In Name Only

Euro zone? Elections in Greece between candidates who wanted to reject the austerity measures entirely or at least significantly renegotiate those terms (the latter narrowly slid by), Spanish banks surviving only because of a huge bailout from the EU, German voters growling that they will not sacrifice their economic wellbeing to save Europe, their Chancellor Angela Merkel telling the us that the world has overestimated Germany’s ability to do so anyway and that austerity takes a long time to work, and a new French President – who brought down the former President who towed the German line – who is rejecting that austerity vector with a cry for measures to instill new growth into the euro zone, Irish politicians, having just convincing their voters to accept mandated austerity measures, are crying foul at Spain’s relatively light restrictions, and Italy looms dark as the next big PIIGS to fall. What a mess.

Greece, which apparently manufactured national economic statistics just to get into the EU in the first place, seems powerless to force their richest citizens to consider repatriating funds and paying taxes and has absolutely no chance of repaying its new bailout debt, since growth is completely non-existent in this ancient land. Spain’s unemployment numbers hover at 25%, while Greece’s rate has rising to almost 22%. The quality of life in the PIIGS is somewhere between miserable and unbearable. Despite all the rhetoric of uniting these economies into a more functional and centralized union – clearly what was intended in the first place – the euro zone has deteriorated to a “every country for itself” plague that suggests that the common economic union and shared currency are merely unsustainable fictions bound to unravel more than unify to solve the problems at hand.

On paper and in the press, EU leaders are pressing for a new centralized governance of banks throughout the entire zone, standards and controls that will solidify European banking across the entire zone, to recreate global confidence in Europe’s financial sector. “[O]n the ground in the euro zone, there seems little appetite for such a compact right now. In fact, banks and their national regulators, anxious about the Greek elections and Spain’s hastily arranged bailout, are behaving more parochially than ever… That poses a threat to the interbank lending across borders that is crucial to maintaining liquidity — the free flow of money that is the lifeblood of the global financial system… French and German banks have clamped off much of the lending to their counterparts in Italy and Spain, which in turn are mainly giving loans only to their own debt-strapped governments.

“And in Madrid, even after European finance ministers agreed to a €100 billion, or $125 billion, rescue of Spain’s failing banks, the always proud Spanish government is insisting that it — and not Brussels bureaucrats — will take charge of how and where the funds are deployed… With interbank cooperation at perhaps its lowest level since the creation of the euro currency union, European officials say they are moving toward a broader solution… Experts warn, though, that what is needed now is not another working paper proposing new levels of euro-bureaucracy, but a clear action plan that addresses the root issue: Markets and investors have lost faith in Europe’s ability to regulate its banks.” New York Times, June 17^th.

Oh, European leaders at the Central Bank talk about a new “grand plan” to stabilize the zone, but talk is cheap at a time when the entire global economy could be sent reeling back into a recession, this one clearly to be blamed on Europe’s rather complete inability to deal with a crisis of its own making. “The plan will include measures to prevent bank runs and reduce what has become a vicious cycle of government debt problems turning into banking crises, as has happened in the past two years. In addition, the plan will push for countries to remove the regulations and layers of bureaucracy that inhibit competition, keep young people out of the work force or make it difficult to start a new business… The goal would be to make the euro zone less vulnerable to crises and better able to grow its way out of the current debt crisis. But it is unclear whether yet more pledges of reform, which would face significant hurdles, will calm financial markets.” NY Times, June 16^th. “Unclear”? You’ve got to be kidding! Even assuming there were sufficient willingness at the local level to accept the parameters, such a plan would at best take years and years to implement. Who is going to give an ounce of credit to Europe for that?!

The totally unrelated ways different regions look at the world remind me of the four blind men sensing an elephant for the first time through touch. The rather fundamental disparity in how Greeks and Spaniards view life when compared to Austrians and Germans would seem akin to convincing ants and grasshoppers that they are the same species. Is the euro zone sustainable? If it falls apart, is a deep global recession inevitable? If it cannot come to terms with this debt crisis and a failed effort to reignite the European growth engine, is at least a mild global downturn likely? And what exactly can be done as the devastation of Father Time eats away at the solutions?

I’m Peter Dekom, and that the world is simply one giant reactive economy has its blessings… and its detriments.