Bear with me on this. Remember, no analogy is perfect. This is not historically accurate (pertaining to Digitalis) or completely medically accurate either.
Let's pretend there's a sport called World Economy. There are different teams and the teams play games against each other. Of course, the goal is to come in first. There are some smaller teams, in the same geographic area, and they do alright. But they figure they can do better if they form one giant team. So that's what they do. They call this team the Euros.
In order to insure victory, they come up with a master-plan. First, they create certain rigid conditions for each smaller team to meet before they can be part of the Euros. This is the smaller team/player “physical” to make sure the smaller team, as a whole, is healthy. Second, they create what they believed are sufficient rules and controls for the larger team, the Euros, to remain in tip-top condition and health. For instance, only certain medications can be used if a Euros player gets sick. Additionally, there is a team diet, a team weight program, a team stretching program and a team conditioning program. All the players on the Euros have to follow these programs to the letter. Third, if a player becomes injured, or sick, that injured/sick player can't leave the game (The team has to continue to compete against other teams with the injured player.). Fourth, if a player develops an heart arrhythmia, no other drug but Pfizer's Digitalis can be used. Fifth, no one can quite the team. Sixth, if the rules, the training program, the weight program, the diet program, or the authorized medications need to be changed, or added to, the players on the Euros have to unanimously agree on any change. Seventh, even if a player follows all the rules and has a full heart attack, not an arrhythmia, there is a do not resuscitate (DNR) form on file that must be honored.
The Euros play with these rules for a while and they do quite well in the standings. But, after a while, some players start to have heart arrhythmias while playing in games. Because Pfizer's Digitalis is the only sanctioned drug, they started to use that. But a strange thing happens. When the players start to take the Digitalis some get better, but some don't. The team owner calls Pfizer to try to find out what's going on.
Generally, Pfizer's Digitalis, which has a molecular structure of C41H64O14, is a great drug for controlling heart arrhythmia. In order for Pfizer to keep the drug stable before it reaches the heart, it has to coat Digitalis with a special molecule called Goofus. Pfizer starts to research what's going on when their drug is used on the Euros players. In short order, their research reveals the problem is that, in some instances, in some players, Goofus breaks down. In turn, this causes the molecular structure of Digitalis to break down before the Digitalis can get to the heart. Sometimes, the molecule degrades to C32H17O1 other times it degrades to C21H34O4 , etc. After some further research, Pfizer discovers it can create specialized molecules for each player. These molecules can be introduced into the player's body. This molecule will bind with the degraded Digitalis so the degraded Digitalis molecule will become whole and functional again. They check the rules and regulations for team Euros and the specialized molecules are broadly within the definition of “Pfizer’s Digitalis”, so there is no reason not to try these specialize molecules. In this way, hopefully, at least the players' heart can reach rhythm again. The specialized molecules work. The players don't die. But no one can say Pfizer's Digitalis is really a satisfactory drug to treat heart arrhythmias for the Euros players.
The team owner hires some specialist and they find that, in fact, for some players, the mandatory training program, or the mandatory diet, not only cause the arrhythmia in the first place they also cause the Digitalis to break down. For this reason, if a player, who initially got sick but then returns to health because of the specialized molecules, continues with the training program and the diet, which he must, the player will obviously redevelop another heart arrhythmia. Then, the player will have to, once again, take both Pfizer’s Digitalis and the specialized molecule to get better.
All this raises some pretty interesting questions. First, if you are a healthy player on the Euros, would you want to remain on this team and have to continue to play the game against other teams knowing you are constantly going to have sick players on your team dragging you down? Second, say you are one of the players who gets sick. Even if you get well, would you want to go back to this team knowing you are just going to get sick again? Third, if you are sick, but by leaving the team and taking another medication (albeit with horrible side-effects), you would be permanently cured, wouldn't you do that?
Whether you believe it, or not, the preceding is a pretty good description of what is really at the core of the European Union (EU) crisis. Here’s why.
If one stops to think about it, there exists an astonishing boast at the center of the creation of the EU: We’ve got it all figured out! We have all the right rules, all the right safeguards and all the right medications. So, once your country is healthy enough to join the EU, you will remain healthy. This is why the EU Treaty had requirements on inflation rates, etc., before a country could join the EU. This is why the EU Treaty has but one currency. This is why the EU Treaty created the ECB. Oh, the Treaty drafters also decided if they make it so the ECB cannot bail-out a country, by throwing large sums of money at the country when that country is in trouble, a country will, of course, not act irresponsibly. How’s that working out? Also, the drafters didn’t conceive of trade imbalances, or sovereign bond price imbalances, developing between member states. Oops again. Or they did conceive of possible bond price or trade imbalances but, whatever they chose to naturally even-out the these imbalances, theses balancing mechanism failed because, right now, there are significant trade imbalances and inter-state bond price imbalances.
Furthermore, there exist legal questions that nobody seems to be addressing. Most everybody is saying the ECB is going to have to step in and save the day, even though many agree the legal mandate of the of the ECB appears to limit the ECB from taking the actions these very same people are saying the ECB must take.
