A forged-by-the-events pessimist, one who hopes that you are able to remain an optimist, writes this. In that condition, it is easier to withstand the storm that rages around us. Come to think of it, wide-ranging and solidly founded ignorance will have the same effect. If you are able to combine these two layers of protection then you will be safe from worries. Only sedation can treat you any better.

The tongue-in-cheek preamble has a purpose. It is to serve as an approach to the current state of the economic crisis. This sentence contains two errors. The “current state” is an illusion. Furthermore, the crisis is not necessarily that of the economy. 

Let us assume that you are located on the fiftieth floor. When the man that jumped out at the one-hundredth floor whizzes past, you will avoid to assess his future prospects by referring to the jumper’s currently occupied spot in space. 

With the above in mind, one needs to state the obvious. Hither snapshots of reality at different times depict a decline. Each new assessment documents a small slide relative to the previously frozen movement. These gradual appraisals have registered minor deteriorations only. This was the case even if whatever was said to be impossible earlier became a subject of speculation at the next stage and a reality once the hard bottom at the end of the trajectory moved nearer. First, the rules of regarding the common currency, the Euro, were claimed to be iron clad. Then they were, citing the emergency, softened. Initially a “hair cut” was beyond the pale and avoidable through government bailouts that intended to assert politics primacy over the economy. Then a trimming became a possible scenario. Finally, naturally on a voluntary basis to which the lenders were obligated, the low set clipper, was moved over the crane. The “volunteers” were told to be happy as imposed baldness is still better than a scalping.

The second error we like to make involves a mistake that might be harking back to a misunderstanding of the mechanism that drives economic activity. One would have understanding for it had this happened before Adam Smith or in the condition of infatuation with Marx prior to experiencing him. Most of the leaders of the countries with developed economies are guilty of a fundamental error. They have made their peoples the victim of a stillborn politically inspired economic policy. One could say that the political class lost sight of the “Invisible Hand.” Having lost their bearings, they succumbed to a temptation to which safely held power tends to fall victim. Briefly, they attempted to use political power to override the laws of the market. This makes out of the crisis a primarily political one.

We come to the second error we like to make. Its symptom is that we seek to put our mind at ease by suggesting that, the ongoing crisis is the malfunction of an economy that has lost its balance. Our problems began by politics distorting the realities of the US’ housing market through the granting of credit that gave purchasing power of unqualified buyers for their votes. An avalanche exploiting the “opportunity” was triggered when the participation in the make believe became lucrative. It soon involved the entire economy of the globe’s leading economy. At first, things were fine and profits, both pecuniary and political, were high. Finally, the trick, based on “another idiot will bid higher than the atrocious price I am offering” did what rising balloons do. They burst. Thereafter, the descent turned out to be even faster than the ascent had been. 

Earlier, in Europe, the bureaucratically driven expansion of the Union made it grow from six compatible members to a mixed salad of twenty-seven. The EU’s economic zone had also been enlarged. This process put size above the claimed qualitative criteria. The first sin began before the admission of new members. In some instances, desired candidates were encouraged to cook their books so as to appear qualified for inclusion. The idea was that once admitted, the candidate will correct his deficiencies. The practical consequences was that within the €-zone institutionalized bad habits paid even better than previously. With outside supervision removed, there was no reason to cut waste and to manage expenditures and taxation according to the Union’s rules. 

In the now publicized case of Greece, being under the umbrella of the €-zone helped to block the modernization of the economy, the terms of employment, output, savings, taxes and their collection. Empowered by the access to the union’s funds was meant to help the country’s renewal. Instead, the insiders of politics were given a new leway to solidify their traditional power. They could hand out favors by granting informal immunity from taxes and could pay for the expansion of the bureaucracy. State jobs and matching regulatory tasks were created for clients. The implied controls worked as breaks on the private sector of the economy. Missed opportunities to modernize were the upshot. To round out the picture created by politics preempting economic sanity we need to mention the effect of artificially cheapened credits. Capital borrowing costs ignored local investment opportunities and local credit worthiness. Cheap money encouraged imports on credit and discouraged local wealth creation. For political reasons, the growing national debt had been ignored even by the “northern” banks that purchased the seemingly guaranteed sovereign bonds. The obvious sign of mounting risk has been ignored by profit seeking lenders. They did so because repayment seemed to be implicitly guaranteed by the “faith and credit” of the EU. 

Dilemmas surface after billions are shredded to overcome the crisis by throwing money at it. The thumping noise you hear comes from more skeletons wanting to exit the closet. We are discovering the inconvenient truth that the deficit’s financers of last resort are themselves more in the red than the €’s rules permit. Central banks are buying treasuries that would be otherwise worthless. With those papers as assets, they claim to guarantee their own solvency and that of their local banks. In the process, Greece’s malady has become the EU’s burden to bear and to solve. 

Political power has not managed to suspend the rules of the market. Only a Fathwa forbidding gravity would have been less effective. The declining stock markets tell that in the awakened real world a lack of confidence prevails. “Lack of trust” in what, you might ask. The mistrust ends on the desk of the political class that has stumbled and continues to fail. Their dread of admitting to errors is greater than their fear of the economic collapse they risk by holding on to good old tried and failed instruments. Amusingly, the conniving ruling class of the Left and the Right has found a path out of the jungle. To reassert the primacy of politics over the economy –as a high EU functionary put it (15/11) - “Europe’s” leaders are considering an effective remedy. According to their will, rating agencies are to be bound and gagged so that states and institutions cannot be downgraded without their consent. The measure invented during the defense of the “last ditch” is scandalous. Its equivalent is to crush the thermometer in order to declare the patient to be healed. 

Greece and now Italy have the same problem. That is the relatively good part of the news. Your government shows early signs of the same ailment. With that bad news we are safely back on solid ground.