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The Betrayal of Europe, by Ben Fricke, ’13

This op-ed by IWP alumnus Benjamine Fricke was published by Eurasia Review.  An excerpt appears below.  Please click here for the full text.

For seven years now the European elite has been occupied with saving banks, indebted states and the Euro, yet nothing seems to have changed.

I have begun to ponder why political efforts have been unable to solve these problems and hold the responsible actors accountable for their mismanagement of banks, and states or to change their economic policy in Europe.

History once again must teach us a lesson of why nothing has worked to solve the problem. The three crises are to some extent independent from another but yet have amplified their impacts on each other. The real estate bubble in the U.S. has been a trigger for Europe’s dysfunctional system to become apparent. Yet, to blame speculating banks and U.S. housing policy solely for the economic disaster in Europe and the Euro crisis is incorrect.

When the Euro was officially announced, the interest rates for loans dropped for southern European countries to de facto German levels. This period between 1995 -1998 was called the “convergence period.” During that time cheap credit was made possible for countries, such as Greece, Italy and Spain. Prior to 1995 Greece, Spain and Italy paid double digit interest rates for their loans and were far away from a debt problem. That changed dramatically after 1995 because standards of living were boosted with cheap credit. The loans primarily served consumers and not investors. The debt burden did not have an equivalent rise in productivity to pay off the debt. A functioning economy is always based on investment, innovation and productivity.

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