The EuroCrisis – A Cultural Crisis – Part 2

The EuroCrisis – A Cultural Crisis – Part 2

The history of Europe is very vast and rich. The different Kingdoms gave way to countries and blocs. Even today, these endure the test of time. Many people confuse Eurozone with Schengen Area, which is not the same. See the following graph, which visually shows that, even within the Eurozone, there exists segregation. The Nordics, the Baltics, Benelux, Southern Europe, the UK… intended as a common region both for transit and commerce, the European Union is much more divided than what we would like to think. 

When the financial crisis broke in 2008 the southern European countries, which had had less fiscal discipline, went into recession. Greece was the first to have issues to make debt payments, having to undertake a series of structural reforms in order to refinance it’s debt. Germany, leader of the Eurozone, imposed austerity measures on the weaker nations. Austerity means that the nations should have more fiscal discipline, that is: lower their government spending and increase taxes, in order to restore fiscal balance. However, as seen before, the IMF imposed these same measures in latin-american countries like Argentina to disastrous results. Applying once again the Keynes fiscal multiplier, we should understand that cuts in government spending means for ex, freezing or directly cutting government salaries. A teacher takes a cut in his paycheck, now he has less disposable income. He does not have any money to go to the movies now, so the cinema has less customers. In turn the cinema has to lay-off a few employees due to the economic downturn, who now can’t afford to go to the restaurant. Restaurants must close as well and so the circle goes. Increasing taxes will have the same effect. The total income should not increase since now the customers will simply buy less product.

By applying fiscal austerity, the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain), changed recession for depression. Instead of strengthening their positions, they had to restructure their debts to avoid defaults. In the long term though, some of these measures worked out. High unemployment meant a bad job market, which pushed down the salaries (as seen in Stiglitz theorem). With lower salaries, economies became more competitive and dynamic, strengthening their commercial balances (export – imports). From that perspective, it is conceived that Spain has reached a bottom and might take back the path of growth.

But the Eurozone was not just supposed to represent a commercial relationship between the countries, but also an area of free-labour. Let us take the example of the United States of America. A market consisting of 300 million people distributed in 51 states, each state has it’s own budget and industry specialization. American citizens are supposed to have availability to relocate. For ex, when the automotive industry takes a downturn in the city of Detroit, jobs are lost in the region and the people are supposed to move to other states where they get job offers. This is good for the economy, since qualified labour is not lost but moved to other regions. Some states are deficitary, and are financed by the wealthier states. Of course, all states are under the same umbrella, which is the US government, which handles national politics and economics.

The Eurozone should function in a similar manner. That is why many economists reclaim fiscal union and bank union for it in order to work, if the countries are to have a unified currency. However, what everybody fails to discuss, is that the people should have availability to move to other countries in recession times, and those countries should be open to take them in. For ex, when the Real Estate bubble burst in Spain, millions of Spanish people became unemployed. In Norway, even if not formally part of the Eurozone, many of it’s paradigms are applied. In 2012, 20.000 spanish people came to Norway to look for work. Only 1.000 found a job (and that includes part-time as well). Spanish people are tremendously discriminated in Northern Europe, where they are seen as part of “Hispanic-america”. Thousands of Spanish people moved to Latinamerica to look for work, as it was easier for them there than in northern Europe. Usually, they say it’s because of the language, but no, it is because Northern Europeans don’t like Spanish culture (except when on vacation, then they love going to Spain). Northern Europeans usually work in English in Northern Europe.

These issues have nothing to do with permit issues. With a European passport, it is very easy for Spanish people to get permits once they get a job. However, the job market behaves with hostility towards them. Northern Europeans, as well as French and Polish, are prioritized. Spanish and Italian have to wait in queue. It is not written anywhere, but that’s how it works in practice. The reason is historical. After WW2, Spain dealt mainly with food and tourism, and that is what it is known for. It can be easy for the Spanish people then to get jobs in restaurants or kitchen (if you are Spanish, you must be a good cook). But nobody understands that due to lower costs than in other European countries, Spain has positioned itself as an IT powerhouse. So Spanish engineers could struggle to get a job in Northern Europe, just based on prejudice.

I will go deeper into the integration issues that Germanic countries face later, and the historical reasons for this. From a political and economical stand point, Germany has been a terrible leader. General consensus amongst the population is that Germany should NOT be financing the weaker countries, who got into these situation in the first place due to their lack of fiscal discipline. Why should we pay for the crisis? – thinks the germans, these people are like this because of the culture, they don’t want to pay their taxes, they deserve what is happening to them. But as previously explained, if your neighbours are poor, you become impoverished yourself. Influx of immigrants change the shape of your own landscape, not to mention you go bankrupt yourself if you don't have nobody to sell your products to. Regardless of cultural differences, the situation in Southern Europe eventually affects Northern Europe and all the European countries, and sticking together in a time of need would have been the clear direction to head towards.

The refugee crisis adds now a new level of complexity. In addition to the issues of integrating southern, northern and eastern Europeans, Europe now faces the challenge of multiculturalism. Only the US and the UK have really been multicultural, that is including Europeans, Latinos, Asians, Afro-americans, etc. But these countries have an imperialistic mindset and culture, so they cannot be used as example. But Europe is a region based on emigration and not immigration. Whether the population wants to admit it or not, the people of Europe don’t like non-european migration (or their children). It is like that in most European countries, only to different degrees. In Northern Europe, the people don’t really like Non-Northern Europeans either.

Whatever the government does, whatever plan they might come up with, it will always find the restriction of the local culture, of people’s mentality. Cultural changes only happen slowly and on a long-term basis. Eventually, as the situation worsens and Europe sees how other countries or regions are rapidly catching up, each country will start pushing for their own interests. We can see that happening now, with talks of Brexits and Grexits. In a crisis, it becomes every man for his own. That is just the way that it is.

Your friendly economist,

Cristian “Nash” Bøhnsdalen.