Merkel Dismisses Euro Crisis, Champions Austerity At Davos

DAVOS, Switzerland -- Do they hand out Nobel prizes for advances in delusional thinking? If so, I hereby nominate Germany's chancellor, Angela Merkel, for her address this afternoon before the assembled participants at the World Economic Forum here in this lavish ski resort in the Swiss Alps.

Merkel has contributed mightily to the cause of undermining confidence in the Euro while choking the continent in job-killing, future-crushing austerity. She has staked a decent claim to the title of world's worst advertisement for democracy (though congressional Republicans remain safely in command) through her pandering to German taxpayers, blocking efforts to make the European Central Bank the lender of last resort. Yet here she was on Wednesday afternoon, taking a victory lap for supposedly helping avert crisis via collective action.

Remember the collapse of Lehman Brothers in the fall of 2008, she said, recalling an episode that turned an economic downturn in the United States into a global disaster from which millions of workers and savers have yet to recover. "We've all decided that something like that should never happen again," Merkel said. "Politicians have demonstrated that they are capable of acting, that the world generally, the international community has proved that it can actually work against a crisis, that it can tackle a crisis and master it."

That happened in the same way that pigs have played polo on the moon.

Yes, a near meltdown in 2008 was averted through collective action -- not least via the liquidity of the Federal Reserve and the largess of taxpayers in Europe and the United States. But the regulatory framework required to minimize the chances of a repeat is nowhere close to being in place. In the United States, the financial services lobby, intent on staving off rules that would limit its ability to gamble with taxpayer money, has successfully held off strictures. Here in Europe, major banks and their governmental protectors -- Merkel among them -- have time and again watered down efforts to force them to reserve cash against future losses.

But the worst part of Merkel's address was the way she dismissed what the rest of the planet now regards as inarguable fact: European leaders' apparent inability to marshal the resources to protect their shared currency.

"There is no crisis of the Euro itself," Merkel said. "There is a debt crisis."

There is indeed a debt crisis, and it is being exacerbated by Doctor Merkel's continued prescription of failed medicine: fiscal austerity. The slow growth this course has delivered from Greece to Italy to Ireland has amplified the debt crisis, which has in turn made global investors unwilling to lend to European governments, which has in turn raised borrowing costs across the continent, which has, voila, lifted debt levels.

What Merkel has prescribed may make for good politics in Germany, but it has made for ruinous economic policy. And here, in the presence of the top executives of the same financial giants that started all of the trouble, the German leader doubled down on the resulting pain, calling for more austerity for all.

"We have to ensure that stability and sound public finances are the order of the day," she said. "Indebtedness is the biggest danger and the greatest risk to prosperity on this continent."

No, the greatest danger is the people who buy into the cult of fiscal austerity as the answer to all of life's problems, even as growth slows, major companies decline to hire, and living standards steadily erode for those not fortunate enough to be certifiably rich.

A lot of these people are here in Davos, alighting in swank hotels and congregating at lavish dinners, lifting glasses full of Port to accompany their chocolate mousse while calling for everyone else to go on a starvation diet.