Central Banker: EuroZone Crisis Much Deeper Than Greece

Jan Winiecki, member of the Monetary Policy Council of the National Bank of Poland and Professor at the Tischner School of European Studies, Cracow, told an audience today at the National Economists Club in Washington DC that Herman Kahn may be correct when he recently wrote in that the EuroZone may split in two, or Germany may leave the Zone.

Winiecki, who after his speech told me that he has been influenced by the writings of Friedrich Hayek and Ludwig von Mises, called the EuroZone a strange club without exit rules. He said the EuroZone was about the high and mighty of Europe deciding that they would create a building that would last forever. He called the thinking, "The Sin of Conceit".

He went on to say that the current crisis in Greece is only the most visible part and the crisis is at a deeper level the crumbling of the welfare state. He said the real problem is that the welfare state has no more money to continue operating.

He said the problem started in the 1960s when debt to GDP in the EU was only 15% of GDP and climbed first to 37%, then 47% and is now over 50%. He said that Ludwig Erhard (father of the German Economic Miracle) spotted the problem as early as 1963 and that Erhard wrote about it in his book, The Economics of Success.

He said that despite views to the contrary, Ronald Reagan and Margaret Thatcher both joined Europe in reckless spending. He also argued that public expenditures don't stimulate much. But all this is ending, he said, "We are at the end of the road."

He said problems will be exacerbated by the "new lay religion," global warming, which he argued shouldn't be a concern from an economic perspective even if the global scare mongers were correct.

He said the new religion about the dangers of global climate change has caught on because journalists love scare headlines and politicians are about redistribution. He said politicians create programs chiefly that will help them get re-elected and that they see opportunity in climate change programs precisely for this reason.

But, he argued that, because of the money crunch governments are up against, most of these programs will die on the vine.

Bottom line: Winiecki has to be considered one of the best economic thinkers in Europe. He sees the crisis correctly. However, I would argue that his view is the optimistic one, whereby the governments are starved by a lack of funds. The alternative would, of course, be that the ECB joins in the mad printing now being conducted by the Federal Reserve and decides to inflate its way out of its money problems, possibly resulting in one of the greatest global inflations in history.