Finance – The EU Fails
We are at a unique point in the history of modern civilization. A large chunk of the civilization, Europe, is collapsing before our very eyes. It could take the world economy down and nobody seems to really be paying much attention to it.
Many people are unaware the EU was actually an idea that arose following World War II. The idea was to create a unified economic power that would also make it less likely that certain countries in the union would attack each other.
The European Union may have seemed like a pretty good idea at the time. Well, it was. Unfortunately, the actual agreement fell far short of what needed to be done. Governments were only partially connected, which we are seeing now as a fatal flaw.
To see this problem in action, consider Italy and Germany. Italy is beyond corrupt, runs huge deficits and is a complete fiscal disaster. Germany pursues conservative economic philosophies and keeps its debt low in contrast.
What do we see today? Italy is on the edge of default and needs trillions to stay afloat. Who has to pay for it? Germany. As you can imagine, this concept is not very popular in German in either a practical or political perspective.
The problem for the Europeans in keeping this together is there are now too many parties with too many agendas involved. Countries in serious debt don’t want to go the austerity route, but countries that will have to pay for this meth are demanding it.
To understand the problem, look back a few years across the pond. The U.S. passed TARP to save itself and that was nearly impossible to do. That was just one Congress. On top of that, we now know Ben Bernanke had to pump 7 trillion dollars into the economy.
Across the pond, we see a much more difficult situation. There is no strong central bank. On top of this, any change to the EU treaty requires that all 25 countries agree on the changes. What do you think the chances are of getting that done?
At this point, you might be wondering why all of this matters given we have already dealt with our own crisis. Well, globalization means you need to care. The problem is Europe is our biggest export market. If demand dies there, so does our recovery.
Then there are the banks. The banks of the United States and Europe are intertwined. Many worry that failed banks in Europe would bring down the banks in the United States as well. If that happened, we could be looking at a world wide depression. That should keep you up at night.
The bond holder threat that has Italy by the short hairs is also a threat to the United States. When bond holders discover the United States is not disclosing 6.4 trillion in additional debt, they could do the same thing.. Also published at Finance – The EU Fails.
January 27, 2012 | Posted by Barry Thompson
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