Americans are angry at their unemployment issues, home value collapse and have a rather bleak view of the future. The February 11th Washington Post tells us that while two-thirds of Americans know very little about the “Tea Party” movement, “Two-thirds of Americans are [also] ‘dissatisfied’ or downright ‘angry’ about the way the federal government is working, according to a new Washington Post-ABC News poll. On average, the public estimates that 53 cents of every tax dollar they send to Washington is ‘wasted.’” Mr. Obama is not having a good time with this apparent massive disconnect with his constituency. But if you think he’s got problems, take a closer look at the unraveling of Europe’s weaker European Union nations, Greece, Spain, Italy, Portugal, etc., and its impact on the relationship between the voters in the stronger economies, which are being asked to use their power to bail out the weaker nations, and the leaders of those stronger countries – primarily Germany’s Chancellor Angela Merkel.
Greece is teetering on the brink of total economic collapse, while other countries in the EU are looking to follow. If any one country falls, the entire EU economic unity threatens to fall completely apart, taking down one of the most powerful economic structures on earth. To Teutonic Germans, who pay their taxes, invest relatively wisely and have built their country into one of the most powerful exporting nations on earth (yes, it isn’t just China), supporting nations where people scoff at the tax collector and are willing to let their entire country fall off a cliff before they even begin to consider paying their allocated tax burden… is … well… outrageous. But that’s exactly what their Chancellor is in the process of doing… guess how popular she is with the German voters?
Greek government workers have called strike, shutting down essential services, in the wake of massive cut-back that the government has been forced to impose. If the past is any predictor, we can expect these protests to turn violent very soon. Rather than allow this thread that threatens to unravel their EU to unwind, “[I]n a conference call with the finance ministers from the 16 countries that use the euro and the president of the European Central Bank, Jean-Claude Trichet, officials said that some action had to be taken to calm markets and take pressure off Greece. It appeared clear that Germany, with an assist from France, would have to take the lead. ‘The Germans are the only ones with deep pockets,’ said Daniel Gros, director of the Center for European Policy Studies in Brussels. If it was just Greece, they could consider letting them go down the drain, but it threatens the entire euro zone.’” New York Times, February 11th.
If we were worried about the collapse of the dollar, this horror in Europe will reverse that pressure, although the U.S., U.K. and the euro-based Western nations all clearly have downward pressures on each of their currencies. But the collapse of Europe is not good news for the United States, since this economic turmoil could easily trigger a global “recession, part deux,” which would soon embrace us as well. Our banking systems and economic balance are heavily intertwined with Europe, no matter how separate most Americans believe them to be.
To Germans who sacrificed their Deutsche Mark in favor of a blended European currency, this potential for economic collapse is a huge “I told you so” moment. There has been a long-simmering resentment from many Germans (and more than a few French) that their prosperity is been leveraged by the less economically advantaged nations of Europe to escalate their standards of living – now that they were full economic members of the EU – by doing what took even the U.S. economy down hard: borrowing their way into their lifestyle. With one unitary economic system at the core, and the strong German and French economies as collateral, people who long looked at “richer” Europe with envy began to emulate what they yearned for with debt from pan-European banks, regulated and supported by the wealth of those on top. Germans deeply resent sacrificing their hard-earned money to shore up profligate nations, wallowing in unjustified debt with citizens turning their backs on the tax collector; the feeling is very understandable.
The world is looking to countries like France and Germany to issue guarantees for the Greek economic system, and some form of banking support from these stronger European nations is expected. While there are negative reactions in France, the backlash is particularly strident in Germany, which faces its own litany of economic and geopolitical changes: “The apprehension in Germany runs much deeper than a single crisis. It comes in the same week that Germany gave up its most cherished title, world export champion, to China, heightening fears of a declining stature and importance globally.
“Germany also faces a demographic challenge, managing a population that is not only graying but shrinking. Last month the government announced that the population dropped below 82 million last year for the first time since 1995. That means fewer people trying to pay off a growing national debt, with a projected budget deficit of $118 billion this year.
“After Mrs. Merkel’s re-election in September and triumphant turn on the world stage in November for the 20th anniversary of the fall of the Berlin Wall, her approval ratings have fallen to their lowest levels in more than three years. Criticism of her government over infighting in the governing coalition — mostly over tax cuts and the budget — has risen steadily. She has been noticeably reticent about the crisis in Greece, speaking out far more forcefully on populist issues like tracking down tax dodgers hiding money in Switzerland.” The Times.
The net result is a major setback for economic recovery. The February 12th New York Times: “The economic recovery in the euro area almost ground to a halt in the last quarter of 2009… adding to worries about the ability of some countries in the region to use growth to improve their budgetary positions… Much of the weakness appeared to stem from Germany, where the economy unexpectedly stalled during the last quarter; the expansion in France strengthened.”
We are watching a major power shift from the West to the East. Most of Asia (particularly China and India) has lived within an exceptionally modest standard of living, where workers contribute vastly more value to their economies than they take out. The significant improvements in the quality of life for many Asians still doesn’t begin to compete with the social and economic benefits enjoyed by their Western counterparts, so that aggregate of value building in Asia is tilting the global power base towards those able to continue to produce value without sapping the system that supports them. We know in time this will change, that they will slowly mimic the consumption patterns of the richer Western nations… but right now, it’s all Asia and almost no West. Every time a Western power begins to lift its head above water, there seems to be a force that simply wants to drag it down. Change happens. It’s not always pretty.
I’m Peter Dekom, and I approve this message
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