On Merkozy's power, fools and power in general

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Last year, some observers hailed a close Franco-Anglo cooperation and diagnosed the end of the Franco-German couple which had exercised above proportional influence in Europe.

These politics games are simple; a few (two) large powers agree on common ground on a topic, then they go to a target summit and prevail with their proposals and demands because there's not going to be any agreement without them anyway. The advantage for the two is basically that the special interests of many others are on a much weaker bargaining position.

Well, the British-French cooperation in military affairs is largely irrelevant now since the elephant in the room is the Euro currency area / PIIGS fiscal crisis. The UK is not part of the common currency and thus irrelevant; Cameron was not happy to be informed about this directly. The UK is a stakeholder, not a shareholder - and thus largely powerless in the issue.

Now there' much being written about 'Merkozy' and how they define the political reaction to the crisis. Authors ascribe especially great power to Merkel, often with reference to the German economic position.

Judging by the conventional view of great power games and by the view assumed by many journalists, Germany is now powerful.

Hmm, right.

Now what's the benefit of being powerful?

You know, Germans have become accustomed to expect that whenever they're being called 'important' or 'indispensable', it's actually about their money. It's thus not surprising that there's not exactly great cheering about this 'power' in Germany.

Moreover, the whole anecdote exemplifies how power is not advantageous under all circumstances; the political reaction to the crisis is actually a rather primitive, and not really self-serving reaction. German foreign policy uses the crisis to shove some long-term improvements down the throats of Greece, and to influence the long-term outcome (at the cost of being called out for disastrous short-term effects).

There's a huge price, though; we're being played like a violin by the financial sector. We're the dog who gets wagged by his tail. So much about our 'power'.

Said 'power' or 'greatness' is rather 'size' - a common misunderstanding in many other cases of 'power' or 'greatness'  as well.

What's really happening is that investors in the financial markets bought PIIGS public bonds and were promised a risk premium (higher than about 2% interest rate). In many cases, said investors were incompetent and did not understand that the risk premium was way too small. Well, their problem; but now they've got the additional problem that the risk might realize and they might indeed not get their money back.

This was when a lucky set of circumstances created the terrible urge "to do something" about the crisis, for, you know, people dislike change. The idea of supporting the countries in peril was born, and much fear about 'contagion' was spread.

As a result, said dumb investors were able to transfer much of their risks to European governments (the people of Europe); they socialised risk. Nobody's talking about socialising profit, of course.

Merkozy were caught in this vicious circle; the more they support Greece, the more previous commitments are at stake. The sunk costs theory says this must not play a role, but they're politicians and the only cost that really counts to them is the loss of their office.

Now they're adding one 'helping' measure after another and dig the hole deeper and deeper, delaying the collapse as much as they could (or at least till after their re-elections?). This means of course that more and more risk is being socialised.

Now where exactly is the benefit of being 'powerful'?
It certainly doesn't appear to be of much use if you're a fool.

Accordingly, getting rid of foolish policy should attract much more attention, and only once this has succeeded anyone should care much about the difficult-to-define 'power' of a nation.

S Ortmann

P.S.: I've irritated people for years by reminding them that Luxembourg is a great place, and utterly small and powerless at the same time. It's an incompatible fact to many people's view of the world.

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