From The New York Review of Books:
Boomerang is about what he has come to see as the larger phenomenon behind the credit crunch: the increase in total worldwide debt from $84 trillion in 2002 to $195 trillion now. The thesis is that “the subprime mortgage crisis was more symptom than cause. The deeper social and economic problems that gave rise to it remained.” It is these deeper problems that are dominating economic news at the moment, and led to the desperate measures announced at the European summit on October 27 and to the aborted Greek plan to hold a referendum that followed. The G20 Economic Summit of November 3–4 was dominated by discussion of the Eurozone crisis, but ended with no coherent plan in view, and none has emerged since.
It is a feature of the financial world, much remarked by Warren Buffett, that people would rather be wrong in a group than right on their own; the people who insist on being right on their own tend to have the psychological equipment to match. They are hedgehogs rather than foxes, eyes firmly on one big thing. There are times when Lewis himself is a little like that. Boomerang is unlike his previous books, in that it is a series of portraits of whole societies. A writer making society-wide generalizations is picking up a big and very full bag by a single handle; in that position, it’s easy to end up writing about the handle, because it’s the thing on which you have a secure grip.
For the most part, Lewis’s handles are fitted to the heavy lifting he makes them do, with the possible exception of his approach to Germany via the not-at-all unfamiliar idea that the country has a national obsession with excrement. He quotes the American anthropologist Alan Dundes: “Clean exterior–dirty interior, or clean form and dirty content—is very much a part of the German national character.”
That otherwise telling essay is about the state of the euro, a subject of immense importance at the moment for the entire global economy. Since its creation in 1999, the euro has accumulated enormous imbalances between the economies of its member states, with Germany in particular running a big trade surplus and the “peripheral” countries, mainly in Southern Europe, building up an ever bigger mountain of private and individual debt. “There was no credit boom in Germany,” an official told Lewis. “Real estate prices were completely flat. There was no borrowing for consumption. Because this behavior is totally unacceptable in Germany.”
It is, or should be, self-evident that this situation can’t continue forever, but the problem is that the Germans are showing no appetite either for becoming less German—i.e., paying themselves more, consuming more, and importing more—or for open-endedly bailing out the Southern Europeans. “The German people all know at least one fact about the euro: that before they agreed to trade in their deutsche marks their leaders promised them, explicitly, that they would never be required to bail out other countries.” That promise has already been broken, and is set to be broken many times more—though let’s not forget that these “bailouts” are actually loans that in principle must be repaid.
Unfortunately, the bailouts are only the beginning of what is needed to stabilize the euro.
“How We Were All Misled”, John Lanchester, The New York Review of Books