Europe's Day of Reckoning
Ezra Klein recommends this LRB piece about the current phase of our economic crisis by popularizer John Lanchester. And why not? It's pretty good.1 European banks, he says, are in way worse shape than they've ever been willing to admit. This is true — and it's something that a lot of us have been puzzling over for a good many years. Our puzzlement was related to the fact that although European banks really did appear to be in bad shape, they mostly managed to sail along seemingly unscathed regardless. But Lanchester thinks the era of the brave facade is finally over, and a day of reckoning is near. Unfortunately, as always, Europe is still unwilling to fully recognize reality and do what it must to fix things properly. The best-case scenario is already out of reach:
The next scenario — the one we are on course for at the moment — is not so much the next-best as the next-least-worst. It is modelled on what happened to other parts of the world over recent decades, from Latin America to Russia to South-East Asia, as they underwent debt crises and consequent economic collapse. In all cases, the relevant economies recovered, after about a decade of hard times and widely shared economic pain. In this model, the debts are gradually paid down, the economy is slowly and miserably rebalanced, and eventually things grow back to where they were when the bubble burst. There is a general sense of baffled incomprehension in the West at the idea that this should be happening to Us, instead of to Them; it turns out that this trajectory of crisis and slow recovery is a lot more bearable when it happens to other people, ideally in far-away countries of which we know little. But that is what we look to be on course for at the moment.
Unfortunately, I think I agree with Lanchester. I'd prefer to think that we'll all come to our senses soon and do what needs to be done, but as he says, "I fear that the grip of anti-spending ideology is so strong throughout the West, and the politicians’ fear of the banks is so entrenched, that the ten-year slog looks more likely." Urk.
1And be sure to read the footnote!