As a person who used to be a lawyer, I have some questions. To begin, because there is some debate whether the ECB can take the actions, the ECB "could" try it. However, once this happens someone will challenge this in court and, I imagine, at least one of the courts would be the European Court Of Justice. But do we actually know precisely who the challenging party(ies) could be? A country? Any citizen within a country? Also, is the European Court Of Justice the only court with subject matter jurisdiction (where an action could be initiated)? Could a German court get involved, a French court, an Italian court? Further, do we know the remedies these courts would have at their disposal? Obviously, they would have the power to ultimately decide the issue? But could the court issue either a temporary or permanent injunction or against the ECB from taking action until the court decides the issue (Imagine the turmoil if the court had this power and it exercised it.)? What are the rights to appeal and to which court(s) of review? And, of course, all hell breaks loose if the ECB does it and then the court reverses.
It wouldn't surprise me that part of the calculus for the ECB might be: How messy is this going to get legally if we do pull the trigger? I think there is only one scenario where a mess could be avoided. Remember those westerns where the town's people take the bad guy out of town, circle around him, and then shoot him? Then the Sheriff, starts asking questions. As long as the town's people all agree to say nothing, "Game Theory-land," the Sheriff can't make an arrest. The point is: If the European Court of Justice is the only court with jurisdiction and only the member states of the European Union, through their governments, are the proper parties to a lawsuit, then the legal issue could conceivable be contained by an agreement from the member states not to act. However, if this isn't the case, things could easily get dicey.
Obviously, the preceding is just a small part of the list of what’s internally wrong with the EU and the EU Treaty. But, the point is, if you make a promise of a perfect plan, a single imperfection just might spoils the entire plan and several imperfections will be disastrous.
Certainly, it can be argued Greece found a doctor to fudge the results of Greece’s physical. Therefore, Greece brought its problems upon itself. But no one is claiming Italy, Spain, Ireland, Portugal, now maybe even France, found a compliant doctor. No, all of this chaos occurred after the countries were allowed into the EU. Furthermore, it really is of no consequence whether or not this country, or that country, followed all the rules, because, if they didn’t follow all the rules: 1) there weren’t sufficient controls in the Treaty to stop the country from misbehaving in the first place or; 2) the right interventions weren’t placed in the Treaty to keep a misbehaving country from continuing its poor behavior. Oops, again.
I’m not saying it isn’t vitally important to try to fix Greece’s and Italy’s problems. Although it seems questionable whether the EU can do this. What I am saying is fixing these problems is analogous to Pfizer coming up with the specialized molecules to compensate for Digitalis not working in the first place. Furthermore, fixing the problem now, doesn’t change the fact the very nature of the EU will make its players sick again and that the EU Treaty really doesn’t have enough of the right medicines to treat a player when it becomes sick.
Clearly, a lot of people don’t seem to see things this way because, when they see the player getting sicker, they panic. But, when they see the player maybe getting better, they feel optimistic. This is what’s going on with the stock market. But, in reality, there really are only five conceivable denouements to this play: 1) things continue to deteriorate and the EU is broken-up; or 2) somehow, the EU figure-out a way to fix it sufficiently so the EU doesn’t self-destruct this time (the specialized molecules); or 3) if the EU doesn’t self-destruct this time, there will be a repeat; or 4) a repeat is avoided because the members of the EU get together quickly enough to unanimously agree on the amendments to the Treaty and these amendments are absolutely perfect in ever respect, thereby satisfying the original goal of sufficient parity between member states so that the EU, as a whole, will remain perpetually relatively stable (any takers for a bet on this one?); or 5) there are amendments but they aren’t “perfect in every way,” consequently, we simply get a variation of what’s going on now.
When framed this way, I come to this conclusion: Dr. Kevorkian, your services are needed across the pond. On second thought, maybe we don’t need Dr. Kevorkian. Perhaps we need Jim Phelps because this just might be a Mission Impossible. Quite seriously, maybe instead of talking about an orderly default for Greece or Italy, maybe the better question is how quickly and orderly can the EU be voluntarily broken-up?
Before concluding, there exists an entirely different reason to break-up the EU: It was an unnatural fool’s errand in the first place. One of the premises of the EU was that twenty or so nations, mostly with hundreds of years of history behind them, with separate cultures and separate ethics, could form a stable union that would never break-up. History informs this is a pretty ridiculous premise. This type of union, save for possibly China, has never been successful whether the union was formed voluntarily or by force. Something exists in the very nature of mankind to render this sort of union unstable and, ultimately, impossible. The nations of Europe have forgotten a very simple old adage: “It’s not nice to fool mother nature.” The formation of the EU was as preposterous as claiming a margarine could taste the same as butter. The EU’s delusion is going to bite them on the ass, big-time. It is also going to cause significant harm to the entire world-wide economy.
November 15, 2011
© Copyrighted by James N. Perlman. 2011 All Rights Reserved.
