Doomed Dinosaurs, by Robert Gore

One theory posits that a huge asteroid hit the earth and wiped out the dinosaurs. The standoff between Greece and the European Union is like a ground-zero battle between two of the prehistoric lizards an hour before impact. Ultimately, the outcome was irrelevant.

Greece represents many nations that believe they can live beyond their means forever. In its heyday, the European Union supported that fantasy, as capital markets homogenized credit quality perceptions across the region, enabling Greece to borrow at close to the lower rates charged historically less profligate countries. The common currency meant a common credit profile. That all blew up with the first Greek debt crisis in 2010. Ireland’s and southern European nations’ interest rates dramatically widened relative to those for northern European countries perceived as more fiscally sound.

Spreads eventually narrowed, although widely acclaimed austerity packages and reforms were puny compared to the debt expansions that preceded them. The European Central Bank (ECB) pledged to buy sovereign bonds and suppress interest rates, driving the prices of most European debt and equities higher. The perpetual deficit fantasy was intact, and the widespread belief was that any incidental problems could be solved by the ECB and European Commission. Neither a second Greek debt crisis nor a Cyprian banking crisis put much of a dent in overall optimism, although some tough love was administered, requiring Greek bond owners to take a haircut and Cypriot depositors to “bail-in” for bank rescues, in effect losing some of their deposits to involuntary confiscation.

Comes the third debt crisis and Greece has reached the end of its rope, out of money, its access to credit limited to the ECB’s emergency liquidity assistance covering its banks’ depositors’ withdrawals, which are morphing into a systemic bank run. Greece’s dire straits are obvious. What is not generally recognized is that the European Commission and the ECB are also at the ends of their ropes, regardless of how the Greek situation resolves.

Europe has been statist to its core since the Roman Empire. Most Europeans believe, with the simplicity of religious faith, that government properly is the preeminent institution, and should do whatever is necessary to order society. The notion of governments limited by individuals’ rights is faintly disreputable. Given the history of Europe since the fall of the Roman Empire, the faith should have been questioned, and was, but only by a few. Some of the intellectual forefathers of the American revolution were European, but they were better received in the New World than the Old.

After history’s two bloodiest wars and the totalitarian nightmares of Nazi Germany and the USSR, there was no widespread revulsion against the idea that governments, and the elites that run them, know best. While the EU was sold as a free trade zone, nations with long traditions of statism were never going to amalgamate into anything but a command-and-control statist union. Had it confined its aspirations to a simple free trade zone, the continent has innumerable economic advantages: a well-educated work force, a US defense shield that enables its countries to spend comparatively little on their own defense, world-class companies, a domestic market roughly the size of the US’s, and a wide variety of competitive goods and services suitable for export markets. Instead, those advantages have been squandered. The EU has superimposed governing bodies that do what such bodies always do—expand their power, impose taxes, spend money, and promulgate rules and regulations—as they tie up Europe’s economy with Lilliputian strings.

European growth has been abysmal for at least two decades, and unemployment rates in southern Europe approach those of the US during the Great Depression, with rates for the young above 50 percent. Their legitimate aspirations for economic betterment stymied and stifled, the populace is bought off with the world’s most generous welfare state benefits, funded in part by punishing taxes and in part by mounting debt. Everything save opportunity has been guaranteed, cradle to grave.

Of course no governing body worth its salt can be without a central bank, and the EU has the ECB. Instead of relegating command and control to the historical dustbin where it belongs, allowing Europeans to rediscover the joys of capitalism, saving, investing, production, voluntary exchange, and keeping their own money, the EU and ECB have gone all in on the voodoo economics of quantitative easing and interest rate suppression. It will work there no better than it has in the US and Japan, and judging by the recent lurch in European bond yields, markets are catching on: Greece is a leading edge, not an exception.

In other words, between welfare state spending, onerous taxes, stifling regulation, and debt, the supra-governing state of the EU and member state governments have dug themselves into a fiscal hole from which they cannot get out, and creditors are starting to demand compensation for the risk. Not even stepped up buying of sovereign debt by the ECB has stopped the market from marking up the yield on 10-year German debt from a low of five basis points (5/100s of a percentage point) to 84 basis points last Friday in the span of a few weeks. The slaughter of speculators, who had front-run the central bank while taking advantage of its ultra-cheap money, has been spectacular and well-deserved.

The victor in the “battle” between the government of Greece and the government of the EU will prove to be mostly a matter of paleontologic interest. Future scientists will exhume the fossils of Brusselis Stranguladactyl and Hellenica Profligatus and conclude both species were done in by their parasitism, ever-expanding consumption at the expense of production, rigid, unwieldy command-and-control exoskeletons, and their inability to adapt to the global forces of decentralization and individual empowerment. Moving on, they will ascribe the same causes of extinction to Washatops Bloatosaurus, Tokyodon Wasticus and a slew of other government species.

WHEN WAS THE LAST TIME YOU READ A 786-PAGE NOVEL YOU DIDN’T WANT TO END?

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