As previously mentioned, the real story about the European crisis is one of lacking governance structures, and the struggle to create a new durable fiscal compact in the midst of the crisis. Politics as a whole becomes infinitely more difficult when confronted with the resource shortages that can prevent both coalition building in parliaments and patronage-based election strategies. Francis Fukuyama has a brilliant piece in his newly revived blog at the American Interest that touches on the problem of “good governance”:
Conversely, I would argue that the quality of governance in the US tends to be low precisely because of a continuing tradition of Jacksonian populism. Americans with their democratic roots generally do not trust elite bureaucrats to the extent that the French, Germans, British, or Japanese have in years past. This distrust leads to micromanagement by Congress through proliferating rules and complex, self-contradictory legislative mandates which make poor quality governance a self-fulfilling prophecy. The US is thus caught in a low-level equilibrium trap, in which a hobbled bureaucracy validates everyone’s view that the government can’t do anything competently. The origins of this, as Martin Shefter pointed out many years ago, is due to the fact that democracy preceded bureaucratic consolidation in contrast to European democracies that arose out of aristocratic regimes.
This quote is absolutely crucial, and serves to underline the incredible complexity that lies in connecting nations with different national governance systems, different varieties of capitalism and different expectations for the transnational project. Putnams theory of two-level games illustrates the added complexity that comes with achieving domestic policy goals while attempting to build diplomatic ties with international partners. Add a supernational court and a “technocratic” commission and this job does not become easier.
The Danish discourse is often vaguely neoconservative in its imagery, with the European community now “helping” Greece not just in an economic sense but in a cultural and democratic one. Clearly this is a rather vague version of Huntington’s old theory of authoritarian transitions (Fukuyama describes this here). How much of Greece’s supposed acceptance of governmental change (but not reforms) is due to framing effects, and how much stems from true alignment with the policy goals of incumbent technocrats? The drama continues, and surely one of the key issues will be whether Greece chooses to impose its rather draconian bond laws on private investors. If this is the case, this is one blow against liberalism and free markets that will be very hard to condone as the swan song of the “old Southern Europe”.
Regardless, Greece is absolutely insolvent and there is no reason to beat around this conclusion. Felix Salmon has this succint summary of the situation, with Germany essentially setting the stage for an imminent Greek default. This will not be a smooth ride, but it is better to get it done as quickly as possible, for the populations in all countries. And with the ECB having prepared the Eurozone for this event, i see no reason that Greece will not have defaulted within a very short (a month or so) timespan, regardless of what politicians and the media will choose to call the event. And as Simon has pointed out, the handling of credit events in terms of CDS exposures will be as important as the Greek bond laws in establishing the proper financial regulatory framework that will prevail after the default.