Teutonic Values and European Lives

Markets crashed all around the globe. Some argued that six years of an ascending global stock market is about as much as a system can take without a normal cyclical adjustment. Others suggested that the years of adherence to programs of severe austerity – the German prescription for what ails Europe – have ground growth and hope into the ground, downgraded average European standards of living and contracted Europe as a marketplace for goods and services produced by the United States, China and other exporting nations. In part the percipient drop in the American markets were linked to instability in Ukraine and the Middle East, China’s slight downward growth numbers but most significantly to Europe’s apparent inching ever-so-close to another big recession.

Reputable economists are beginning to write off Europe as an economic survivor in the big reset. And while some believe that the worst is over for bailout-driven southern European players like Greece, others are suggesting that these “bottom of the ladder” economies are a very, very long way from anything that represents meaningful recovery. Absent additional bailout funds, the cost of borrowing for these lower-echelon countries is rising fast.

While tax collectors have clamped down in traditional southern European scofflaws, some of the wealthiest citizens are so well sheltered that they still laugh at efforts to tax their income or wealth. But tax avoidance is becoming an international pastime, with big companies playing that field with unbelievable success. Ireland has incurred global wrath as negotiating absurdly low corporate tax rates with mega-conglomerates and cooperated in creating a legal system that allows these big companies to repatriate earnings from their high-tax-rate home countries to inexpensive Ireland.

So much of American corporate profitability, for example, is locked into Ireland, avoiding almost all of the tax liability that should be imposed based on American operations. Corporations have become mobile and nimble in avoiding taxes and letting the workers in their home countries carry the tax burden.

In Europe, it has been the slashing of government budgets, laying off of massive numbers of government employees, hiking tax rates, pulling back on services to their people and halting infrastructure building/repair as well as any form of growth investment simply to adhere to austerity/ government debt limitations set by the European Union under German leadership. Since recession seems to be back on Europe’s doorstep, there is rebellion in the ranks against this seemingly-failed Teutonic austerity program.

Financial leaders from Asia and Europe gathered for a conference in Milan on October 16^th to drill down on these harsh realities that have shaken global markets to their core. With all of the factors discussed above pressing seem into the heart and soul of global stability, “The divisions between Europe’s leaders, at a moment when unity would seem critical, is one reason the markets are rattled — as well as the fact that policy makers still have not found a tool to revive growth in the face of staggering public debt… The prospect of another European financial crisis can only bring an unwanted sense of discomfort for Washington and the rest of the world…” New York Times, October 16^th.

That accumulation of debt still terrifies inflation-fearing Germans. Historically-driven, these fears have also led most German investors to favor savings accounts and annuities over investing in stocks, so they can tolerate recession but cannot accept any risk of hyper-inflation which they believe is a probable result of too much national debt. A stable and predictable currency is their holy grail. But so much of the rest of Europe simply rails at the lifestyle and growth restraints that follow from such programs of austerity.

“In past years, however, the eurozone nations buckled under to German demands to slash budget deficits and roll back public services, and then watched in dismay as unemployment rates shot into the double digits and growth collapsed. Now, France, Italy and the European Central Bank have coalesced into a bloc against Chancellor Angela Merkel of Germany, and they are insisting that Berlin change course.

“‘We need to show that Europe is capable of investing in growth, and not only in rigor and austerity,’ said the Italian prime minister, Matteo Renzi, speaking to reporters outside the conference center after presiding over the opening of the meeting. He described the international financial situation as ‘very delicate’ and said Europe had still not earned the confidence of international markets… ‘As the I.M.F. has said, we need to focus on growth,’ he said, referring to the International Monetary Fund.” NY Times.

While we are partially insulated from this spreading European malaise, the combination of other major issues, from ISIL to Ebola, from Ukraine to bubble fears in China, suggest that we are going to be impacted by Europe’s inability to solve its own economic crisis. And for Americans, we are also going to have to address the eroding quality of new jobs (and pay), our plummeting educational performance ratings (which impacts our value-creating future jobs), the extreme cutbacks in government-funded research (Ebola, anyone?), student debt, unfunded state and local pensions and our inadequate and crumbling infrastructure.

If our government were to commit to addressing these inadequacies and making the necessary (job-creating)investments in our own future, we could smile with a bit more confidence, but we too may be done in by the under-analyzed long-term impacts of our own proclivity to cut budgets without looking at the consequences.

I’m Peter Dekom, and I find it puzzling why we cannot learn from the mistakes of others and have to learn everything the hard way.