The European economic crisis is a huge story, but even figuring out what the story is about can be a headache in of itself. The root causes, symptoms, and ongoing negotiations surrounding the crisis are all mind-bendingly complex. If you're baffled, you're not alone.
Luckily, Ezra Klein, guest host of this Thursday's The Rachel Maddow Show, understands what's going on. And on the most recent episode of the show, he set out to do something that had never been attempted before on television: he decided to explain as much as he could about the crisis in under two minutes. Watch the whole thing above.
The dynamic Ezra describes between the European Central Bank and Germany on one side, and cash-strapped countries like Greece and Spain on the other, has often been described as a game of "chicken" by onlookers in the press. One lingering question you might have is why these countries are playing chicken. Why won't the ECB just trigger inflation so that the broke EU member states can pay off their debts, thereby avoiding default? And what would those states need to do in order to receive a bailout?
The answer to the second question is a word you've heard a lot in the US press lately: austerity. Take Greece, for example: the European Central Bank and the International Monetary Fund offered to bail out the broke Mediterranean state (for the second time, no less), but only in exchange for a draconian domestic austerity program.
As for why the ECB is so leery of inflation that they refuse to let states like Spain pay off their debts with freshly minted euros: one big reason that Ezra touched on is German influence. Germany has a lot of pull at the ECB, and they've been resolutely opposed to monetary expansion. A popular theory about why has to do with Germany's prior experience with inflation. When the German reichsmark faced hyperinflation in the 1920s, it was one of the main factors in the spiralling economic depression that helped set the stage for the end of the Weimar Republic and the Nazi rise to power. But German historian Jochen Hung is skeptical of that argument, writing:
Obviously, most of my fellow Germans were more conscientious, and the billions in their savings accounts are a much better explanation for Merkel's cautiousness than any "collective trauma". The fact that a majority are living in rented apartments, and that rental prices tend to rise with inflation, is another very contemporary answer to the question why Germans are uneasy about the ECB printing money to buy up unlimited national bonds.
If you are really looking for an underlying cultural reason for contemporary German fiscal politics, a protestant work ethic that sees debt as morally wrong, a tradition of manufacturing feeding a distrust of anything that seems "conjured up" out of thin air and a strong middle-class belief in living within your means are more important factors than a single historical event, however traumatic it might have been.
One thing's for certain: the fate of the European Union and the world economy hinge on how this game of chicken plays out. The famous financier and liberal donor George Soros, in a speech on the economic crisis, painted one possible future:
Germany is likely to do what is necessary to preserve the euro – but nothing more. That would result in a eurozone dominated by Germany in which the divergence between the creditor and debtor countries would continue to widen and the periphery would turn into permanently depressed areas in need of constant transfer of payments. That would turn the European Union into something very different from what it was when it was a “fantastic object” that fired peoples imagination. It would be a German empire with the periphery as the hinterland.
That's the skeleton of the problem; albeit compressed, even oversimplified. But it should be enough to see why this stuff matters, and why it could go even more horribly wrong.