The Euro Crisis and the Golden Rule

I’m amazed at how long it has taken our European friends to realize what reality looks like.  It’s as if they got into the Christmas cheer back in 1989 and never got out.  If you recall, that was the year the two different Germanys danced on the wall and all was well with the world.  At that time, the idea was that without a bothersome Iron Curtain messing things up, Europeans could finally learn to live with each other and become the superpower they were always meant to be.  This has been Europe’s elusive dream ever since Hadrian ruled all the good bits of the continent at the high-water mark of the Roman Empire.  The cunning plan was to slowly integrate everything from the North Sea to the Mediterranean and create an economic powerhouse that would fear nothing in its path.  What a difference a generation makes!  These days, the Germans aren’t dancing anymore — and neither is anybody else.  The grandiose schemes of 1989 got waylaid — for good and sufficient reason.  Europe is now on the brink of a catastrophe that would make the fall of the Roman Empire look like a minor inconvenience.  So, after only twenty years to think about it Europeans are suddenly looking around for — as Monty Python once said to an astounded television audience — “Something completely different!”

Even as you read this, Merkel and Sarkozy are discussing (plotting is such a hard word) ways to take over Europe.  In the 3,000 years of recorded European history, there has never been such a reluctant power grab.  Neither one of them wants this (although Sarkozy has that suspect Napoleon thing going on) but at the end of the day, they have no choice.  They have to do it.  It’s either that or there isn’t going to be a Europe to take over.  Time is running out, so whatever they do had better be big and bold and work right out of the box.

You need to understand something about the European situation before you can understand what Merkel and Sarkozy are up against, however.  There’s a difference between the European Union and the Euro zone.  Not all countries in the European Union use the Euro.  Great Britain, Denmark and Sweden among others, still use their own pounds, krone or what have you.  Therefore, their stake in the game is quite different.  Even though their national currency is not going to be at the epicentre of the financial earthquake, the non-euro EU members are obviously going to take a serious kicking if the Greeks, Italians and Spanish hit the fan.  Plus, they’re probably going to be on the hook for any attempted bailout.  You don’t have to be a Euro sceptic to see more liabilities than benefits.  If things in Europe aren’t fixed pretty quickly, there’s a real danger that a lot of people will be wondering just how much this Euro experiment is actually worth and they might even start looking around for the exits.   Merkel and Sarkozy already know that it’s not just the Euro that’s at stake here but the future of the European Union itself.

Merkel and Sarkozy need to forget about integrated economies, long term solutions, ECB realignment, blah, blah, blah, and restore some confidence in the Euro – today.  The Euro is an unusual currency.  Like the magician’s assistant in the levitation trick, there’s nothing holding it up.  Whole books have been written on what the Euro is and isn’t, but they all boil down to the same thing – faith.  The Euro is based on the simple idea that 400 million Europeans are willing and able to pay.  That’s it.  The Euro is in such dire straits right now because nobody believes that anymore.  The big money boys are looking at the balance sheets and thinking they’re about to get left holding the bag — and it’s going to be full of useless paper.  Therefore, like Sunday morning evangelists, Merkel and Sarkozy need to convince them that as long as they keep the faith, they’re not going to go to hell.

The only way they can do that is quit applying billion dollar band-aids and lay down a heavy duty set of rules.  As of this morning, the nations of the Euro zone need to start taking their fiscal marching orders from the bureaucrats in Berlin.  It’s the only way the banks are ever going to refinance the ridiculous mortgage the Europeans have saddled themselves with.  If Germany and her little sister, France, are willing to co-sign an unlimited line of credit to the southern half of the continent — and put up their taxpayers as collateral — they need to have a serious repayment plan.  Otherwise, they are just going to be sucked into the bottomless financial pit the Europeans have been digging down south.  This isn’t about national sovereignty or petty politics; it’s cold, hard economics.  Anything less and the crisis just deepens and threatens the European Union itself.

Merkel and Sarkozy have got to get tough and invoke the Golden Rule: We make the gold; We make the rules.

