In Europe, economic meltdown tears at unity
ATHENS – There's a ditty being passed around in Greece these days that captures the mood of "lazy" Southern Europeans toward their "saviors" to the north.
Sung to the tune of Gloria Gaynor's I Will Survive:
At first we took the aid
We were petrified
Kept thinking we could only live
with Germans by our side
But then we spent so many nights
Thinking how EU did us wrong
And we grew strong
And learned to string you all along …
There's more, but you get the idea.
Many Greeks are not happy that they are being ordered by Europe to abolish their generous welfare state to rescue the European banks that have lent them billions of dollars. On Tuesday, trash filled the streets below the Acropolis as teachers, garbage haulers and government workers demanded that their socialist leaders refuse Europe's deal.
In Germany, people are furious that while they saved their money, the Greeks spent theirs, and it is Germans who must largely bail out the accused freeloaders or risk economic ruin.
"I take responsibility for myself without the state having to help me," said Mathias Böhmers, 56, an electrician in Berlin. "And while I could support us helping a few people, rescuing an entire country is a bit too much."
The European financial crisis has awakened average Europeans to the frightening possibility that the end is near for their post-World War II system of stiff taxes, guaranteed state jobs, early retirements and lavish benefits.
The combining of countries into a modern superstate called the European Union in 1993 and the replacing of Old World currencies such as the Greek drachma and German mark with the euro were supposed to preserve that arrangement into the 21st century.
But Greece and other Mediterranean governments are facing bankruptcies after years of using their access to the AAA-credit ratings of their northern neighbors to borrow and spend. Bailouts to prevent European banks that did the lending from going under are piling up, and a need for unanimous approval of each bailout means one country can keep others in debt.
All eyes today in the global markets are on EU member Slovakia, the last vote needed for a key expansion of a bailout fund that now tops $1trillion. Bailout foes in the Slovak parliament vowed to resume debate today, just days after Belgian bank Dexia imploded to become the first lender to fall victim to the crisis.
The end is not in sight.
European Council President Herman Van Rompuy summed up Europe's situation: "We can't finance our social model anymore."
Fears of a 'domino effect'
It was a grand idea for Europe: Share a currency, cut border controls, ease transfer of goods, services and people — and give the USA a run for its money in terms of wealth, power and influence.
"There was a discussion around the so-called 'EuroSclerosis' in the 1980s, that we were losing out to Asia and the U.S.," said London-based writer Daniel Ben-Ami, author of Ferraris for All: In Defense of Economic Progress.
The EU would bring prosperity and security to the social-market economies that took part, Europeans were told. This would increase trade and competitiveness for European companies, create more jobs and increase already generous benefits.
Twenty-seven European nations signed on, 17 of which agreed to replace their currencies with the euro, which just a few years after its introduction in 1999 rivaled the U.S. dollar in international markets.
But the strong euro helped paper over the growing expense of the European way. Britain and France saw it coming and this year hacked away at cherished pillars of the welfare state such as free universities, months of vacation and early retirements. In London, protesters shut down the city; in Paris, Prime Minister Nicolas Sarkozy's popularity rating sank to 20% after he raised the retirement age in November from 60 to 62.
EU regulators have found worse elsewhere.
Politically connected real estate speculators in Ireland defaulted on massive amounts of mortgages when property values plummeted, sending Irish banks toward insolvency. Portugal was next, hoping an economy that had not grown in 10 years would expand and make up for its deficit spending. Banks in Spain have a huge number of bad mortgages. Greece is $400 billion in debt — a whopping 150% of its gross domestic product.
A $1 trillion bailout backed by euro nations and the International Monetary Fund in May 2010 was not enough. In July, a $159 billion rescue plan for Greece was announced. Last month, Germany boosted its share of the bailout by $287 billion and last week joined France in saying it plans to announce a large package before a meeting of the G-20 leading world economies in Cannes, France, in November.
Some economists argue Greece cannot be saved, so giving it more cash is pouring good money after bad. Others say abandoning Greece could cause a worldwide meltdown.
"That could mean global economic collapse (because of) a domino effect: Greek banks collapse, then French banks collapse, then U.S. banks collapse," said Ben Tonra, a professor at University College Dublin who specializes in the EU. "Global finance is so beyond the control of national governments anymore."
The EU's welfare states are going broke, and the knives are out for their budgets and the politicians who have supported the EU project. Voters to the north are electing anti-EU candidates who are lecturing about "responsibility" and "thriftiness" to profligate neighbors such as the "lazy" Greeks, Spanish and Portuguese, as German Chancellor Angela Merkel described her southern partners in May.
On the other side, debt-laden nations are resisting measures to curb the benefits politicians have long bestowed on the public in return for votes. They say banks should not have lent them so much and must accept less on loans. Outrage on both sides has Europeans taking to the streets in Madrid, Athens, Paris and London.
