declared war on the middle class – and will pay dearly for their mistake.

They are smart enough to know that playing the role of disadvantaged victim – “you shouldn’t ignore us”, as some of the thugs explained – is the politically correct path to a rap on the knuckles, rather than a prison sentence. But they are not smart enough to realize that they have just helped consign that liberal mindset to the garbage can of history. Britain is now facing up to the consequences of five decades of social engineering and family collapse – in the developed country with the highest rate of teenage pregnancies, how many of the vandals have two parents, let alone functioning ones? – perpetrated by left-liberal ideologies, and three decades of economic Darwinism perpetrated by right-wing ideologies. These consequences are not abstract concepts, they are the “feral rats” (as a middle-class lady in Croydon termed them) that emerged into full view this week.

But as the rest of Europe is forced to rapidly dismantle its welfare state in an attempt to avoid bankruptcy, it will expose itself to the same consequences. Each country has its own brand of poisonous racial/ ethnic/ religious/ national/ class hatreds bubbling beneath the surface. As the crisis deepens these will spill over into domestic fury, fierce civil strife and the rest of Mark Anthony’s terrible prophecy.



Roger Scher

Roger Scher is a political analyst and economist with eighteen years of experience as a country risk specialist. He headed Latin American and Asian Sovereign Ratings at Fitch Ratings and Duff & Phelps, leading rating missions to Brazil, Russia, India, China, Mexico, Korea, Indonesia, Israel and Turkey, among other nations. He was a U.S. Foreign Service Officer based in Venezuela and a foreign exchange analyst at the Federal Reserve. He holds an M.A. in International Relations from Johns Hopkins University SAIS, an M.B.A. in International Finance from the Wharton School, and a B.A. in Political Science from Tufts University. He currently teaches International Relations at the Whitehead School of Diplomacy.

Areas of Focus:
International Political Economy; American Foreign Policy