The European Crisis Just Went from Bad … to Better

Just as we see the Arab Spring turning  brown in the Moslem Autumn, brace yourself because we’re about to experience a cold, hard European Winter.  In the last couple of weeks, our friends, the Euro spenders, have finally woken up to their financial debacle, and nobody’s made the coffee.  Austerity is the watchword, and there’s about to be enough tough love around to make everybody south of the Alps think they’re in rehab – and, to a certain extent, they will be.  There’ll be the usual demonstrations and condemnations, but march and chant all you want, people: the party’s over.  Let the hangover begin!  That’s the bad news.

The good news is for the first time since the EU bailiffs threatened to put a lien on the Acropolis there is actually some light at the end of the tunnel.

A couple of weeks ago, the Greek Tragedy took a definite turn for the better when Papendreou, the Prime Minister, decided to step down and collect his pension — before it disappeared entirely.   Remember, this is the guy who was going to hold a referendum to see if his fellow citizens, rioting in Athens, would vote yes to a couple more brutal kicks in the financial groin.  Not the sharpest skewer in the souvlaki, he was replaced by Lucas Papademos, who — believe it or not — is actually an economist.  Fancy that!  Hiring an economist to deal with a financial meltdown!  Who says the Greeks haven’t done dick since Pericles?

Around about the same time, over in Rome, class clown Silvio Berlusconi was given his walking papers, complete with dancing in the streets.  Apparently, somebody took time away from eyeballing Ruby Rubacuori and took a gander at the books.  As of this morning, Italy is a little over two trillion dollars short of a down payment on a cappuccino.  In other words, they’re up to their Armanis in debt, and this time, bread and circuses aren’t going to save them.  “Bunga, Bunga” retired gracefully, rather than be thrown to the lions, and he was replaced by Mario Monti.  Once again — wonder upon wonders — the guy’s an economist!  He better be a good one.

The third domino to fall happened in Spain on Sunday, November 20th, when Spanish voters returned the right-of-centre Partido Popular to power after a seven year absence.  As you recall (or maybe you don’t) the Spanish electorate tossed the PP out of power in 2004 when the Jihadists made it clear which way they wanted the vote to go — with a couple of commuter train bombings in Madrid.  For the last seven years, Jose Luis Zapatero and The Spanish Socialist Workers’ Party have been running the show with (to be fair) mixed results.  Unfortunately for the socialists, the only results the Spanish are hearing these days are 20% unemployment and a national debt big enough to choke an Andalusian stallion.  Zapatero saw the escritura on the wall and retired from politics.  Mariano Rajoy is in charge now, with a majority in the Cortes Generales and a mandate to clean up the mess.

Suddenly, all of Europe has turned a conservative blue.  (Just a note to my American friends.  The traditional political designations around the world have always been conservative blue and liberal red — just as they used to be in the United States.  It’s only the recent media manipulation of the colour wheel on election night maps that has changed the colours to Red states Republican, Blue states Democrat.  Coincidence? I think not, but that’s fodder for another blog.)

Anyway, as of last Monday morning, every government west of the Volga (with the exception of Slovakia – don’t ask) is either centre-right or out and out right of centre – in a word, fiscally conservative.  Granted, in European politics, right wing doesn’t mean much until you get to the nutsy fringe, but at least these folks understand that if you have two Euros, you don’t spend twelve.  Obviously, the European crisis is so massive even the most conservative government is going to have to tax and spend more than they want, just to keep the wheels rolling.  However, by understanding the simple accounting principle that the books have to balance eventually they may be able to stop the deficit haemorrhage.  More importantly, during the heated discussions between north and south that are about to ensue, with any luck at all, nobody will be throwing their political monkey wrench into the economic machinery.   It helps that, even though these Euro zone leaders aren’t necessarily all on the same page, at least they’re all finally reading from the same book.

Like it or not, if these new governments do it right, it’s going to be a hard, cold European winter. Unfortunately, there isn’t any second choice.  It would be a fatal mistake to think there is.

The Sky is Falling: Let’s Eat the Rich!

According to NASA and the Federal Reserve, the sky actually is falling.  Apparently, UARS, a weather satellite that ran of gas in 2005, has slipped its leash and is about to come home — at about a million miles an hour.   NASA is pulling a Napolitano, though.  (“We don’t know where.  We don’t know when.  But something terrible is going to happen.”) They haven’t told anybody when this five tonne ET is going to come sailing in – or more importantly, where.  Actually, they don’t know.  It is kind of important, though; especially since NASA says around 500 kilos of it is going to make it to the crash site.  I, for one, would kinda like to know when to duck.  The betting boys in Vegas aren’t talking, but according to NASA itself, there’s only a 1 in 3,200 chance of me getting brained by extraterrestrial debris, so that’s somewhat reassuring.

