A Euro-Tract Infection

Was it a clerical error, an error in a programmed trading account or sheer panic at the “possibilities” of a Europe with serial national insolvencies to deal with? Whatever the cause, after a three day 600 point loss, for 30 minutes on May 6^th, the world watched the Dow plummet a further thousand points. While there was a partial recovery, the markets continued their downward slide the next day. One thing’s for sure, the markets were so completely unsure that at the slightest sign of instability, “traders around the world simultaneously pushed the ‘sell’ button as they watched live video of baton-wielding riot police wading into a crowd gathered outside the parliament in Athens to protest the passage of austerity measures foisted upon their government by their European neighbors and creditors.” Washington Post, May 6 ^th.

Is the European experiment – a unified Europe mostly under a single currency – a failure? Will the euro vaporize as national interests, particularly as the rich economic drivers like Germany and France are being asked to bear the heaviest burden in restoring the economic stability in the PIIGS countries – Portugal, Ireland, Iceland, Greece and Spain. Or is the “I” for Italy as it was originally or “G” for Great Britain? Those pictures on the telly, those were Greeks burning cars and rioting as their rich citizens shipped values overseas, continued to avoid paying taxes (they always have), and as Germans, frustrated with their spendthrift Greek brethren, demanded and got severe austerity measures in exchange for German and IMF economic support for the ailing Greek economy. Who wants to reduce their standard of living for three o r more years – by thirty percent or more – while the rich avoid any burden at all? The Germans are pissed. The Greeks are pissed. And the world markets are not taking the news particularly well. It seems that Europe may be leading us all back into “recession, part deux.”

With Greece being in the spotlight, the remaining PIIGS have their unresolved economic issues and will need massive capital infusions as well. When will the German or French voters cry “enough,” and press their governments to withdraw from a unified currency that seems to bring nothing but financial loss for the stronger economies? Will the euro die and be replaced by… the French franc, the German mark, etc.? “[U]nder the financial umbrella of the euro, the smaller, poorer countries at the periphery found they could borrow and attract enough capital to bootstrap themselves into the ranks of wealthy nations… But as C. Fred Bergsten of the Peterson Institute put it this week, the fundamental problem is that even with a single currency and a unified political and bureaucratic structure, the arrangement is only a ‘halfway house’ on the way to genuine political and economic integration, and a rickety one at that. While capital and goods and tourists can move relatively freely across borders, workers and services cannot, and national governments continue to jealously protect their regulatory and fiscal prerogatives. Although the political and economic elites continue to swear allegiance to the European project, their top-down strategy continues to meet strong resistance from voters.” The Post. Greeks most certainly borrowed to live far beyond their means.

Europe dithered, denied the problems at first, as such seeming indifference to collapsing economies actually worked to accelerate the fall of these weaker nations because of the “too little, too late” attitude of the European Central Bank (their equivalent of our Federal Reserve). The euro will fall, how far is not certain. It may die as well. As politicians continue to support the EU and the centralized currency, their electorate seems to be expressing extreme disenchantment with the whole mess. Even in non-euro-based England, even though the recent election gave no party the clear majority, the long-standing leadership of the Liberal Party appears to be at an end; Conservative leader David Cameron made it very clear in his campaign that he would never allow the U.K. to succumb to a Euro-currency and pledged his own version of austerity for England that will slow any recovery accordingly.

EU ministers are working to hammer out a bigger plan, one that covers Greece as well as the expected near-term needs of other weak European euro-economies that will need shoring up: “Rushing to finalize an agreement before Asian markets officially open Monday, the ministers were discussing an aid plan that would have the EU Commission make euro60 billion ($75 billion) available while countries from the 16-nation eurozone and the IMF could combine with a promise to back bilateral loans and guarantees for up to euro440 billion ($570 billion).” Washington Post (May 9^th). The American markets remain skittish, and we feel Europe’s pain in every facet of our economic world. Our exports to Europe face new challenges, American holdings on the Continent are falling in value and our markets will reflect our revived fears of what may well become part two of this global recession.

I’m Peter Dekom, and this would be whole lot more interesting to witness from a vastly greater distance.