Analysts say this all highlights what the EU has failed to become: a United States of Europe.
"This is the existential question for Europe right now," says Carsten Brzeski, chief economist at Dutch financial group ING's Brussels' branch. "Are we willing to move toward the United States of Europe, or not? We are at a crossroads."
Europe's biggest economy is not pleased about holding the bag. Germans are on the hook for about one-quarter of the bailouts, and 66% of those polled recently don't think the economic "motor of Europe" should bail out its partners. Some want Greece evicted from the EU.
"What Greece is doing, spending more money, even more this year but not taxing enough — does not work," German lawmaker Frank Schäffler says. "Greece won't grow out of this crisis."
Others say it is Germany, which has built a healthy export economy, that should ditch the idea of a European currency and go back to printing Deutschmarks.
"In our view, it's too late to save the euro," says Jan Timke, who leads the grass-roots movement "Bürger in Wut" (Citizens Enraged).
Merkel is caught in the middle, pandering to angry voters but also trying to explain to Germans the risks of letting the EU fall apart. She has little choice, analysts say, because German banks — like France's — have lent heavily to debtor nations and could fail if Greece defaults on its loans.
"The German people want two things," said Cornelius Adebahr, a researcher at the German Council on Foreign Relations in Berlin. "They want as little as possible of their taxpayer money spent, and they want somehow a sign of principle — that a country like Greece, which has wasted money over the years, has to sort things out themselves."
That sentiment is rising in better-off EU states.
In Finland, the True Finns party and its anti-bailout adherents won an unheard-of 20% of the seats in the 200-member parliament in April, putting it a mere five seats behind the top vote-getter, the conservative National Coalition Party.
"It is not the little guy who benefits: He is being milked and lied to in order to keep the insolvent system running," True Finns leader Timo Soini said in an editorial in the Wall Street Journal Europe soon after the election.
Even so, "rich" Europe acknowledges they have benefited from the eurozone and from the easy-spending Greeks and Irish buying their products. True Finns "appeal to people who want to keep things the way they are, and are against what they believe is threatening the traditional Finnish way of life," says Juho Rahkonen, head of research at the Taloustutkimus polling group in Helsinki. "But many people realize that being part of the eurozone has brought us more good things than bad."
In Spain, people talk about lost homes and a lost generation. The unemployment rate hit 21.2% in July, twice the EU average. Spain would have to generate 2.2 million jobs to reach pre-crisis levels, says the Organization for Economic Co-operation and Development. That won't happen for years.
Vicente Carricondo, 42, a geologist in Sant Adrià del Besòs near Barcelona who lost his job in March, is struggling to pay his mortgage and support his unemployed wife and two children.
"It feels hopeless, but I have to keep on going for my family," he says.
Thousands of jobless Spaniards soon might be homeless because they can't pay rent or mortgages, analysts say. Spanish law allows banks to charge interest on mortgages even after they foreclose. Last week, thousands of members of the Platform of People Affected by Mortgages protested in 41 cities over such evictions.
Spain's pro-EU ruling Socialists have been pummeled in recent elections over the budget cuts demanded by the EU. Its loss in municipal elections in May was the greatest since democracy returned to Spain in 1978.
In Ireland, dubbed the "Celtic Tiger" in the 1990s for its booming economy, incomes have dropped dramatically, unemployment is up to 14.4% and about 3,000 people out of a population of 4 million leave the country every month. The Irish ousted the pro-EU government of Fianna Fáil in February in the party's worst election showing in eight decades.
Magazine writer Lenny Antonelli recently abandoned Dublin for his native Galway in the west of Ireland to save money. "Six of my friends have emigrated and two more will go in the next two months," he says.
Greece may be the country that determines whether the EU survives, but "Greece is on life support. We just don't want to admit the country is clinically dead," says Elisa Malliaraki, 28, a pharmacist in Rhodes. "It's the EU's fault, too. It's like lending money to a gambler. "
The economy is expected to contract 5% this year, leaving scant hope that Greece can pay its bills. Some say it is time to let Greece go bankrupt before the rest of the EU drowns in debt.
But that won't solve the absence of fiscal coordination that allowed Greece leaders to run rampant, boosting government jobs and benefits without the taxes to pay for it. Today, one in three workers are employed by the state.
"You can't have a currency union and not have a coordinated fiscal policy, a budget or economic policy," Tonra says.
Even so, the European project should not be written off, observers say: It is relatively new and just going through growing pains.
"It's not (going to be) a big-bang happy ending, it's not an American movie with a nice punch line at the end," Brzeski says. "This is probably kind of a European art movie, with a lot of suffering but in the end a rather gentle, happy ending."