One the other hand, the Federal Reserve isn’t even giving odds on my financial well being anymore.  Their boldest reassurance so far amounts to “significant downside risks.”  Let me translate: we’re screwed.

In the next few years, the odds of any of us not being touched by this world-wide economic debacle are zero.  Our best plan of action is to get our personal financial house in order and hope the stupid wears off our political leaders before it’s too late.  While I’ll grant you the enormity of our collective debt didn’t just show up last Wednesday, it’s the responsibility of those who govern us now to start killing alligators – we can drain the swamp another time.  The problem is the leaders of our time remain blind to the economic realities that face us.  Not only that, but their Win-Win-Everybody-Gets-A-Rainbow political philosophy is seriously getting in the road.   I’m not sure what Fantasy Island Merkel, Papandreou, Obama and the others have checked into, but they better start thinking about coming back to the real world while the planes are still flying.  Sunshine and lollipops aren’t going to do us much good when all the airlines are bankrupt.  I hate to keep harping on it, but the delusionary air circulating in the halls of power has convinced most of the politicos that this economic crisis is the same in kind as every other one we’ve faced since the Arabs turned off the gas in 1973.  Guess again!  It’s not!

To be perfectly blunt; this time we’re broke.  The United States, the UK and Europe haven’t got the price of a Big Mac among them; forget fries and a beverage.  We are so far in debt even the guy at Sham Wow wants cash.  Here are the numbers: the United States, 13.9 trillion dollars; the EU, 13.7 trillion; Britain, 8.9 trillion.  That’s how much we owe!  And everybody knows it.  There isn’t a money person on this planet right now — from Madame Lagarde at the IMF all the way down to Ron the teller at Rubberboot Savings and Loan — who doesn’t understand we are facing a financial Armageddon.  They’ve been yapping about it for a couple of years now.  Yet — and here’s the sharp stick to the eyeball — not one world leader is willing to publically admit it or, more importantly, do something about it.  The best we get out of our fearful leaders is some old same old, borrow, tax and spend stimulus package.  The latest incarnation is “Let’s eat the rich!”

Here’s some arithmetic (It’s not even math.)  According to Forbes, there are 10.5 million millionaires in America.  If Obama taxed (took) each one of them an extra one million dollars (which, by the way, would wipe a lot of them out) he’d get only 10.5 billion dollars.  Likewise, there are 412 billionaires kicking around.  If Obama extra-taxed them a billion dollars each and added that to the original scam, he’d still only have 422.5 billion dollars.  Everything being equal (and if the accumulating compound interest stopped this very second) it would still take America well over 30 years to pay off their current IOUs.   Meanwhile, over in the European forest, Merkel, Sarkozy and Cameron don’t have near as many millionaires to sic their tax men on.  So, it would take them even longer to get out of the poorhouse.  Plus, there’s no guarantee what these financial Einsteins are going to do with the money after they collect it.   It might never see the debt.  It might end up buying muffins at a Justice Department Conference – perhaps with coffee and a nice piece of fruit.  Quite frankly, the track record so far isn’t all that good.

There’s only one way to get out of this money pit we’ve dug for ourselves.  Quit spending so damn much!  We need to stop the dollar haemorrhage immediately.   It’s no secret that government – any government – wastes enough money to keep a small planet going.  It has to stop.  This means deep and drastic cuts to the vast majority of government programs.  There will be weeping and wailing and threats for the next election.  After all, it’s very difficult to convince people they can no longer have the things they think they’re entitled to.  But we have to do it.

Unfortunately, our leaders have been taking the easy way out on this for years, that’s how we got in this mess.  Now, instead of judicious trimming, we’re going to have to cut to the bone just to come out about even, and nobody’s going to like it.  However, for every day we delay, the cuts are just going to get deeper.  There’s no quick fix, folks; I don’t care what the politicos think they can get away with.

Like it or not, the financial sky is falling, and the chances of you getting hit are 100%.  Believe me: it’s better to go outside and get it over with than spend the next ten years being pelted to death by little pieces.