As we Americans spent the last weeks of November with family and turkey while contemplating the repercussions of the fiscal cliff, our European cousins had another depressing week of bad economic and fiscal news. Battles boiled over which constituency was entitled to whose money as the Eurozone continued to squabble over how to extract enough meager wealth to prop up several flailing welfare states while maintaining the confidence of their angry voters.
Fiscal meltdown attention has temporarily shifted away from Spain, while Greece again regained its perennial spotlight with continued negotiations over Athens’ next bailout and partial default in exchange for further austerity.
However, before Greeks could return to Brussels hat-in-hand, a chasm surfaced between the nation’s creditors when International Monetary Fund (IMF) director Christine Legarde rejected European Union (EU) and European Central Bank (ECB) officials’ pleas to allow Greek debt to gross domestic product (GDP) ratios to stay above 120 percent until 2022 versus 2020. Still, with a shrinking economy and eternally higher debt now at 140 percent of GDP, attainment of even the most pessimistic Greek debt reduction goals looks about as likely as Michael Vick becoming president of PETA.
More ominously, continued bailouts and austerity make both the governing coalitions of German Chancellor Angela Merkel and Greek Prime Minister Antonis Samaras more fragile as opposition politicians use the protracted crisis as a weapon to promote anti-bailout and anti-austerity challengers. Eventually the prospect of another decade of German-mandated Greek austerity will likely bring the growing Maoist-inspired Greek Syriza party into power and, by rejecting further austerity, torpedo the intended solution to Greece’s sovereign debt crisis.
Meanwhile bailouts continued the transfer of wealth from prudent northern countries to other profligate peripherals.
The small island nation of Cyprus claimed to have secured up to €17 billion ($22 billion) in bailouts, equal to the country’s annual GDP, only to be contradicted by Eurozone bureaucrats who denied any finalization of a deal. On the other end of the continent, Spain accepted €35 billion ($45 billion) in nationalized bank bailouts in exchange for thousands of layoffs, who will soon join a quarter of the nation’s workforce on the unemployment rolls.
Other economic news is still worse.
With governments across the continent desperately groping for tax revenue, the Eurozone economy shrunk for the second quarter in a row, confirming that the slump looks to be chronic and not temporary. Another report confirmed Eurozone unemployment touched a new high of 11.7 percent.
Even some of the less unhealthy economies of Europe are quivering before their debt chasm. Citing factors such as an ossified labor market, loss of competitiveness, and structural economic problems, the credit rating agency Moody’s slashed French credit from its prestigious Triple-A, which signalled a shot-across-the-bow for other core Eurozone economies.
Meanwhile, French unemployment hit a 14-year high and Socialist President François Hollande ripped a page from the Hugo Chavez playbook by threatening defiant cooperations with nationalization.
Back in Spain, the equally bankrupt autonomous region of Catalonia seems to have had enough of Madrid’s fiscal shenanigans and, notwithstanding a €5 billion ($6.5 billion) bailout request to the national government in August, now seeks a divorce. Despite Spanish vows to block the independence drive, Catalan voters delivered victory in local elections to separatists who promised to hold a referendum on the issue.
More drama is sure to follow.
Finally, the famed stiff upper lip of British politicians froze into a perpetual frown as they walked out of a meeting intended to secure £13.8 billion ($22 billion) in British funding for EU governmental operations. These British Members of the European Parliament (MEPs) balked at Brussels’ insistence that the U.K. fund higher EU expenditures all while pontificating to Greece and others over notions of austerity.
Britons seem to be increasingly fed up with the games of their continental neighbors, and popularity of a British EU exit is gaining strength.
For the U.S., these European troubles are a blessing in disguise, since they foretell our own fiscal and monetary future and allow us to watch the consequences of our own free-spending ways. As if we possess a crystal ball, we can observe what happens when welfare states rack up more debt than their creditors believe they can ever repay.
The driving force behind this predictable crisis is debt, and as the most bankrupt nation in a bankrupt world sinks under a trillion dollars of new debt each year, we need only to wonder “when” and not “if” we will be afflicted with similar chaos.