The death of Osama bin Laden may or may not have great long-term significance,
but there is no denying its immediate impact. After 10 years of vast expense, countless deaths and frequent setbacks, the U.S. can claim a cathartic victory at a time when even small wins are welcome. If this does not stiffen the nation's resolve to tackle its other problems with as much determination, nothing will.\
The European Union in general, and the euro zone in particular, could do with a similar boost to morale. It is a year since the battle to keep the euro zone intact opened, when Greece became the first member of the currency union to seek a bailout. Europe desperately needs a victory, but right now it lacks even a vision of its future that can persuade its citizens to believe such a thing is possible.
Citizens need to believe that the economic problems they face can be confronted, and that victory in this struggle will leave Europe a better place. This need is particularly urgent in the three countries that have had to seek financial support from the rest of the euro zone and the International Monetary Fund, and Spain, which has been designated as the country that can't.
\
What these countries are being asked to do is to repay the vast debts not just of their public sectors but also of their banks while enduring sizable declines in real wages, and radical reform of their institutions and political culture.
Not all of these pressures are entirely unwelcome. Many Greeks, Irish and Portuguese have known for some time that their countries had serious flaws, but they despaired of ever seeing real and profound change. The silver lining to this very dark cloud is that finally, that change may be possible. Indeed, it is vital.
At the very moment when national political leaders are required to push for change, however, their authority has been vastly diminished. To many voters, they appear to be nothing more than vassals of greater powers, pushing through reforms mandated by the EU and the IMF in return for money that spends a brief time in the national coffers before being handed over to bond holders, many of whom happen to be banks based in Germany and France.
This has bred a kind of hopelessness and apathy, the very last thing needed when confronting the great challenges that face these nations, and may yet face others.
The response to Portugal's impending bailout is instructive. Like their Irish counterparts, many Portuguese have shown little inclination to protest against this calamitous failure of the political establishment. Unlike the Irish, they even seem prepared to re-elect the party that has led the country for much of the past decade and a half.
They and many Greek and Irish people appear to have given up hope of any positive outcome to the current crisis. They are prepared to endure whatever comes their way for now as a sort of penance. Their patience, however, is likely to run out long before the task of fixing the public finances is anywhere near complete.
Much of the pain they will suffer is not specifically as a result of their national ills. For example, the insistence by euro-zone policy makers that debt restructuring is not an option is not motivated by concern for the impact such a step would have on the economies of Greece, Ireland and Portugal, but because of its wider implications for the currency area's banks, already weakened by other failures of management and regulation.
Speaking Monday, EU Commissioner for Economic and Monetary Affairs Olli Rehn made the priorities clear. Restructuring, he said "is not part of our strategy… The proponents of debt restructuring seem to ignore the potential devastating financial stability implications."
That may be a strategy, but it's not exactly stirring stuff. Is the EU seriously suggesting that in five or 10 years, Greek, Irish and Portuguese workers will look back and feel a glow of satisfaction at the thought that they helped keep some banks afloat?
There may be a way of giving some hope to those parts of the euro zone that desperately need it, but this will require German politicians to do less scolding and be more constructive. As the months go by, it has become increasingly clear that the euro zone's largest economy has secured a great victory in confronting a daunting array of economic problems.
As it entered the 21st century, Germany's once mighty economy appeared to be in a sorry state. Unemployment was—and seemed set to remain—very high. Growth was—and seemed likely to remain—very sluggish. Far from being the paragon of fiscal virtue it now is, Germany was one of the first euro-zone members to be threatened with penalties for running a budget deficit that was too large, although it escaped punishment because, well, it's Germany.
But slowly and steadily, it reversed course. It reformed its labor markets, cutting unemployment benefits and worker protections. Labor unions were persuaded to accept very low pay rises in return for the promise of more jobs, and the very low interest rates set by the European Central Bank allowed German businesses to deleverage and invest, often shifting large parts of their production processes to lower wage countries in eastern Europe.
Of all the developed economies, Germany in 2011 is the strongest, once again a fearsome exporter, with an unemployment rate that is sinking fast.
Not every step on the German path is available to others and it may be that, should Germany not alter that path to allow for more consumer spending and more imports, none of those steps will be available to any other euro-zone nation. But the German experience proves that euro-zone members can turn their economic fortunes around, and that's a point that needs to be communicated more forcefully by policy makers.
Its hard to imagine, however, German Chancellor Angela Merkel going on an evangelizing tour of the bailout three any time soon. That's not the photo opportunity you need when you have an election to fight next year.
By Paul Hannon
WSJ
May 3rd
