Will the PIGS Blow Up Europe?

By Patrick J. Buchanan

“Among the mega-forces moving the tectonic plates and imperiling the nation-states of the world from above and below are these:

First, ethno-nationalism, which threatens nations with secession and break-up. We see it in the Uighurs of China, the Naga of India, the Baluch of Iran and Pakistan, the Kurds of Iran, Syria, Iraq and Turkey, the Chechens of the Russian Caucasus and the Walloons of Belgium.

Second, transnationalism. This is the project of global elites who seek to reduce nations to ethno-cultural enclaves in a new world order run by these same bloodless bureaucrats whose loyalty is neither to the land nor people whence they came.

Their work in progress, the European Union, however, is imperiled.

For the EU just took a great leap forward to force Europe’s most indebted nations to surrender their economic independence or be expelled from the European Monetary Union. The PIGS — Portugal, Ireland, Italy, Greece and Spain — may rebel.

Indeed, we may see cascading rebellions across Europe recalling 1848, but with a different outcome.

What brought the EU to this day of reckoning is its decision to go for a trillion-dollar bailout of Greece, Portugal and Spain rather than let them default or restructure their debts. These nations are now being directed by the EU and International Monetary Fund to slash public spending and raise taxes, though all suffer from high unemployment, with Spain’s at 20 percent.

If Berlin gets its way, these nations may also be forced to submit their budgets in advance to Brussels and accept EU-dictated limits on the deficits they will be permitted to run. This would entail a sweeping surrender of sovereignty, independence and economic freedom.

Moreover, as the pain of this “rescue” is to be borne by the debtors, while the beneficiaries are the French and German banks that hold tens of billions in PIG paper, this question arises: Why should Athens make Greeks suffer and risk political ruin at the polls, rather than default and let the banks and bondholders of Europe share in the pain?

Why not quit the EMU, default, repudiate the euro, restore the drachma and devalue? That would make Greek exports more competitive and make Greece a more desirable place in which to site one’s next factory. And with its currency devalued, Greece would also become a more attractive destination for Western tourists.

But a Greek default is not the only threat to the EU.

The European Central Bank has been buying Greek debt from the banks both to relieve them of the risk of a default and to restore market confidence in Greek, Portuguese and Spanish bonds. Only when such confidence returns will investors buy new debt from the Club Med countries, all of which must issue new bonds to finance deficits and roll over maturing debt.

A problem, however, has also arisen here. As the ECB is buying up the debt of the PIGS, holders of Greek, Spanish and Portuguese bonds are unloading them, getting out of Club Med paper while the getting is good.

The ECB seems to be substituting itself for the banks as the chump to be left holding the bag when the defaults begin.

The plunging euro is a sure sign the markets are coming to see that the only way the bonds of indebted European nations are going to be paid off is with a huge infusion of euros, which may end that currency’s status as a reliable store of value.

However, “if the euro fails, it is not only the currency that fails,” says German Chancellor Angela Merkel. “Then Europe fails. The idea of European unity fails.”
Especially enraged are the Germans. To show that they were good Europeans, they gave up their beloved mark. Now, in recent elections in North-Rhine Westphalia, the Christian Democratic Union of Merkel took a thrashing, falling 10 points below the CDU’s 2005 vote, and losing the upper chamber of the German parliament.

Germans may be ready to shed the sackcloth and ashes they have worn for 65 years and start looking out for Deutschland uber alles.

Given the strains on the European Monetary Union and EU, neither of which enjoys the love or loyalty that people render to the countries of their birth, the great unraveling may be about to begin. Why, after all, should the indebted nations of Europe impose suffering upon their peoples to pay off old debts now held by distant banks?

How does imposing austerity on Portugal, Spain and Greece enable them to grow their way out of indebtedness? How does it help the EU grow if a large slice of the union is forced into austerity?

And why should Germans who pay themselves modest pensions and hold off retirement put their savings at risk to bail out the Club Med?

Many have predicted that economic nationalism would one day tear apart the European Union. The hour may be at hand.