Monday, March 18, 2013

The Euro crisis as "Cheese Touch"

My favourite scene in the first 'Diary of a Wimpy Kid' movie is the 'cheese touch'. A piece of mouldy cheese is left in the schoolyard, and the kids keep well away from it as it gets greener and slimier. Until, one day, someone touches it - and they are ostracised until they can pass it on to someone else who will get the same treatment. The cheese touch is passed around the school, creating horror and fear in everyone. It's kind of Camus' La Peste for pre-teens.

The euro crisis is starting to look a bit like the cheese touch. The banking crisis of 2007-8 created a financial blackhole, and at some point we are going to have to come to terms with the losses and start from scratch. But of course none of us want to take the losses ourselves. In the absence of some kind of sensible and credible agreement to spread the pain, each group/nation/individual has to try to protect themselves from taking a disproportionate share of the losses, and assume others will do the same. In short, we'll keep well away from whoever has the cheese touch. Today, it's the unfortunate small savers of Cyprus.

The answer has got to be that the burden of adjustment is shared. This is for moral, political and economic reasons. Morally, because, well, life isn't fair but it shouldn't be Mad Max. Politically, because unless we give up on democracy, the victims of adjustment will protest and remove representatives who impose unfair burdens. And economically, because the weakest groups politically tend to be the weakest groups economically, and they simply can't take the losses - witness the brutal yet futile welfare reforms in the UK.

Who decides how to share the pain of adjustment? In Wimpy Kid, the responsible adult - the school janitor - is also disgusted by the mouldy cheese and sweeps around it. The EU is probably our demotivated janitor. And in Wimpy Kid, the cheese touch's journey around the school ends when it lands on Dieter Muller, a German exchange student. Baffled by zey cheese touch, Dieter takes it with him back to Dusseldorf. My guess is that ultimately the euro crisis will end the same way.