By Tom Kando
The European sovereign debt crisis is becoming scary. The dominoes are falling. The contagion has spread from Greece to Italy and beyond. Even France’s credit-worthiness has begun to crumble. No one is safe any more. Even Germany does not have the limitless resources required to bail out the rest of the Continent. There is a vicious cycle of increasing borrowing costs for everyone, a decrease in the availability of credit, a slowing down of the economy and a decline in the governments’ solvency.
So we now hear from highly knowledgeable economists that the dissolution of the Euro is at hand. The dream of a unified Europe comes crashing down. Personally, I find this terrible. It gets me angry. As I see it, the European collapse is undesirable and unnecessary.
Facts: Overall European indebtedness is less than half of what it is in the US and in Japan! The combined debt of the 17 governments in the Euro Zone is 8.6 trillion, or 87% of their combined GDP. Much less than America’s or Japan’s. The average government deficit is 4.4% of GDP. America’s and Japan’s are twice as large.
But Europe is the one that is breaking up. Why? Because Europe isn’t a country. Unlike the US and Japan (or Britain), when a European country - mostly the “PIGs, countries such as Portugal, Italy, Greece, Ireland, Spain - runs into debt trouble, it can’t print money to get out of its difficulties.
It is anarchy. It’s as if two spouses shared a bank account, but when the wife overspends far beyond her means, her husband is not responsible for her debts.
There is one solution to the “Euro” and the “Europe” problem which seems unbelievably simple, yet it is opposed by many people, both on the PIG side and on the side of strong countries such as Germany and the Netherlands: It would be the further political and economic unification of Europe.
There is only one alternative to Europe’s break-up, and that is much more Europe. In other words, the integration of Europe. Europe must become one country, comparable to the US and Japan. To begin with, the debt would be shared. There would be Eurobonds, similar the US Treasury bonds.
Sorry, you guys in Holland and Germany. I know, you have been good, and the Greeks and the Italians have been bad. But are you therefore prepared to abandon the dream of a unified Europe, a return to the continent’s dark and fractious past?
Even now, German Chancellor Angela Merkel says that she finds Eurobonds unacceptable, that there cannot be “a common liability for the debts of others.”
I am reminded that the situation is not so simple, and that I overlook the other side of the issue: For one thing, pooling the debt together will not force the pig countries to borrow less and to balance their budgets. It will intensify their borrowing and make things worse. The only way Eurobonds would work is if all countries gave up a large part of their sovereignty, letting Brussels dictate how they will spend the borrowed money. Which is unacceptable to most European countries.
Maybe a smaller EU is not such a bad idea. It was too ambitious to begin with. Greece (and others) could re-apply when they have proven to be responsible members. What’s so holy about preserving the Euro, anyway?
So there you have it - two perspectives. Will we see the emergence of a strong club of, say, Holland-Germany-Finland, and a bunch of weaker clubs/countries in the South?
To me, this would be a tragedy. The correlation between European unification and its unprecedented level of prosperity, peace and stability is unquestionable. Unification has brought immense benefits. It transformed the Continent from a ravaged, violent, starving, war-torn region into one which enjoys the world’s highest quality of life (superior even to America’s). The fragmentation of Europe puts all this at risk.leave comment here
Thursday, December 8, 2011
By Tom Kando