From the famous film “Mr. Smith goes to Athens, Subsequently Disappointed by Lack of Governing Coalition in Favor of Austerity Measures”

(I was going to add a “muhahaha” to the end of the title of this post for dramatic effect, but figured that would be overkill.)

One of the excellent news shows on TV here in the US is Fareed Zakaria GPS, which airs on CNN on Sunday mornings. I don’t always agree with Fareed on everything, and a couple of his regular guests make me want to throw the remote at the TV sometimes, but more often than not the show tackles important global issues better than any other on American TV.

Last Sunday Fareed started off the show talking about the European sovereign crisis. One thing he said in particular caught my attention:

This is a sad state of affairs because what many people are worrying about, at root, is whether democracy has become part of the problem. After all, politicians have gotten elected over the last four decades in the West by promising voters more benefits, more pensions and more health care. The question is can they get elected offering less? That’s what stops many Europeans from abandoning austerity and embracing another round of stimulus spending. And I think these worries are shared by many in the United States as well.

This is basically a reaction to the French and Greek elections from a couple of weekends ago. If you’re not up to speed, here’s the gist of what happened: Recently the most seriously indebted European country, Greece, was granted a write-down of its debt financed in large part by the other Eurozone economies, notably Germany and France. In exchange, the Greeks were required to write into their constitution certain painful “austerity” measures, basically aggressive tax hikes and budget cuts that are making the current recession there worse. This is in hope that Greece will be able to, down the line, pay the portion of debt it still owes after the write-down.

So what happened? Earlier this month French President Nicolas Sarkozy, who along with German Chancellor Angela Merkel made up a powerful political duo in favor of keeping the Eurozone together via this sort of austerity-for-bailouts strategy, failed in his reelection campaign against the Socialist challenger, Francois Hollande. Meanwhile, the governing coalition in Greece which originally agreed on the painful austerity measures as part of the debt deal lost a significant number of seats to parties which openly reject the plan, and the coalition in favor of staying on course has fallen apart for now.

This is a long-winded way of explaining what Fareed means: In Western democracies, politicians get elected and stay in office by offering more, not less. So even if harsh austerity measures enacted in hopes of getting a country’s fiscal house in order are the right way to go, they may be politically impossible to see through to the end. (Whether or not such austerity will in fact allow countries like Greece to achieve a sustainable debt path is subject to it’s own debate.)

The broader point about democracy’s inadequacy to deal with these problems is extremely valid, and that’s the whole point of this post. There’s a key flaw in the argument above, however.

Here it is: Greece was pretty much the only Eurozone country where politicians lavishly showered voters with goodies in hopes of getting re-elected, at the cost to the nation’s balance sheet (and hiding the extent of debt with the help of a major US investment bank). The other countries were not in bad shape prior to the 2008 crisis; it was the crisis and the subsequent recession that caused the debts of these countries to explode via lost government revenue, automatic payments to the swelling ranks of the unemployed and the poor, and bank bailouts. I get the point that no politician wants to pull the plug on the party, but the rest of Europe is very different from Greece.

This is an important point, and the reason why is not because, outside of Greece, democracy has functioned well. It’s that what occurred in Greece pre-crisis — dishonest, reckless spending for the purpose of political gain — is not the only type of democratic failure that has gotten us into this mess, and is making the apparent prospects of digging ourselves out of the hole so dismal.

This whole European sovereign saga makes more sense (and is unfortunately more depressing) when you recognize what it really is: a horrible aftershock of the 2008 banking crisis. And that crisis tells us a lot about where democracy went, and is still going, wrong.

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