A daily blog on the thrills, spills, and frequent absurdities of the world's one and only 'non-imperial empire' - as Barroso himself called it - the European Union.

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Friday, 15 July 2011

Jakobsen: EU Must 'Face the Truth'

The glass streets of the United Arab Emirates. Picture by Saudi.

Why would a man who is eminently qualified to talk of European economic affairs, being the chief economist at one of Denmark's leading investment banks, need to go as far afield as Jordan in order to get his views on the euro published? It is an intruiguing question, and one which may be harder to answer than it seems: there could be all manner of reasons for Steen Jakobsen to write for Al Bawaba, rather than a European national. If I hadn't seen for myself how the Arab press was consistently better at reporting the feud over Denmark's border patrols, which - as anyone here who reads the Times of Oman will know - is still continuing, despite the fact that European news agencies have scarcely mentioned it, then I'd be inclined to put the explanation that it's 'because he disagrees with the consensus' down to paranoia.

But, whatever the reason, the fact remains that Al Bawaba has a very interesting article and European papers do not. The comparison between the euro and Denmark's national football team might be lost on most people unfamiliar with the sport - how it will ever be relevant to the website's Arab readership I don't know - but nonetheless it is well worth a read. It's a breath of fresh air for anyone who is tired of reading the same old EU denials, and for any EU supporters who are tired of the 'I told you so' attitude that comes as standard in most 'Eurosceptic' articles since the euro crisis was announced (just for the record, we did tell you so).

'Let me help: if your income is less than your expenses and you can’t borrow money, you are done, finito, insolvent and in default'

This is an obvious fact for most people - but, not, it seems, EU economists who are still insisting that Greece will not default. That sentence pretty much says everything in one clause, and adds the rest just to prove the point. Greece has more going out than it has coming in and it is finding it increasingly difficult to borrow money to fund this; hence, it is unthinkable that it can pay off its debts. Greece has one of the worst track records for defaulting on its debts in the history of man: it has spent half its time as a sovereign country in a state of default. Expecting it not to default is the ludicrous opinion here, not the opposite.

The 'extend-and-pretend' nonsense, as Mr. Jakobsen calls it (by which he presumably means the bailouts, or the continued insistence that Greece will pay off its debts) must be discontinued, and in its place Greek must accept that default is the only viable option. Citing examples of European economies that have been in similar economic straights before, he concludes that default may not necessarily by a bad thing; Finland and Russia, for example: the former is now having to bail out Greece, against the will of the largest party in terms of electoral base, and the latter is now one of the BRIC nations.

If Greece defaults now, there will be short-term pain for long-term gain. The smoke and mirrors tactics that the EU is currently employing - with five hundred billion pounds of European public funds - only serve to make things worse. Mr. Jakobsen puts this much better than I can: 'that is another lesson from Greece; the longer you avoid facing the truth, the more you solve debt with debt, the deeper the hole you are digging.' He says all that really needs to be said. Now just to get the European Union to listen.

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