Series of Earthquakes Hit European Union, Aftershocks Expected

We are watching Europe shudder and quake as dissention and rigid dogmatic purism collide in the inevitable search for a solution to Europe’s malignant debt crisis. The ripples could rise to an economic tsunami that will plunge the rest of the world back into a formal recession, deeper than the contraction that has already imposed that result on Britain. The fact remains that sooner or later spending more than you make, seemingly infinite borrowing, will spur inflation and require measures that definitely contract the average standard of living. Further, in the world of “the rich getting richer,” the overlooked after-effect is that only those who own significant assets – particularly the business assets that grow beyond mere borders – are likely to see an inflation-driven appreciation of the relative value of what they own, while the rest of the population simply pays more to live.

Germans have a particularly harsh aversion to hyper-inflation, stemming from the decimation of the Reichsmark after Germany struggled with post WWI war-reparations that provided the fertile soil in which Hitler’s Nazi party took root. For the vast majority of Germans, particularly in cities, homeownership and stocks are not their investment/retirement vehicles of choice. With state healthcare and solid pensions, their investments tend to be in cash-measured instruments like annuities, insurance policies and direct cash savings. So their focus is generally on keeping their currency stable, since most of their investments are tied directly to that value. When the underlying policies that created the European Central Bank (located in Germany, by the way) were created, German financial architects insisted on prioritizing anti-inflationary policies even at the expense of recession or worse. But that’s Germany, and Teutonic sacrifice to keep out demon inflation is increasingly not the priority of a vast number of other Europeans.

As recent elections have illustrated in France and Greece (still struggling to create a coalition government to move forward, threatening that country’s ability to remain in the Eurozone), German austerity values focused on currency stability are not particularly popular in much of Europe these days. In Spain, where austerity measures have made a bad employment situation worse (with a quarter of all workers jobless), a wave of M-15 (May 15^th – the date the austerity measures were implemented in 2011) protests rocked the nation as thousands of protestors took to the streets in 80 cities across the land.

Even worse, within Spain, some regions are facing imminent collapse: “Underlining the extent to which Spain is fighting the economic crisis, the national government in Madrid warned … that it might need to take over the finances of Asturias, a northern region, because of concerns that the government there cannot meet deficit-cutting targets. Spain also announced further measures to shore up the banking sector, just days after seizing control of Bankia, the largest and most troubled mortgage lender.

“‘Taxpayers will now be paying for Bankia and all the others, while the greedy people who have been paid massive salaries to run them will just continue to enjoy themselves,’ said Juan Márquez, a 23-year-old student…Since taking office in December, Prime Minister Mariano Rajoy has announced billions of euros of additional spending cuts to lower Spain’s budget deficit to 5.3 percent of gross domestic product, from 8.5 percent last year. On Friday, however, the European Commission warned that the Spanish deficit was likely to hit 6.4 percent this year.” New York Times, May 13^th.

With productivity tanking as austerity accelerates, the cherished measure of economic progress – the ratio of debt to GDP, which is hardly improving as austerity-proponents have suggested would happen – seems to illustrate rather severe reality that Europe is in worse conditions than before the austerity programs began. Proponents say that situation would have been worse had austerity not been implemented, and that medicine takes time to work.

Still, the newly-elected European leaders are seeking to prioritize growth over currency stability. They want to see government expenditures to create jobs, including retraining and education programs to prepare their youth – where unemployment is staggeringly high – for a productive future. Europe’s pocketbook – Germany has the greatest ability to support the financial requirements for any policy shift – has repeatedly signaled a refusal to relieve countries that accepted rescue packages from lifting some of the austerity measures that were conditions to such support. But are there signs that this German rigidity might be weakening?

Chancellor Angela Merkel’s conservative Christian Democrats suffered a stinging defeat in mid-term local elections, most recently in North Rhine-Westphalia, where a more-leftist Social Democrat easily defeated his Christian Democrat in parliamentary elections. “Ms. Merkel’s party has performed poorly in numerous recent state elections. [In early May], the Christian Democrats were ousted from power in Germany’s northernmost state, Schleswig-Holstein. The next federal election is scheduled for September 2013, but the recent defeats have led commentators to speculate that Ms. Merkel could be forced into an early election… Voters across Europe have expressed growing displeasure with Ms. Merkel’s path, punishing the mainstream parties in Greece that signed the country’s loan agreement with foreign creditors, which required deep spending cuts. In France’s presidential election, François Hollande defeated President Nicolas Sarkozy, Ms. Merkel’s close ally.” NY Times.

For those of us in the United States, where austerity measures have been passed but will not be significantly implemented for some time, the backlash to a crumbling standards of living and rising unemployment – necessary components to any major deficit-cutting effort – may crush American proponents of such efforts when Americans finally experience what such deficit-reduction measures really mean for them, particularly with no concomitant increase in taxes for rich or collection of the billions and billions of dollars sitting in corporate coffers overseas to avoid U.S. taxes. And without massive cuts in defense-spending and comparable increases in education, infrastructure and research allocations, the growth we need to pull ourselves out of this economic malaise will never materialize. I watch with horror as my own California, struggling with higher-than-anticipated budget deficits, looks to another round of education cuts at a time when California needs a future more than ever.

I’m Peter Dekom, and I am seeing an increasing trend among American voters to champion slogans without the slightest understanding of how their lives will be slammed when that meaningless rhetoric becomes law.